Nikhil KamathIf UPI Is Free, Who Pays for It? | PhonePe, Razorpay & NPCI | WTF is Payments?
EVERY SPOKEN WORD
150 min read · 30,003 words- 0:00 – 2:23
Introduction
- NKNikhil Kamath
[upbeat music] The entire history of money has been one move, repeating. Money keeps getting lighter. It started as grain and cattle, something you grew or herded or could physically run out of. Then it became gold coins stamped by kings, so heavy with meaning that entire empires ran on the weight of it. Gold became paper, a promise, instead of the metal itself. Paper became plastic, and in India, money became a sound. The next move for money might be the strangest one yet, something I've asked so many people, but nobody knows clearly. If you were to ask an AI data center person, he would probably say, "Money is moving to energy." I don't know which way this will play out. Maybe there is a business to be built around betting what that change might be. Grain, gold, paper, plastic, stablecoin, things on the blockchain, and I'm sure it'll change tomorrow as well. Today, I'm talking to people who built the last version of this story, the people who turned money into a sound. Sohini is the executive director of growth at NPCI, the organization behind UPI. Harshil Mathur is the co-founder of Razorpay. Sameer Nigam is the founder and CEO of PhonePe. We'll get into their journeys, the wins, the losses, the years nobody was watching, and where the next move in this history gets made. Because if you want to understand how India spends or how to build the next big thing in this country, there's no one better place to teach you than the three people who will be sitting across from me today. Should we start by drawing a d- diagram of the different kind of payments and map out how it began? [upbeat music]
- 2:23 – 9:40
Sohini Rajola: Her journey and NPCI's role
- NKNikhil Kamath
Okay, thank you guys for coming and doing this. So let's begin with introductions and, uh, who would like to go first?
- SRSohini Rajola
Okay.
- NKNikhil Kamath
Okay.
- SRSohini Rajola
I can go first. Uh, so we'll start from the very beginning. So I was born in Rajasthan, uh, went to this lovely school in Jaipur, school and college both actually initially in Jaipur. Um, and then went, did my MBA at this exclusive college for defense personnel and their dependents only, Symbiosis in Pune. Um, joined a bank, Axis Bank, spent, spent about 18 years doing lots of interesting non-core bank kind of things, so all of payments, all of digital, all new initiatives. So, uh, you know, I think that was kind of the grounding. Then went and ... Oh, before that, actually, in college, uh, um, met my boyfriend and then now husband, my husband for more than 25 years now. Um, then went to, uh-
- NKNikhil Kamath
What's his name?
- SRSohini Rajola
Sitesh. Yeah.
- NKNikhil Kamath
Is he a regulator?
- SRSohini Rajola
No. [laughing]
- NKNikhil Kamath
[laughing]
- SRSohini Rajola
More the moderator [laughing] than the regulator, I think. But yeah. Uh, then, um, I worked in, uh, Western Union, the money transfer company, that took me across, uh, the shores. Spent some time, uh, learning about a lot of different countries and the way businesses are run there. And, uh, almost like full circle, came back last year, um, to come and lead growth for NPCI, which actually can be a little interesting because how do you grow a company which is already doing, like, roughly a billion transactions a day? So I'm still figuring that one out. Uh-
- NKNikhil Kamath
Is it a government posting or is it, like, private sector?
- SRSohini Rajola
You know, that's a very interesting question.
- NKNikhil Kamath
Sh-
- SRSohini Rajola
Almost everybody asked me that question when I was joining as well, to say, "So are you going to be working for the government?" My father wanted to know if I'll get a white ambassador-
- NKNikhil Kamath
[laughing]
- SRSohini Rajola
... with the, with the Ashok thumb on it or not. Unfortunately, no. Um, so it, it, this was formed by RBI and IBA.
- NKNikhil Kamath
Mm.
- SRSohini Rajola
Uh, so it's set up as a not-for-profit.
- NKNikhil Kamath
Mm.
- SRSohini Rajola
Um, and yes, there is an element of us working b- because it's a digital public infrastructure, so we work for, we work with closely with the government and the regulator.
- NKNikhil Kamath
It's a Section 8 company, right?
- SRSohini Rajola
Yes, it is. It's set up as a not-for-profit.
- NKNikhil Kamath
Who funds it?
- SRSohini Rajola
Uh, so it was set up, uh, with an initial funding of 100 crores.
- NKNikhil Kamath
By?
- SRSohini Rajola
Uh, by 10 banks.
- NKNikhil Kamath
Mm-hmm.
- SRSohini Rajola
Um, and, uh, now actually after that, it has generated enough surplus because it's a, you know, it's not profit and it's not returned back to the shareholders, but all of the growth and the investments in the tech and the infrastructure and everything has been kind of self-funded over the-
- NKNikhil Kamath
Do Section 8 companies have shareholders?
- SRSohini Rajola
Yes.
- 9:40 – 14:11
Banks, fintechs and digital banking
- NKNikhil Kamath
did the Axis Bank, uh, experience teach you?
- SRSohini Rajola
Oh, a, a lot of things, actually. So-
- NKNikhil Kamath
Are banks becoming irrelevant? I've thought about this. To a certain extent, regulation is harder for them to compete-
- SRSohini Rajola
Mm
- NKNikhil Kamath
... on a fair keel. Like, if I'm trying to borrow money on the back of, say-
- SRSohini Rajola
Mm
- NKNikhil Kamath
... private equity-
- SRSohini Rajola
Mm-hmm
- NKNikhil Kamath
... a bank is not allowed to lend. I have to go to a NBFC.
- SRSohini Rajola
Mm-hmm.
- NKNikhil Kamath
Like that, in many departments-
- SRSohini Rajola
Mm
- NKNikhil Kamath
... banks are over-regulated or regulated so much more than a fintech player-
- SRSohini Rajola
Mm
- NKNikhil Kamath
... that that less regulation itself becomes a moat for fintech players.
- SRSohini Rajola
There are many ways to look at that, Nikhil.
- NKNikhil Kamath
Mm.
- SRSohini Rajola
Because see, why are ... Uh, see, this is, you're taking one part of it in isolation.
- NKNikhil Kamath
Yeah.
- SRSohini Rajola
Because if you look at it, banks have to be regulated because the NBFC is not taking deposits from the customers.
- NKNikhil Kamath
Correct.
- SRSohini Rajola
The fact that you're taking the public money-
- NKNikhil Kamath
Mm
- SRSohini Rajola
... and then you're doing XYZ with it, you have to be regulated.
- NKNikhil Kamath
Mm.
- SRSohini Rajola
So, you know, yes, this, you can say that's the moat for the fintechs, but then there are other moats for the banks, and banks have got to leverage and work on their moats to be able to differ-
- NKNikhil Kamath
Just cost of capital, no? Do they have any other moat?
- SRSohini Rajola
No, uh, there's cost of capital. There's also, uh-
- NKNikhil Kamath
And even in that, like, what, 2, 3% lower?
- SRSohini Rajola
It's not just about 2, 3% lower.
- 14:11 – 20:36
Harshil Mathur: The problem that led to Razorpay
- NKNikhil Kamath
Okay. Harshil, would you like to go next?
- SPSpeaker
Sure, sure. And by the way, I didn't know you are from Jaipur. I'm from Jaipur as well.
- SRSohini Rajola
Wow, where?
- SPSpeaker
Yeah. I grew up in Malviya Nagar.
- SRSohini Rajola
Okay.
- SPSpeaker
Schooling in Seedling.
- SRSohini Rajola
Okay. So I went to MGV.
- SPSpeaker
Oh, nice, yeah. I mean, we spoke so many times, we didn't know we are both from Jaipur.
- SRSohini Rajola
[laughs] Okay.
- SPSpeaker
I was born in Jaipur. Uh, grew up, uh, in an average middle-class family in Jaipur. Dad was a, you know, worked in a bank. Um, so-
- NKNikhil Kamath
Manager
- SPSpeaker
... bank, he was a clerk, actually. He became a manager by the time he retired, uh, in SBI.
- SRSohini Rajola
Mm.
- SPSpeaker
And then, uh, so went to college in IIT Roorkee. Uh, was always-
- NKNikhil Kamath
Same my dad. Became a manager around when he retired. Canara Bank.
- SPSpeaker
Yeah, close to two years before he retired and so-
- NKNikhil Kamath
Yeah, Canara Bank.
- SPSpeaker
Yeah, so, because you typically get posted out of, of the city-
- NKNikhil Kamath
Yeah
- SPSpeaker
... when you become a manager, so he awarded it.
- NKNikhil Kamath
We get transferred every three, four years, right?
- SPSpeaker
Yeah, so that's why he awarded till retirement-
- NKNikhil Kamath
Ah
- SPSpeaker
... uh, till my schooling was done and all of that. So, so yeah, went to IIT Roorkee. Was always very deeply interested in computers from, like, school days. Used to code stuff on the side, but unfortunately didn't make the rank in IIT, so got into mechanical. Uh, didn't know what to do with mechanical. I have zero interest in it.
- NKNikhil Kamath
You must have got, like, ninety-nine point two percent instead of five, right?
- SRSohini Rajola
[laughs]
- SPSpeaker
Yeah, I mean, rank.
- NKNikhil Kamath
Did not make the rank. [laughs]
- SPSpeaker
Rank, so I got eighteen hundred rank. You need to get under a thousand to get computer science. Uh, so took mechanical, had zero interest in it.
- NKNikhil Kamath
Mm.
- 20:36 – 24:08
Sameer Nigam: His journey before PhonePe
- NKNikhil Kamath
You tell.
- SPSpeaker
What should I say? I am, uh-
- NKNikhil Kamath
Whatever you want to say. Mm.
- SPSpeaker
I was born in Bombay, um, into a naval family. My dad was in the navy.
- NKNikhil Kamath
Mm.
- SPSpeaker
A small town guy from UP, went to IIT. Naval architect, so I was born here. Um, I started my schooling in Germany.
- NKNikhil Kamath
Will you have coffee?
- SPSpeaker
Of course.
- NKNikhil Kamath
Black?
- SPSpeaker
Yes, sir.
- NKNikhil Kamath
Coffee? Black is good. Black?
- SPSpeaker
Coffee, yeah.
- NKNikhil Kamath
Black?
- SPSpeaker
Coffee is always welcome.
- NKNikhil Kamath
Ah. So Germany, yes.
- SPSpeaker
Ah. Um, so that was interesting. It was, like, a four-year-old kid. Learned German before I learned English.
- NKNikhil Kamath
You still know it?
- SPSpeaker
Uh, very poorly. I understand more than I can speak.
- NKNikhil Kamath
Right.
- SPSpeaker
Um, but the coolest part was, I think at age seven, when they completed India's first submarine, I got ... We all got, families got invited. We sat in a submarine at age seven. I'll never forget that in my life.
- NKNikhil Kamath
Wow.
- SPSpeaker
It was the only, only thing I remember, uh, except German, besides German chocolates. Those are the two things I took away.
- NKNikhil Kamath
Mm.
- SPSpeaker
Moved back, um, to Delhi. Spent about six years there, and then at 13 I moved back. As a teenager, I moved back to Bombay.
- NKNikhil Kamath
Mm.
- SPSpeaker
And it's the best damn place and time to move back. Uh, early 90s was fun times in Bombay.
- NKNikhil Kamath
Yeah.
- SPSpeaker
Partied a lot.
- NKNikhil Kamath
Yeah.
- SPSpeaker
Met my co-founder now, Rahul, in undergrad. Uh... [laughs]
- 24:08 – 30:28
Why young Indians want to leave
- NKNikhil Kamath
people went abroad, did MBA, a lot came back.
- SPSpeaker
Mm.
- NKNikhil Kamath
Why are they not coming back now?
- SPSpeaker
I think by seven people, the first crop of people, post liberalization who'd gone, had seen enough, and there was a view that India's digital moment will come. I think right now the macros are not in favor. I'm talking to a lot of young kids. My son's turning 18.
- NKNikhil Kamath
They don't wanna come back now?
- HMHarshil Mathur
I don't think that the peop- middle class aspirins don't wanna be here.
- NKNikhil Kamath
Hmm.
- HMHarshil Mathur
And I think it's sad. And, um, I mean, on a serious matter, I think, I think it bothers me because I came back-
- NKNikhil Kamath
Hmm
- HMHarshil Mathur
... um, I've had a great run. You've had a great run. But I think-
- NKNikhil Kamath
When you say macros are bad, what do you mean?
- HMHarshil Mathur
I think there's a population of people that has grown up in the Insta world, in the, in the YouTube world that has, that has seen what's possible out there, and they're seeing governments and markets opening up, and they're seeing governments not sort of getting in the way of just unleashing animal instincts. And I think we, we are at an inflection point. We are in a weird inflection point. I feel like India's still living in the past, and I think we have 300, 400 million people who want to just look ahead. They don't, they're not really married to the past. When I talk to my kids, I mean, these are Gen Zs. My daughter's 13.
- NKNikhil Kamath
Mm-hmm.
- HMHarshil Mathur
Um, you see what's happening around socially right now with unrest. They, they don't really care if we are 5,000 years old, 3,000 years old. They wanna move in traffic. They wanna get to some place. They wanna move ahead. And they should, damn it. Like, I think they should.
- NKNikhil Kamath
Even we think like that, no?
- HMHarshil Mathur
Yeah, they should. That's what I'm saying. So I'm, I'm rebellious enough, but it frustrates me. I've seen better, um, but I made a conscious choice. I remind myself every day. I made a conscious choice to move back. I think a lot of people who are seeing things, um, are not making that choice today, and it's, it's a little sad.
- NKNikhil Kamath
Yeah.
- HMHarshil Mathur
Well, I think
- NKNikhil Kamath
But But
- HMHarshil Mathur
I think
- NKNikhil Kamath
You think it'll change?
- HMHarshil Mathur
I think , um, if we, if we change our relationship societally with government, I think it'll change.
- NKNikhil Kamath
Say again?
- HMHarshil Mathur
If we change our expectation and relationship with soci- uh, with governments, and I think for India, we are maybe 30, 40, 50 years away. Uh, there's, there's the World Bank of India. There's 500 million people who depend on the government machinery to keep things moving, and there's 500 million of us who are now saying, "You're slowing us down." So India is, India is this contrast of realities. Where are we at as a country? We are 75 years old. We are a young democracy, and in many ways it's like one of the most amazing social experiments on the planet. We are borrowing a lot of pride or glory from the past to feel energized. I mean, especially with th- this government, but in general, how do you feel good if you're coming out of 700, 800 years of servitude and poverty? You have to look as far back as you can, or if you don't have that history, then you just look forward.
- NKNikhil Kamath
Hmm.
- HMHarshil Mathur
The US never had a history to worry about. They only look forward. They have n- they, they can't talk about the past. George Washington
- NKNikhil Kamath
Hmm
- HMHarshil Mathur
... say a very interesting thing. For a civilization to do well, it's important that we believe that we are special.
- NKNikhil Kamath
Yeah. Yeah, yeah.
- HMHarshil Mathur
Americans inherently believe that they deserve more because they are special-
- 30:28 – 43:16
UPI's early builders and the cost of overregulation
- HMHarshil Mathur
UPI is a great example. I was there on ground zero-
- SRSohini Rajola
Mm-hmm
- HMHarshil Mathur
... and I promise you this, for all the tom-tomming we do-
- SRSohini Rajola
Hmm
- HMHarshil Mathur
There was maybe 20 people responsible for it. I'm not talking about enabling NPCI, I'm talking about building UPI- Hmm, hmm ... and a lot of them are sitting in Bangalore. Hmm. And it's the paradigms that shaped UPI. Hmm. Is going mobile first. Hmm. It's about building tech that's interoperable. It's about building APIs that, that people can build on. Those are technology choices. Yeah. There was no brouhaha, there was no chest-thumping, none of that. Yeah, yeah. It followed so quickly that today, and you know this and I know this- Yeah ... let's be frank, right? You can't take a step forward without taking at least .75 back- Yeah ... every single time. Hmm. Because we have this incredible habit as a, as a country- Hmm ... that we, we almost invite regulation and government into places- [laughs] ... that has no goddamn business into. They have no... Like, if I think about AI, the number of committees that different departments of different regulators, we are regulated above, as you- Yeah ... across regulators, we have government bodies across the board. Yeah, yeah. I just keep going into AI reg meetings and I'm like- Yeah ... "You have no idea what you're talking about." We have barely any LLMs of our own- With the best of intent ... but we have enough and more- No, but with, with the best of intent- ... governing frameworks ... but no one's willing to call out- Hundreds of governing frameworks ... but no one's willing to call out just how-
- NKNikhil Kamath
What is Microsoft gonna do for us and-
- HMHarshil Mathur
... how dangerously backwards it is to not understand what you're trying to regulate. Hmm. And that's why I'm saying I think it'll take 40, 50 years because one generation will just revolt. When I see our kids, they don't care. But you want us, want it to take 40, 50 years? I don't want it to. I'm, I'm extremely noisy and I'm extremely deliberately noisy about these things. My dad was an impatient man. Hmm. My mom was an entrepreneur in the '80s, right? So you're talking about being in banks. Hmm. She could not open a bank account for her first business unless her spouse or her father co-signed. This was India in the '80s. Yeah, yeah. That lasted into her 90s, into her second venture.
- NKNikhil Kamath
Really?
- HMHarshil Mathur
Oh, yes, sir. What is-
- NKNikhil Kamath
Yeah?
- HMHarshil Mathur
You needed a male, male co-sponsor for a bank account.
- NKNikhil Kamath
Yeah.
- HMHarshil Mathur
Um, they were, they were stun-
- NKNikhil Kamath
Introducer.
- HMHarshil Mathur
Yeah. You, yeah, that was the word.
- NKNikhil Kamath
Introducer
- HMHarshil Mathur
To open a bank account someone had to introduce you-
- NKNikhil Kamath
Introduce you to the bank
- HMHarshil Mathur
... and that's why the-
- NKNikhil Kamath
I like that the pseudo regulators agree, agreeing with the overregulation.
- HMHarshil Mathur
No, it's not even-
- NKNikhil Kamath
We are agreeing with the overregulation [laughs]
- HMHarshil Mathur
I object to, I object to both the terms, the pseudo and the regulator, Nikhil. [laughs]
- NKNikhil Kamath
[laughs]
- HMHarshil Mathur
No, I agree with Sameer, it's not even regulator coming in. A lot of times I've seen people say, "Hey, this should be regulated."
- NKNikhil Kamath
Yeah.
- HMHarshil Mathur
"This should be..." Like, why do you want to bring government into every single thing?
- NKNikhil Kamath
Why do you think people say that?
- HMHarshil Mathur
I think there's just inherent, um, as some people put it, like trust-
- NKNikhil Kamath
Because, because we've been conditioned to believe-
- 43:16 – 52:02
Flipkart's payment failures and the birth of PhonePe
- NKNikhil Kamath
Aage ka batao. You were at Flipkart. Your company was bought by Flipkart.
- HMHarshil Mathur
Huh. Then, uh, four years into it, we saw this rocket ship. Four years into it, um, there was this very interesting decision to try and build India's Black Friday moment.
- NKNikhil Kamath
Mm.
- HMHarshil Mathur
And, uh, my co-founder and I, I think this is why we work together on payments now, um, he was heading the supply chain. The order management udhar thi, checkout and payments mere saath tha.
- NKNikhil Kamath
Mm.
- HMHarshil Mathur
We spoke to all the banks and we said we want to do this massive sale. Everyone's gonna be squatting on their apps at 8:00 AM, and we'll open the floodgates. So we spoke to HDFC-
- SRSohini Rajola
Mm-hmm
- HMHarshil Mathur
... we spoke to Axis, ICICI, uh, sorry, uh, SBI. And we asked them, "Can you, like, 100X the capacity?" And they said, "Why?" And we said, "We are doing this crazy sale, and we are 100X-ing our capacity." I used to walk around with a placard every, every evening saying 25X. All servers, everything had to be scaled up. Um, we had the sale, the first Big Billion Day sale.
- NKNikhil Kamath
At Flipkart?
- HMHarshil Mathur
At Flipkart. And this, in those days it was a billion day sale.
- NKNikhil Kamath
This is Sachin, Sachin was-
- HMHarshil Mathur
This is Sachin, Binny, Mukesh was there at that time.
- SRSohini Rajola
Sujeet.
- HMHarshil Mathur
Sujeet was there at that time. Um, Mukesh had just joined. Sujeet was there. Um, and-
- NKNikhil Kamath
They're all same area-
- HMHarshil Mathur
Yeah
- NKNikhil Kamath
... in a weird way. Sachin was in the same apartment. Sujeet is one of my best friends.
- HMHarshil Mathur
So Kalyan had, was there-
- SRSohini Rajola
This is, this is that-
- HMHarshil Mathur
... and he was-
- NKNikhil Kamath
Flipkart founders
- SRSohini Rajola
... this is that place called Adarsh in Bangalore.
- HMHarshil Mathur
No, that's now-
- SRSohini Rajola
In fact-
- NKNikhil Kamath
Sujeet, Sujeet lives in Adarsh
- HMHarshil Mathur
... I live in Ejipura
- SRSohini Rajola
That's what everyone says
- HMHarshil Mathur
They were in Raheja.
- SRSohini Rajola
Okay.
- HMHarshil Mathur
At that time I was Kotla.
- 52:02 – 59:06
How a UPI payment actually works
- NKNikhil Kamath
Should we start by doi- drawing a d- diagram of the different kind of payments and map out how it began?
- SRSohini Rajola
Wahan se shuru karein?
- HMHarshil Mathur
Sure.
- NKNikhil Kamath
Okay. So I'm gonna have a bite and then I will organize my papers by then. There are 20 pages of questions I have. So before UPI, we spoke a little bit about the origin of UPI. Before UPI, how did payments work? Let's take the Visa and Master example, and let's take the bank-to-bank example. Who would like to take up the Visa and Master example?
- HMHarshil Mathur
Sure.
- NKNikhil Kamath
I, I know the top-line numbers that Visa and Master charge typically 2% to facilitate a transfer.
- HMHarshil Mathur
They don't charge that much.
- NKNikhil Kamath
Huh. The issuer bank makes 1.4. Visa and Master make a margin of 0.2 or two rupees.
- HMHarshil Mathur
Slightly less.
- NKNikhil Kamath
And the acquirer bank makes 3.5 rupees or 0.35.
- HMHarshil Mathur
Broadly in that range.
- NKNikhil Kamath
In that-
- HMHarshil Mathur
That's for credit card, just to be clear.
- NKNikhil Kamath
Yeah.
- HMHarshil Mathur
Debit was 65 basis points.
- SRSohini Rajola
Debit is much lower.
- HMHarshil Mathur
Yeah.
- NKNikhil Kamath
Visa and, Visa and MasterCard making two rupees for a transaction of 1,000 ends up making $40, $60 billion of profit-
- HMHarshil Mathur
Yeah
- NKNikhil Kamath
... across the world.
- HMHarshil Mathur
Scale.
- NKNikhil Kamath
Yeah?
- SRSohini Rajola
Scale.
- HMHarshil Mathur
Scale. Low margin, high scale.
- SRSohini Rajola
Yeah.
- NKNikhil Kamath
Okay, we can come back to Visa and Master next. Let's start with how this works.
- SRSohini Rajola
Okay. [laughs]
- NKNikhil Kamath
How does UPI work?
- SRSohini Rajola
Okay.
- HMHarshil Mathur
No, but I think the core principle is the same, whether you have Visa or MasterCard or not.
- 59:06 – 1:05:26
If UPI is free, who pays for it?
- SRSohini Rajola
So there is a cost here. You had asked the cost question.
- NKNikhil Kamath
Yeah.
- SRSohini Rajola
There's a cost for every entity, even your bank, Canara Bank.
- NKNikhil Kamath
What is it? Is it like a data cost for your 10 API calls that, which is the main cost?
- SRSohini Rajola
For PhonePe, GPay, Paytm, the apps, it's the cost of the banks, because now earlier you were walking into a bank withdrawing 5,000 rupees, so that was one transaction.
- NKNikhil Kamath
Mm-hmm.
- SRSohini Rajola
Now you're making 50 such transactions, so there's the core banking. For every transaction, the bank sends you a SMS. The, so, so there's the bank, the PSPs, the apps, and the, if there is a merchant transaction, which we haven't gotten into-
- NKNikhil Kamath
Mm-hmm
- SRSohini Rajola
... the acquiring party's, uh, costs. So that is the entire cost.
- NKNikhil Kamath
Even before we go there, now my money has transferred from Nikhil to Rushank, my Canara Bank to HDFC.
- SRSohini Rajola
Yeah.
- NKNikhil Kamath
How much has it costed?
- HMHarshil Mathur
Everybody put together?
- SRSohini Rajola
Everybody-
- NKNikhil Kamath
Yeah
- SRSohini Rajola
... put together for the transaction, we had ... I think there was some calculation that was done.
- HMHarshil Mathur
Point, 0.25%, broadly.
- NKNikhil Kamath
25 paise.
- SRSohini Rajola
Yeah.
- HMHarshil Mathur
No, it's not 25 paise. I think, I think if you net it out at an ecosystem level, it's about 25 bps.
- NKNikhil Kamath
Which is 25 paise.
- HMHarshil Mathur
Not rupees.
- NKNikhil Kamath
On 100 rupees.
- SPSpeaker
On 100 rupees.
- SRSohini Rajola
On 100, yeah, yeah. He said 100 rupees, so.
- HMHarshil Mathur
So this is where B2B and P2P dynamics are different.
- NKNikhil Kamath
Mm.
- HMHarshil Mathur
Retail dynamics are different.
- SPSpeaker
P2P-
- HMHarshil Mathur
Because the switching fees and all the other fees come in.
- 1:05:26 – 1:08:24
Instant payments vs bank settlement
- NKNikhil Kamath
And because these transactions are instantaneous, there's no concept of float anywhere. Nobody gets to keep the money for a while before the receiver gets it.
- SRSohini Rajola
Yeah, no, this is unlike, like, what you have in, say, China, et cetera-
- NKNikhil Kamath
Mm
- SRSohini Rajola
... where the Alipay, WeChat, which are basically-
- NKNikhil Kamath
They have a float part, right?
- SRSohini Rajola
There's, those are wallet-based.
- SPSpeaker
Those are closed loop.
- NKNikhil Kamath
Yeah.
- SRSohini Rajola
This is a real-time instant payment system, so money moves from ... The float is already either in your bank account or the other person's bank account, so they are in any case meant to, banks are meant to have the float, so none of the other intermediaries, uh, monetize this.
- SPSpeaker
See, earlier the bank who sent the money was making that float, now the bank who's received it is going to make the float.
- SRSohini Rajola
Yeah.
- SPSpeaker
So the float is made either way, but-
- HMHarshil Mathur
One of the, one-
- SPSpeaker
... the system is not making the float
- HMHarshil Mathur
... one of the coolest things about the NPCI architecture or UPI architecture is the real-time payment just basically is a accounting and debit or credit-
- NKNikhil Kamath
Mm
- HMHarshil Mathur
... that's happening, whereas they do the settlements-
- SRSohini Rajola
Yeah
- HMHarshil Mathur
... out of, out of band. What that-
- NKNikhil Kamath
Really?
- HMHarshil Mathur
Yeah, because it-
- NKNikhil Kamath
When does that happen? After how much time?
- HMHarshil Mathur
That pool stays with UPI or with NPCI, and then they settle, what, eight times a day now?
- SRSohini Rajola
We settle 10 times a day.
- HMHarshil Mathur
10 times a day. So it's a massive, I would imagine, a massive pool sitting there for the settlements. They're able to move that quickly because it's much, much more just about ledger management than money moving.
- NKNikhil Kamath
When you say it sits at UPI, it sits at NPCI?
- HMHarshil Mathur
NPCI.
- SRSohini Rajola
So it's in the RTGS account in RBI, so you have to move it from bank A to bank B, and you do that settlement, do that settlement file posting.
- HMHarshil Mathur
So you could have 100 million transactions in two hours in peak hour, but ultimately the cross settlements would be like 800 settlements, 400 on either-
- SRSohini Rajola
Yeah
- 1:08:24 – 1:14:52
Stablecoins, CBDCs and the future of money
- NKNikhil Kamath
... , in the end, we'll go to it. We'll go to what Stripe is doing, what's happening with stablecoins. Is there opportunity in cross-border payment? Somewhere somebody will build. I was interviewing this, uh, Coinbase founder, Brian Armstrong.
- SPSpeaker
Brian, yeah.
- NKNikhil Kamath
He made a very strong case for stablecoins. India may dollar because-
- SRSohini Rajola
Mm
- NKNikhil Kamath
... I don't think the government will allow it. But what about the use case for a stablecoin with something else backing it?
- SPSpeaker
Yeah, especially for cross-border, I think there's a lot of problems to solve.
- NKNikhil Kamath
Yeah. See, nobody wants to hold rupee as paper because of how quickly it's depreciating. But if it could be based on a commodity that India holds, maybe there's an opportunity there. But we'll get into-
- SRSohini Rajola
Yeah
- NKNikhil Kamath
... things, things like that people will want to build.
- SPSpeaker
Yeah.
- SRSohini Rajola
Mm.
- NKNikhil Kamath
But the one thing I realized with Brian is in that entire crypto world, the only thing that's left is Bitcoin and stablecoin.
- SPSpeaker
The value of the stablecoin. Uh, stablecoin takes away the speculation part, no. So fair- The problem with central banks across the world is they're so in love with the concept of their CBDCs, which is a much more complex problem. I think in 10 years you'll end up with peering of UPI with a lot of networks and picks and all these other networks. Real-time networks peering will move much faster than CBDCs.
- SRSohini Rajola
CBDCs-
- SPSpeaker
Because nobody wants to rely on somebody else's CBDC.
- NKNikhil Kamath
It's work, no?
- SPSpeaker
No.
- NKNikhil Kamath
Nobody's gonna run on somebody else's CBDC, so we're still creating disjointed outcomes.
- SPSpeaker
Huh. No, and then-
- NKNikhil Kamath
Commonly, yeah
- SPSpeaker
... egos and price come in, right?
- NKNikhil Kamath
Yes.
- SPSpeaker
Mera CBDC bada, uska CBDC bada.
- NKNikhil Kamath
But what if government
- SPSpeaker
No, you're talking about-
- NKNikhil Kamath
So I'm talking about for cross-border.
- SPSpeaker
For cross-border.
- NKNikhil Kamath
I'm talking internally for the country.
- SPSpeaker
Internally, UPI solves it. Why do you need CBDC?
- NKNikhil Kamath
UPI, it will solve it.
- 1:14:52 – 1:17:11
Wealth inequality, inheritance and capital gains
- HMHarshil Mathur
Yes. Can I play provocateur here?
- SRSohini Rajola
Mm-hmm.
- HMHarshil Mathur
Um, so at heart, I like old-school American capitalism, which is-
- NKNikhil Kamath
Hmm
- HMHarshil Mathur
... grounded in the concept that regardless of birth, enterprise in one lifetime, you can actually just become anybody you want to be.
- NKNikhil Kamath
Yeah.
- HMHarshil Mathur
I think capital markets are extremely distorted right now globally, in that money makes money way faster than labor makes money or enterprise makes money, and that's a global trend, which is why income disparity is out of whack. So role of government, ironically, in the democracies is in need much more than ever. I feel that.
- SRSohini Rajola
Yeah.
- HMHarshil Mathur
That said, um-
- NKNikhil Kamath
But that is working in some places.
- HMHarshil Mathur
In some places.
- NKNikhil Kamath
Yeah.
- HMHarshil Mathur
Now-
- NKNikhil Kamath
There's something called the Gini coefficient, which measures-
- SRSohini Rajola
Yeah
- NKNikhil Kamath
... income inequality. And in places like Australia, some Nordic countries-
- HMHarshil Mathur
Nordic countries, yeah
- NKNikhil Kamath
... it is coming down. It's coming down by interventions around tax largely. Uh, some places have high property tax.
- SRSohini Rajola
Yeah.
- NKNikhil Kamath
Some people have, some places have inheritance tax-
- SRSohini Rajola
Inheritance tax. Yes
- NKNikhil Kamath
... that we should totally have.
- HMHarshil Mathur
Wealth tax.
- SRSohini Rajola
Yeah.
- NKNikhil Kamath
I don't get-
- HMHarshil Mathur
I'm down with progressive tax regime
- NKNikhil Kamath
If Sameer earns money in his lifetime-
- HMHarshil Mathur
Yeah
- NKNikhil Kamath
... he should be allowed to do what he wants.
- SRSohini Rajola
Mm-hmm.
- 1:17:11 – 1:21:31
The zero-MDR debate: Funding the payments ecosystem
- SRSohini Rajola
... 0 Yeah
- HMHarshil Mathur
No, and I'll tell you what the underlying cost is. Again, going back to societal investment, right? Forget whether MDR zero was required or not. The minute you take money out of that sector, 100 PayPaps have come and gone in the last six years. Some of the biggest names in India, the Tatas-
- SPSpeaker
The Ambani's, everyone enters, everyone looks at the space and says, "There's money here, they leave in two years." There's always a new kid on the block. Depending on your funding, you'll either go on IPL or you'll go digital on YouTube, waste a lot of money and realize- Paisa toh ban nahi raha. Paisa nahi ban raha. Unless you're invested in solving payments for payment's sake for the long run, with no clear monetization, you disincentivize the industry, the very same private sector that makes UPI happen, you disincentivize everyone actively.
- SRSohini Rajola
But I think that's why, that's why the con- the, the whole question about is it time to bring MDR back-
- SPSpeaker
Correct
- SRSohini Rajola
... has happened, right? Like-
- SPSpeaker
I agree. No, I'm, I'm very grateful that the government is looking at bringing it back. Don't get me wrong, I'm very appreciative of their effort, and it's not politically easy, as we are saying.
- SRSohini Rajola
Yeah, yeah.
- SPSpeaker
My, my only submission is, I think that the introduction of zero MDR, like many other policies over the last, this thing so many years, not, not in this government, across India's history, requires more research and trust of the private sector to give them fair feedback. If you want to grow the market, ask the market participants what the challenges are.
- SRSohini Rajola
So I'll tell you what's important for us right now, Sameer, when, as and when MDR gets introduced. I think the big thing for us is, yes, in a way, yourselves, acquirers, issuers, everybody will hopefully have some way to-
- SPSpeaker
We are large acquirers, yeah
- SRSohini Rajola
... you know, recoup what you guys have been investing in. But the key thing is, are you going to then invest it? And who-
- SPSpeaker
Let's say if you are right and he starts profit optimization, somebody will come and disrupt him.
- SRSohini Rajola
I'm saying the question that, uh, it's amongst the things to say, "Okay, fine," like now if the ecosystem has some way to recoup some of the investment-
- SPSpeaker
But the only one holding it right now-
- SRSohini Rajola
Where does, how does that double down your investment?
- SPSpeaker
MDR has not held me back. I don't care about these things because, again, like NPCI, we are very, very clear. You come into our buildings, every kid will tell you, we will go to a billion. We just launched for feature phones, you know this. So not everything has to be about money, and it isn't.
- SRSohini Rajola
Yeah, that's, that's the-
- SPSpeaker
But money helps.
- SRSohini Rajola
That's the key-
- SPSpeaker
This is, this is not critiquing you.
- SRSohini Rajola
Yeah.
- 1:21:31 – 1:33:08
Should UPI apps have market-share caps?
- SPSpeaker
But, you know, there was this author, Ayn Rand. I know. She said monopolies and duopolies are generally not created in a free market, capitalistic societies. If you go from thirty percent to a hundred percent, where's the equilibrium? I'll tell you the equilibrium. Hmm. It goes to barriers to entry. Hmm. Including capital as a barrier to entry. Hmm. Let me rephrase the question. Sure. Indigo now has majority market share in airlines. Yes. If they continue to keep growing- Yes ... ninety percent, ninety-five percent, at that scale, it's very hard for anybody to come in and compete with them. Perfect. The problem with this is if tomorrow something goes wrong with Indigo and there are no airlines in the country- Yeah ... then what happens? So perfect- Sorry, I, I, I, I, sorry. It's even, it's even worse than what happens in Indigo. Indigo has economies of scale. At a certain scale, their cost is lower, so they can operate far more better. In internet world, it's not just economies of scale, there's a network effect, which becomes even harder and harder to match. Hmm. So the network effect doesn't play out in Indigo because I can still book a different airline. I don't lose because Indigo is the largest airline. Actually, the switching cost is about three seconds. But in, but in consumer, you lose because I am not f- participating in the same ecosystem that my friends are on. You're getting this completely wrong. No, but it is, it is the case today also. There is-- If that were true, PhonePe's users would only send money to PhonePe users, and GPay's users would send money only to GPay users. But if I, if I send Pay, PhonePe user sending money to a PhonePe user, my transaction commission rates are higher. No, they're not. It is, it, it is. No. I have seen that. NPCI makes all transactions route through them. Yes. Yes? Yeah.
- SRSohini Rajola
They try.
- SPSpeaker
Once again, no, but it is. So that's one. But more importantly, taking the Indus, uh, Indigo analogy, with Indigo, the sectors in which they apply, if they're the only airline flying, let's say from Bombay to Indore. Hmm. If they decide to shut down, that sector shut down. Hmm. If they decide to jack up the prices by three X, it becomes unaffordable. In a regulated payments market, we are neither controlling the participants, that is exclusively NPCI, all banks and all TPAPs, nor are we controlling the end routing, nor do we create a barrier to entry, and we definitely have no say on pricing. So where does choice end, and where does, uh, this thing, monopolistic practice start? Let's define that boundary, because by that measure or by that argument, every third person should be asked to move off WhatsApp. There's network effect. Every third person should use Telegram, every fourth person should use Signal. That is actually defying gravity in a perfectly competitive market.
- SRSohini Rajola
No, but that's the point Harshil is making.
- SPSpeaker
But-
- SRSohini Rajola
Harshil is making exactly that point, Sameer. He's saying it starts to-
- SPSpeaker
In a perfectly competitive market, people should be allowed to choose. Agreed. But, uh, s- but the digital payment structure, we take it as that it is critical for the country to continue to operate in a way that- Yeah ... there, there's no single entity they should decide. I'm agreeing with you, maybe thirty percent is an right place. You can't, you can't- I'm not saying it is at thirty percent- You can't just... No, no ... but you will have to stop at certain scale. I'm sorry. Their monopoly on operating systems was transferring into other verticals. Yeah. And, and the anti-- They never said stop distributing Windows. They said stop distributing Internet Explorer. They, yes. So in my case, if you said you became the biggest lender because you will not pay me, you can take that argument. So, so is it okay, is it okay if you can continue to be, continue to grow, but you can't cross-sell other things? Why? You're applying that same logic, right? No. You, you have a certain advantage of cross-selling insurance and lending that other players will not have. And that's my point. That's actually a great example. But you can't cross-sell in that. That's ex- a great example. I've been in insurance for six years. This assumption that because you have a large platform, you suddenly become large there. My insurance revenue is probably a twentieth, maybe less than a PolicyBazaar, whose distribution base theoretically is one fiftieth of mine. That ar- ACCOA is bigger. Every single guy in the country- Yeah, but that can change these things. The, you'll, you'll wait for that- No, but it's not- You will, you'll wait for that ecosystem to change in that direction. No, because a laptop or a desktop would ship with one OS, you can't change the OS. Payment apps can be transferred from one app to the other overnight, and that's why I'm saying again, a Navi picks up a share, a Cred picks up a share. There has been fragmentation, twenty percent- Still, still small
- HMHarshil Mathur
So still small is not my fault or anybody's fault. It's somebody's choice
- SPSpeaker
I'm not, I was saying 80% is the right cap, but I'm saying there is definitely a cap.
- HMHarshil Mathur
Why is there a cap?
- SPSpeaker
There's a cap. You can't have-
- HMHarshil Mathur
Why?
- SPSpeaker
... 90% of the market with-
- HMHarshil Mathur
Why does it apply to any market?
- SPSpeaker
It does apply to every market. I'm not saying it won't apply to us.
- HMHarshil Mathur
No.
- SPSpeaker
It will apply to any market.
- HMHarshil Mathur
It should not apply, because-
- SPSpeaker
Every market
- HMHarshil Mathur
... that means that the merchant coming in 20 years later cannot use Razorpay as the best PG if you are. There's no market-
- SPSpeaker
Stopping, stopping onboarding is not the only way to stop it, but at some point the regulators have to worry about monopolism in any market.
- HMHarshil Mathur
Worrying, worrying applies to NPCI. They're 80% of the market.
- SPSpeaker
Yeah, and that's why regulator has a lot of control in the way-
- HMHarshil Mathur
Pricing
- SPSpeaker
... so some way you apply that.
- HMHarshil Mathur
I have no problem with regulation. I'm talking about market caps. Those are artificial.
- SPSpeaker
You can't have 70%, 80% market share.
- HMHarshil Mathur
I can have 80% market share. You can tell me you have to follow these 20 things. Risk mitigation-
- SPSpeaker
To ensure you, to ensure you create space for others
- HMHarshil Mathur
... risk mitigation and market manipulation are not the same. Risk mitigation and market manipula- this is my, my point of fear of big. We'll never become big. We are nothing of nothing. We talk about NPCI and UPI being amazing. Ali and WeChat separately process more transactions than NPCI today.
- 1:33:08 – 1:41:18
Can new banks and startups compete in India?
- HMHarshil Mathur
The other thing when I think about this is at one point, lots of new people were coming into everything. I felt, or I feel, that it's easier for a regulator to regulate fewer larger p- players than it is to regulate hundreds of small players. That's why we don't have new banks. That's why we don't have so many other things that we should have. I think it's important to reduce the capital and regulatory burden required for new people to join many industries. That has to somehow be encouraged. I don't know how that happens. Like, if a young guy in Jaipur wants to start a bank, it's impossible. But-
- SPSpeaker
But you know there are already about 1,300 banks in India.
- HMHarshil Mathur
Yeah, but so-
- SPSpeaker
For a population of?
- HMHarshil Mathur
For a population of 1.4 billion.
- SPSpeaker
Still less banking density by US or Europe.
- HMHarshil Mathur
Yeah.
- SPSpeaker
Nothing, nothing.
- HMHarshil Mathur
I'm saying-
- SPSpeaker
Much lesser than US, yeah
- HMHarshil Mathur
... much lesser. There is a-
- SPSpeaker
A lot of those 1,300 are defunct also
- HMHarshil Mathur
... No, no, no, these ... I, I'm talking about 1,300 which are there.
- SPSpeaker
There's 35 universal banks.
- HMHarshil Mathur
Universal banks, no. You're talking about-
- SPSpeaker
There are 1,200 odd cooperative banks
- HMHarshil Mathur
... cooperative banks.
- SPSpeaker
But those are not allowed to do business.
- HMHarshil Mathur
Yeah, cooperative banks.
- SPSpeaker
You have to become a shareholder to do business.
- HMHarshil Mathur
But, but you need, uh, Harshil, for the-
- SPSpeaker
Yeah
- HMHarshil Mathur
... you tell me, for ... No, no, no. You have to. No, you have to go, you have to go 30, 40, 50 kilometers outside Bombay, no? You have to ... We have to go into the interiors.
- SPSpeaker
No, no, I agree.
- HMHarshil Mathur
Waha pe nahi hai, cooperative bank hi hai. We have to get the cooperative bank onto UPI also.
- SPSpeaker
But see, all the banking issues have come from the cooperative banks only. Even though their pie of the overall business is low-
- HMHarshil Mathur
Yeah
- SPSpeaker
... all the scams are there.
- HMHarshil Mathur
The scams ... So I'm not ... See, the re-
- SPSpeaker
Barrier to en- ... So that is a barrier-to-entry industry. That's a, that's a taxicab medallion industry, right?
- 1:41:18 – 1:49:39
How card and merchant payments work
- NKNikhil Kamath
P2M [laughs] Harshil will do the P2M. Yeah. Okay.
- HMHarshil Mathur
Yeah. So P2M in India typically starts as a ... Let's take card. It's easier.
- NKNikhil Kamath
Hmm.
- HMHarshil Mathur
It starts with a merchant wanting to accept money, because most card transactions are pull. Do you understand pull and push?
- NKNikhil Kamath
No, explain it.
- HMHarshil Mathur
So UPI is a push to Harshil.
- NKNikhil Kamath
I know nothing.
- HMHarshil Mathur
I initiated a transaction to send money to somebody. That's a push.
- NKNikhil Kamath
Okay. So Harshil sending Nikhil-
- HMHarshil Mathur
No, so that a P2P transaction, the way Sameer demonstrated, was a push transaction-
- NKNikhil Kamath
Hmm
- HMHarshil Mathur
... where I said I want to send money to you.
- NKNikhil Kamath
Yeah.
- HMHarshil Mathur
A pull transaction is that I want to get money from you.
- NKNikhil Kamath
Okay.
- HMHarshil Mathur
So most P2M transactions typically start as pull. In India, even P2P push-
- NKNikhil Kamath
Razorpay wants money from Nikhil's account.
- HMHarshil Mathur
Yeah. So a merchant wants some money from Nikhil's account.
- NKNikhil Kamath
100 rupees.
- HMHarshil Mathur
Uh, yes. Le- let's start with, let's take an example of Amazon, right? An Amazon wants money from Nikhil's account.
- NKNikhil Kamath
Okay. Amazon wants 100 rupees from Nikhil.
- HMHarshil Mathur
Nikhil's account, right. So Amazon-
- NKNikhil Kamath
Because I have shopped on Amazon.
- HMHarshil Mathur
Yes. So Amazon sends a request to a payment gateway, right?
- NKNikhil Kamath
Okay.
- HMHarshil Mathur
Let's say Razorpay, whatever, right? So a payment gateway. Payment gateway has a partnership with an acquiring bank, and then, um, that is sending a request to an acquiring bank, the bank that the payment gateway has partnered with to do transactions.
- NKNikhil Kamath
Who is your partner?
- HMHarshil Mathur
We have multiple, but let's take an example of Axis Bank.
- NKNikhil Kamath
Okay.
- HMHarshil Mathur
Axis Bank is a partner bank, right?
- 1:49:39 – 1:54:12
Credit-card rewards and RuPay on UPI
- NKNikhil Kamath
We looked at data around this, and it says that Gen Z-
- SPSpeaker
Mm
- NKNikhil Kamath
... and people under the age of 30 have two credit cards on average-
- SPSpeaker
Mm
- NKNikhil Kamath
... in urban locations.
- SPSpeaker
Yeah.
- NKNikhil Kamath
So even though we are seeing crazy high UPI numbers, everybody still has credit cards.
- SPSpeaker
Yeah. The premium segment has a certain u- use case for credit card. A, the access to credit, and B, the reward ecosystem that they get access to. Yeah.
- HMHarshil Mathur
But actually, credit to NPCI
- SRSohini Rajola
Majority of those cards under 30 are actually RuPay cards today-
- SPSpeaker
Oh, RuPay
- SRSohini Rajola
... because they know they can access the whole UPI network-
- SPSpeaker
And it works on RuPay itself. Yeah
- SRSohini Rajola
So RuPay cards, uh, two things. Uh, one is you can actually add that to your app, any, whatever, if you use PhonePe, GPay, whichever one, and then you never really need to take your card out because just you can use it just to scan QR-
- NKNikhil Kamath
But can't I do that with Visa?
- SRSohini Rajola
No. Visa, MasterCard doesn't, uh, cards don't work on UPI QR codes.
- NKNikhil Kamath
They don't work on UPI.
- SRSohini Rajola
RuPay rides on the UPI rail. So you can ride on the UPI network. So today, now you are doing a UPI transaction, but also getting your rewards. You're getting all the other benefits that you get. You're getting your credit.
- NKNikhil Kamath
Mm-hmm.
- SRSohini Rajola
So that's the, uh, advantage. In fact, today you can, uh, you know, the, the best experience I think that you can have is you have a RuPay card, you link it on your app, and then you activate bio auth on it. So today, when you do a UPI transaction, you typically put a PIN, right? Now, with the bio auth, you just scan and click on the bio auth, it sees your face, and the transaction is through. And approval rates, I'm sure you would have seen that bio auth approval rates are-
- SPSpeaker
Significantly higher
- SRSohini Rajola
... significantly higher. Much smoother transaction.
- SPSpeaker
Yeah.
- NKNikhil Kamath
What if I get a banking license?
- SRSohini Rajola
Mm-hmm.
- NKNikhil Kamath
I'm not SBI, I'm Bank XYZ.
- SRSohini Rajola
Mm-hmm.
- NKNikhil Kamath
And Bank XYZ tells Harshil-
- SRSohini Rajola
Mm-hmm
- NKNikhil Kamath
... I won't charge the one point four five percent, I'll do it for free because I want to acquire a client.
- 1:54:12 – 2:02:08
How Razorpay improved online payments
- NKNikhil Kamath
Right. And before you, there was what, Billdesk? What were the other-
- SPSpeaker
They're still there.
- NKNikhil Kamath
Oh.
- SPSpeaker
They're still there. The Billdesk, uh, like-
- NKNikhil Kamath
PayU.
- SRSohini Rajola
PayU
- NKNikhil Kamath
Even they're going to IPO, no?
- SPSpeaker
Billdesk has not gone for IPO.
- NKNikhil Kamath
No?
- SRSohini Rajola
Yeah.
- NKNikhil Kamath
Okay. What, what did you do differently that you were able to get more market share?
- SPSpeaker
Yeah, so the foc- so I think in the online pay... I'll just explain the online payments world. India took a, let's go slightly macro. US is one of the highest success rates in the world, but has highest fraud rates because US doesn't have two-factor authentication.
- NKNikhil Kamath
Right.
- SPSpeaker
So our fraud rates are quite high, on an average about 100 to 200 basis points, but a very high success rate, your transactions typically close.
- NKNikhil Kamath
Mm-hmm.
- SPSpeaker
And the acquirers have to focus a lot on just controlling the fraud side.
- NKNikhil Kamath
Mm-hmm.
- SPSpeaker
In India, we removed consumer-side fraud by adding two-factor authentication. So customer-side fraud reduced drastically, where I can't take your card number and do anything unless you give me an OTP. Now, there's still social engineering and all that happens, but at scale fraud that happens in US, where I have millions of cards and I can debit millions of cards together-
- NKNikhil Kamath
Mm-hmm
- SPSpeaker
... it can't happen in India. You have to still have to do social engineering, it takes effort. What happened as outcome of that is because of us at introducing this friction called two-factor, we reduced the fraud rate significantly, but we dropped the success rate significantly. So our failure rates went up. The data that I got Razorpay brought in is how can I work on d- in solving a lot of problems in this chain to reduce the fraud rate signi- to reduce the failure rate significantly? The more failure rate I can reduce, the better downstream impact to the merchant, more business online merchant is doing. And in online merchant, it matters a lot more because in offline, you walk into a store, your card fails, you pay through another card, you pay through UPI. The guy will not typically let you walk out without closing a sale. In online, the sale typically drops or the customer moves to COD. So the impact on, there is directly impact on either top line or bottom line because my payment failed.
- NKNikhil Kamath
Mm-hmm.
- SPSpeaker
Particularly in these new age customers that we target. Now, in the government, you'll typically still not lose a sale. If I have to pay my electricity bill, I'll pay if it fails five times. But if I'm buying on Amazon or I'm buying on Zomato, transaction fails twice, I'll go to Swiggy, I'll order COD. I'm not gonna wait and try three times. So that is what we really focus on, how can I improve success rate significantly with a lot of interventions we did across this value chain to improve success rate. And that is my core. The second big area was how can I allow small merchants to onboard? Most large acquirers that, like, at least when we started, the problem that I faced that when I wanted to start a small business on the side, getting approval, getting through a payment gateway itself was a fairly painful and complicated, at least a month-long process. How can I bring it down while ensuring that the fraud doesn't happen on the merchant side? And that required a lot of work to ensure that I can enable a small merchant who has no history and still ensure that I'm on the hook if he runs away.
- NKNikhil Kamath
Right.
- SPSpeaker
That was a fairly hard problem to solve for, that I can onboard them without-
- NKNikhil Kamath
Can I ask you, what does Paytm do in all this? Where does it sit?
- SPSpeaker
Paytm sits on the consumer side. It also sits on the merchant side. They have both. They also have offline, uh, and-
- NKNikhil Kamath
Wouldn't it make sense for you to sit on the consumer side and for you to sit on this side, like together? Like if you both-
- SPSpeaker
And we all sit on every side.
- NKNikhil Kamath
Yeah, yeah.
- SPSpeaker
They have-
- 2:02:08 – 2:05:36
The B2B payments opportunity
- NKNikhil Kamath
Can I also ask you, like we spoke about Paytm and Other Billdesk, other people in India who are in this ecosystem. Globally, who's doing what which is interesting, that there might be an opportunity around? You can talk about WIX, you can talk about SEPA, you can talk about FedNow, RTP.
- HMHarshil Mathur
Who is-
- NKNikhil Kamath
What is China d- doing differently? Just the payment ecosystems.
- HMHarshil Mathur
I think, I think-
- SPSpeaker
In India or in China?
- HMHarshil Mathur
... the single biggest-
- SPSpeaker
In India, massive.
- SRSohini Rajola
India
- SPSpeaker
B2B is a massive problem, like completely uncharted.
- HMHarshil Mathur
B2B is where most of this money is still in cash.
- SPSpeaker
And most of B2B is still not formal.
- HMHarshil Mathur
Supply chains are just not solved.
- NKNikhil Kamath
So what would I build? I'm starting a business in B2B.
- HMHarshil Mathur
Yeah.
- NKNikhil Kamath
What do I build?
- SPSpeaker
B2B, the complex part is-
- HMHarshil Mathur
You build an app for small merchants to be able to, to onboard their, their everyday suppliers. An average kirana shop, or not kirana shop, but a small-sized retail store, has 70 to 80 distributors that give them stuff every week. Those people need to be paid out, and those payments are anywhere between 1,500 rupees to about 50,000 rupees.
- NKNikhil Kamath
Why can't he just do UPI?
- HMHarshil Mathur
It doesn't work. That ch- that channel is not used to accepting it that way, and there's other needs, by the way. It goes back to needs. Like he's building for the online segment. In the offline world, they need to onboard these people. They need to have their payment identities linked. They need to have, in some cases, recurring payments. In some cases, you have Khata-
- SPSpeaker
I'll add, I'll add to it. The payment is a small part of the problem. The reason it doesn't happen is there's a workflow around B2B payments.
- HMHarshil Mathur
Yes.
- SPSpeaker
So typically, when I'm making a payment to you in a B2B environment, I need to first get an invoice. I need to verify it. I need to reconcile it. I need to then check how much is due. I need to cons- consider that is, am I deducting the right amount of TDS? Is the right amount of GST being paid? I need to later do a GST filing against it, so it needs to be completely matching. There's a lot of workflow around a payment, and that takes a lot of breaks-
- HMHarshil Mathur
But that's the opportunity
- SPSpeaker
... makes it a lot more inefficient. So it's not as simple as-
- HMHarshil Mathur
That's what 40 million people don't have
- SPSpeaker
Yeah, so it's not as simple as picking up the phone and paying money to you. All of that ecosystem around it, and generally it's not, like, in a single-person store, it might still be the same person doing it. In a larger B2B organization, even a 15-people organization, it might be two or three people doing different parts of this.
- NKNikhil Kamath
Can you simplify for me one level more? What do I exactly build?
- SPSpeaker
A way to build this en- solve this entire workflow. Let me give an example of how a large company does it, like, say, a Reliance or a Tata. They are able to do it efficiently. They're working at far more scale. They all use typically an SAP or something to bring all of it together, so that in one workflow I can do this transition and the data can be shared, reconciled, automated out. Now, they're extremely expensive products that a small guy cannot. So if I were to look at that and see how can I, how can I make a small guy, guy's life as simple as it is for the large conglomerate-
- NKNikhil Kamath
Mm-hmm
- SPSpeaker
... at far lower cost, I think that's a solvable problem.
- 2:05:36 – 2:09:54
Building payments for medical tourism
- SRSohini Rajola
finance app."
- NKNikhil Kamath
Sohini, what would you start?
- SRSohini Rajola
Yeah.
- NKNikhil Kamath
Now you've been on the regulator side. You've been a, not regulator, you've been in a Section 8 company.
- SRSohini Rajola
Yeah, yeah.
- NKNikhil Kamath
If you had to go back to the private space-
- SRSohini Rajola
Mm
- NKNikhil Kamath
... and build from everything you've learned-
- SRSohini Rajola
Yeah
- NKNikhil Kamath
... what would you build?
- SRSohini Rajola
So, um-
- NKNikhil Kamath
You remember you have to compete with these guys.
- SRSohini Rajola
Yeah, I know. Um, so I'd, I'd go back to... Uh, so this was something that I had thought I would build actually, um, uh, in, while I was still doing my cross-border money transfer role. Again, this about creating an ecosystem for ... India has a huge medical tourism, right? But-
- NKNikhil Kamath
Inbound.
- SRSohini Rajola
Inbound. Inbound medical tourism. Um, and again, the payment space around it, and I, I figured that out with the, in fact, some of the cases where a lot of transactions were coming in and they were getting declined because our fraud and risk models were saying, "Why are these people coming in and taking so much money?" And, and turned out these were actually people who were living in and around hospitals in India. Many of them were coming actually from Middle East, and there was no other way. They don't have a bank account here. There's no way for them to... And they were just, they thought something would last for three months, but it lasted six months, and now they don't have a way to actually get money. Um, and that entire ecosystem, whether it is the wellness or the absolute, the cure, I would build, I, I, I had one time actually thought that I should build a more elegant solution which can be connecting these real-time payment systems for a more seamless cross-border money transfer specific to the use cases so that that risk part can be taken care of.
- NKNikhil Kamath
What would you build that on top of?
- SRSohini Rajola
Uh, as in the payment system layer? Uh-
- NKNikhil Kamath
Stablecoins have no off-ramp within India
- SRSohini Rajola
... it can... No, this is not, it, you can't go with a stablecoin.
- NKNikhil Kamath
And that won't happen. I'm not for it.
- SRSohini Rajola
Yeah, yeah. It wouldn't be a stablecoin. Uh, it will have to still at the... So you have to build a payment rail, and on both sides, there's got to be the, the s- the, you know, the, what do you call it? Where the money sits will have to be banks, uh-
- NKNikhil Kamath
But they're coming from everywhere. They're not coming from one place, right?
- SRSohini Rajola
Yes. Yes. Which is why, which is why one would really need to build a, a very nice well-thought-out product to be able to think about what are the different kind of rules. And it's not everywhere. Like, if you look at India receives, I recall I'd done, received remittances from 198 different countries/territories. Medical tourism we are not getting from 198, so it'll still be a much smaller number. So it is possible.
- NKNikhil Kamath
You are saying Middle East largely?
- SRSohini Rajola
Largely Middle East. There is, uh, there's-
- SPSpeaker
Individual markets you can still solve for.
- SRSohini Rajola
Yeah.
- SPSpeaker
It might be hard to solve for 109 markets-
- SRSohini Rajola
Yeah
- SPSpeaker
... but two or three you ... And that's how you start. Like you pick up-
- 2:09:54 – 2:16:01
Why digital tipping is still unsolved
- HMHarshil Mathur
You were asking about apps.
- NKNikhil Kamath
Yeah.
- HMHarshil Mathur
One thing that I think is ripe for the picking, and some kid will solve it, I don't think any of us have the imagination, um, tipping. Just being able to tip in the UPI era is a major problem-
- SRSohini Rajola
Mm
- HMHarshil Mathur
... because right now, whether it is mobile-to-mobile or it is a virtual private address, you feel awkward asking, and the other party feels awkward ask- I mean, you feel awkward asking people for their payment identity, and they feel awkward asking, and on the other hand, it's just the normal friction. Earlier, if you'd settle cash, let's say your, uh, restaurant bill was 930 bucks, you would leave the 70 on the table, and that's the tip. Or if you had a driver.
- NKNikhil Kamath
Yeah.
- HMHarshil Mathur
So now we end up asking people-
- NKNikhil Kamath
Giving
- HMHarshil Mathur
... "Bhaiya, number batao"
- NKNikhil Kamath
Oh.
- HMHarshil Mathur
And I think it's, it's a pretty weird sort of, uh, way of doing it. A lot of times people just don't do it because of the headache of it. Uh, and I think people are quite comfortable tipping. I'd, I'd just gone down to the Bay a couple of weeks ago, and there it's so different because in the ... When they give you the POS device, the default is 18% and 20, 22%.
- SRSohini Rajola
Right.
- NKNikhil Kamath
Yeah, it has to be a add-on.
- SRSohini Rajola
That's why you end up saying-
- NKNikhil Kamath
So that's the US.
- HMHarshil Mathur
No, but I'm saying that it's fitted into the POS here.
- NKNikhil Kamath
US, if you don't give tip, they'll ask you what's wrong with you.
- HMHarshil Mathur
Yeah, they get mad at you.
- SRSohini Rajola
Yeah.
- HMHarshil Mathur
What works, waha pe woh aap se ... As he said, it's a, it's a push. So they're saying, "I want this," but you can add a tip to it. In UPI, there's no add-on. So the problem is once the payment request has been created, you can't add on a tip, and that's a fundamental difference in architecture, but it's a very limiting aspect as far as tipping goes. Tipping on-
- NKNikhil Kamath
So you build it on top of a existing UPI app as a service?
- HMHarshil Mathur
So in cards, in cards, when the merchant actually raises the amount, you can add a tip, so it's added on, and then you process it.
- NKNikhil Kamath
Right.
- HMHarshil Mathur
It's a, it's a two-part processing. I tried that with my card here because of 2FA. The first part goes through, the second gets rejected-
- NKNikhil Kamath
It can't happen
- HMHarshil Mathur
... because it's a separate transaction.
- SRSohini Rajola
Yeah, you got to do a separate-
- NKNikhil Kamath
Yeah, in Swiss you can try it because there's no two-factor. In India, you can't do that.
- HMHarshil Mathur
So here it gets rejected.
- NKNikhil Kamath
So it has to be done before the PIN is entered. Uh, so the before the PIN is entered, you have to upcharge.
- 2:16:01 – 2:21:22
What payment data reveals about India's consumers
- HMHarshil Mathur
is large.
- NKNikhil Kamath
A lot of the people watching this-
- HMHarshil Mathur
Mm-hmm
- NKNikhil Kamath
... are also students of economics-
- SRSohini Rajola
Mm
- NKNikhil Kamath
... and trying to figure out what's happening with the economy. You have data on consumers-
- SRSohini Rajola
Mm
- NKNikhil Kamath
... in a way that nobody has. Share something, no?
- HMHarshil Mathur
I mean, okay. So I think, I think two, two things that I've seen over the last decade that have just still continue, uh, continue to blow my mind. I think living in the metros all our lives, we assume that the money of India is in the metros. Everything I've seen on the UPI data, and correct me if I'm wrong, breaks that myth, shatters that myth. If you see money movement, at least the digital part of it, um, tier two and beyond has been contributing 65, 70% forever.
- NKNikhil Kamath
Of consumer behavior?
- HMHarshil Mathur
Consumer payments. And the crazy part in there is both the user adoption as well as the money movement, and they're not just on the receiving side. Because [laughs] Because here when I talk to people, right, naturally I say, "Money must be going from Bombay to the village." No, money is going from the village to the village, and to many different places. So, so the, um, money in India actually runs deep, and we are seeing ... We didn't see that in e-commerce because e-commerce was lagging digital payments. We didn't see that in ticketing. So can I tell you that in, in online, it is not that deep. Yeah. And it's very shallow. No, so online is- And online, it's still not penetrated as much. So that's a ... So I think- But there's a five-year lag because online will follow digital payments adoption. Yeah, and online, we have not solved for a lot of problems. Like UPI has still replaced cash in day-to-day life. Online e-commerce hasn't replaced people's day-to-day shopping downstream beyond metros. And it hasn't-
- NKNikhil Kamath
Is, is the pace of adoption high?
- HMHarshil Mathur
It is growing, but it's still very tiny. Like, like I can put 15-
- NKNikhil Kamath
Like, can you put a percentage to it?
- HMHarshil Mathur
I would if ... Uh, 70% of all online e-commerce purchases are done by 15 million users, one five, 50 million households.
- NKNikhil Kamath
Five zero or one five?
- HMHarshil Mathur
One five.
- SRSohini Rajola
One five.
- NKNikhil Kamath
That's nothing.
- HMHarshil Mathur
It's that narrow.
- SRSohini Rajola
Nothing.
- HMHarshil Mathur
But 70% online spends, e-commerce spends are there, and that's true for most players.
- NKNikhil Kamath
That's like Netflix audience.
- SRSohini Rajola
Yeah.
- HMHarshil Mathur
70% by value or- By value, by value.
- NKNikhil Kamath
By value.
- HMHarshil Mathur
By dollar value. By number of transactions, it's a lot, but it still spreads out. But by dollar value, it's very tiny. But it's not the-
- SRSohini Rajola
That's not important
- HMHarshil Mathur
... picture of economy that so it's-
- NKNikhil Kamath
Like whenever I see economics, it says that, say, in the US, whatever their GDP is, 30 trillion, whatever number they claim, they say that a majority of that consumption, 60, 70%, is QSR, like quick service restaurants.
- 2:21:22 – 2:26:07
Trust and India's next wave of online shoppers
- HMHarshil Mathur
Order four-
- SPSpeaker
I'll say one more reason the e-commerce penetration being narrow is, like, also the behavior that we have to build for penetrating downstream. We haven't built that on apps, right?
- NKNikhil Kamath
Right.
- SPSpeaker
So for example, in, like, the e-commerce apps are built more like supermarkets, right? Where everything is available, all information as well. I have to pick and decide myself.
- NKNikhil Kamath
Mm.
- SPSpeaker
So downstream in India, that behavior doesn't exist. Like, supermarkets haven't really penetrated. So, like, almost 40, 50% of travel in India is purchased through, uh, these travel agents. Now, when you go to these travel agents, what do they do? They open MakeMyTrip only and buy. But I can do it myself, but people don't want to do it because I'm confused. I'm overwhelmed with the interface that all information is there, but I don't know. First of all, it's not in my language. Second, I don't know if it is solving exactly what I want. I might mischoose. So that there's still a lack of trust because it's not replicated the behavior I'm used to.
- NKNikhil Kamath
Mm.
- SPSpeaker
So I go to the travel agent, I ask him 20 questions. "I want this flight to this place. I want this time. I want this time. Are you sure this is right?" "Yes, this is right." I want the comfort that this g- person gives me. I don't trust myself to make the purchase on MakeMyTrip. But insurance we spoke about, like the majority, and almost 90% plus of insurance purchased through brokers in India.
- HMHarshil Mathur
No, but-
- SPSpeaker
Offline brokers.
- NKNikhil Kamath
Mutual funds also
- SPSpeaker
Because, because of, because of this, I want to talk to somebody who give ... And not all of the time that somebody's fully incentivized to help me. But I still trust that guy more than an open platform where I have to pick and choose myself. I might get confused. I might not ans- I might mistakenly choose something else, and I might lose my money. I'm not trusting that interface.
- NKNikhil Kamath
Also, if I want to change or cancel tomorrow, I know this guy I can catch to give.
- SPSpeaker
I can catch somebody. I have the trust with him. I don't know his-
- HMHarshil Mathur
Commodity categories like motor insurance, for example-
- SPSpeaker
Mm
- HMHarshil Mathur
... which is also mandatory, has moved largely online.
- SPSpeaker
Billing has moved. Like, like-
- HMHarshil Mathur
Right
- SPSpeaker
... people paying their government electricity bills have moved because there we-
- HMHarshil Mathur
So things where you know you have to do it and there's a price
- SPSpeaker
... and it is high frequency.
- HMHarshil Mathur
Yeah.
- SPSpeaker
I've built that trust. I... There's repeatability. But I'm booking a flight ticket maybe once a year.
- HMHarshil Mathur
And discretionary-
- SPSpeaker
So I don't want to m- make a mistake in it.
- NKNikhil Kamath
No, in tier two, tier three towns, people are still-
- HMHarshil Mathur
Mm
- NKNikhil Kamath
... wanting to go and get the whole assisted, uh-
- SPSpeaker
But see, if you were in a massive delta-
- 2:26:07 – 2:31:38
GST, consumption and property taxes
- SPSpeaker
Online spends. Online spends.
- HMHarshil Mathur
Online Hindi It was quite awesome. So you had to isolate out the impact of Diwali and Dhanteras and all of those things which you normally also do for your assessment. Um, direct correlation, GST rate goes up, activity, retail activity went up. I mean, uh, goes down, retail activity goes up. And if GST went down by two percent, you were seeing a five and a half, six percent increase in consumption. GST went down in some categories by five percent. There was a 13% increase in-
- NKNikhil Kamath
Wow
- HMHarshil Mathur
... uh, buying. GST went up in one category, and I forget which one, by 4 or 5%, something became sin good or whatever. That one came down by about 6%. And where GST was flat for that entire shopping season, retail behavior-wise, it was down minus 0.2%. So the control set was actually that.
- NKNikhil Kamath
Oh.
- HMHarshil Mathur
All categories where GST was unchanged, marginal year-over-year change. But wherever the GST changed, it is that, like, directly attributable category by category. So we ran through all the categories.
- NKNikhil Kamath
So in a way, you're saying if GST was not there-
- HMHarshil Mathur
Yeah
- NKNikhil Kamath
... consumption would pay more taxes than having GST?
- HMHarshil Mathur
Oh, the, I think they know that by now. And they know-
- NKNikhil Kamath
But then why do they have GST?
- HMHarshil Mathur
Hmm?
- NKNikhil Kamath
Then why have GST?
- HMHarshil Mathur
Because you need taxes.
- NKNikhil Kamath
No, but they would get the tax other ways, no?
- HMHarshil Mathur
How otherwise?
- NKNikhil Kamath
Like if consump-consumption goes up-
- SPSpeaker
No, but how would you make it?
- HMHarshil Mathur
It's easier for India to at least-
- SPSpeaker
Majority of taxation revenue is indirect taxes. Majority of revenue are from indirect taxes
- HMHarshil Mathur
It's actually easier to charge GST in India or TDS in India than to charge income tax.
- SPSpeaker
Income tax is very low penetration, so majority is indirect.
- NKNikhil Kamath
3%, right?
- SPSpeaker
Yeah. In fact, the, there's the other side argument to be made, why do you charge income tax at all?
- NKNikhil Kamath
Yeah.
- HMHarshil Mathur
Remove it.
- SPSpeaker
Move everything to indirect.
- HMHarshil Mathur
It's better off doing that.
- SPSpeaker
It's better off doing that.
- NKNikhil Kamath
But then the consumer-
Episode duration: 4:00:05
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