The PhonePe journey with Sameer Nigam

Sameer Nigam, Co-founder, and CEO at PhonePe takes us through his journey of building India’s leading payments platform. In conversation with Vikram Vaidyanathan, MD at Matrix Partners India, they cover Sameer’s early days at Flipkart to starting up & scaling PhonePe & then selling to Flipkart, and much more. Tune in

Salonie:

Hi and welcome to Matrix Moments, this is Salonie and on today’s episode we dive deep into PhonePe’s journey. Vikram Vaidyanathan, Managing Director at Matrix Partners India has an unfiltered conversation with Sameer Nigam, Co-founder and CEO at PhonePe, on what it takes to build one of India’s leading digital payments platform.

From Sameer’s early days at Flipkart to starting up and then selling to Flipkart, they cover all of this and much more. Tune in

Vikram:

Thanks, everyone for joining us for this pretty special podcast. Huge welcome to Sameer Nigam who needs no introduction. And, Sameer, thank you for doing this for us but I’m going to introduce you anyway. And I was going back and looking at your LinkedIn which I haven’t done in a long time but I went and looked at your LinkedIn and it said Flipkart, PhonePe, Wharton. And but it is actually amazing that those are the big chunks of your life and you’ve actually been at this for a while. Mumbai born and bred, ended up at Wharton, started a bunch of companies and that’s probably less known as a serial entrepreneur, sold a company to Flipkart and that’s how you ended up at Flipkart. And then it’s just been a fantastic journey both at Flipkart, then starting PhonePe and then being still part of the Flipkart mothership but doing your own thing. It’s just been a fantastic journey to watch and thank you for joining us on this.

Sameer:

Thanks, Vikram. Always a pleasure.

The early days:

Vikram:

So, Sameer, I want to take you back to the old, old days and so 2012, 13, 14 on the Flipkart floor as you guys used to call it and, you know, all the people who ran that floor, right, you, Chari, Mukesh and Ankit, the Udaan guys, there is so much talent there which then led to huge companies. So talk a little bit about that floor, what made it special, what were your learnings from there.

Sameer:

Yeah, I think it’s one of the most exciting parts of my career till date. I think anyone who was there in those days they were equal parts heady, equal parts just stressful because I think Flipkart was really a bunch of very, very sharp young people who came together and then over the years added some incredible sort of seasoned talent that they made. And I think the one thing that really stood out for me in that company and it started with Sachin and Binny were just on an open ended a mission. We were working in a small startup, Rahul and myself, my co-founder in Bombay at the time. We were working in the music industry and learned the very hard way you don’t make money in the music industry easily.

But we met up with Binny and Amod and Mekin part of the very early team and we met for half a day, we shook hands, we kind of moved in and then completed the deal, paperwork ages later. Because what we were just really excited by was a bunch of folks that was saying customer and technology first, everything else will follow. They literally didn’t have a business plan, I think most of the leadership team honestly didn’t even know what a P&L looked like at that point, that very, very bold mission.

Around that time, in fact I’ll give you two quick anecdotes to give you a sense of why people thought big at the place. When we met Binny the first time there was a rumor that Amazon might be buying Flipkart for 700-800 million. So when we asked him about whether they’re likely to sell his response was I’m in my mid-twenties, by the time I’m done people should be asking us if we’re buying Amazon, that’s the way I want to think about this. We’re like that is just amazingly bold and amazingly sort of crazy at the same time. Then we met Sachin and again this is 2010-11 and he spent half an hour on a whiteboard walking Burzin, Rahul, and myself, three, four founders through his argument for why e-commerce will be a 25-30 billion dollar business by 2020, this is 2011. People are still not over the hump of actually paying online and why Flipkart could be a 20 million-dollar company by then. And again I remember leaving that meeting and Burzin who is almost a decade older than the two of us, looked at us and said either these guys are just crazy or they’re just going to change the world and I think we should join.

I think that outlook on life taking a 20, 30, 40 year view when you’re in your mid 20s I haven’t seen that often in entrepreneurs, just really hard to imagine what life will be like when you’re twice your age. And being able to say within that that we will conquer the world no matter what. And that was true with Sujeet and Amod and like in lot of the guys we joined in 2011. And I think it became very, very indoctrinated in the culture of that place, obviously success helps, but even in the down cycles that every company goes through them I think the perseverance was there. And I think you see that now with all of the entrepreneurs that have come out of that place. Not just entrepreneurs, CEOs, there’s hardly anyone I know who comes out of that company even today where Anand and Nishant Verma and Vikas Bansal and that leadership who comes out and says I want to work for someone, I want to do something incremental. Everyone comes out and says let me identify a really large opportunity and sort of change the market. I think that has really, really been -- and I think it shaped a lot of our decisions at PhonePe in the early days.

Flipkart Crucible: Donning multiple hats at Flipkart & Sameer’s growth:

Vikram:

The one thing that struck me about that time was all of you guys played so many roles. I think you played, I don’t know, 5, 6 roles. Growth, engineering, product and when I go through most people’s trajectory within Flipkart at that time everybody played so many roles. What made that work and how did it shape each of you guys?

Sameer:

So I think the shaping is easier, right, I think just that exposure at that scale when you’re growing 10x over a 4-5 year window I think that exposure helped all of our careers, there’s no question about it. I think everyone becomes a much more seasoned entrepreneur when you come out because as an entrepreneur you’re basically- you play every function, right, you’re a lawyer and a marketer and a copywriter and you’re a coder. So it helped a lot of us. I think why it worked well was if you see that team one level below Sachin and Binny a lot of folks had a very, very strong either tech background or business background or both. And I think we had the right combination of mixed roles. So either people were just so young that they didn’t know better and they said we’re just going to make it happen and that’s just the entire founding team there at that company was all IITians and they were just very, very analytically sharp. Whether they were in the tech functions like an Amod or whether they were people like Sujeet or they were people on the business side again who were telling looks like they were just too young. So I think we felt comfortable saying this is the biggest set of problems we solved over the next say 12 or 18 months and the founders I think put trust in the leadership team saying we’ll put the smartest people available at this point of time on those problems. We figured it out as we went.

Starting up (again) and choosing your partners (again):

Vikram:

You know, one of the things that always strikes me when I talk to you is that you’re playing the orchestra and I think you’ve been phenomenal at both choosing the orchestra and then sort of making it hum. And so I’m going to start on that thread which is you, Chari, Burzin and then sort of you’ve been joined at the hips since I don’t know forever. I guess it was an obvious choice for you in some ways to say I’m leaving Flipkart and I’m going to startup again and it’s going to be the three of us again. So, one, was that an automatic choice because you had so many others from Flipkart you could join, why was that an automatic choice and what makes it work for the three of you?

Sameer:

So I think the two of them was an automatic choice.

Vikram:

Sorry, Sameer, just pause there and talk a little bit about you, Burzin, Chari and when you guys met and how did you guys start.

Sameer:

Yeah, yeah. So I was just saying that I think given how long we’d known each other Chari and I went to undergrad in Bombay so we’ve known each other since 1995, so it’s 26 years now. His wife was a junior of ours in college, I mean literally the families have known each other, we were roommates in Arizona and so I think that one was just very, very easy. I think we know each other for so long that we know that value system, thought process, strategic thought process and trust you can just take for granted. Just absolutely like with my eyes closed if there’s anything that we need to sort of take a call on, on these aspects how do we treat employees, how do we treat partners, what kind of company are we going to build and whether it’s going to be technology led or not I think having the luxury of having three founders where anyone can answer that on behalf of the others literally we complete our sentences which is huge. Burzin and I met when I had just started out my career in Los Angeles so that was again 2000-2001, so it’s been 20 years.

So we’ve gone through a lot and our first venture when we started out we were all first time entrepreneurs, we again decided to build -and come back to India we knew nothing about the Indian market, we were all three in the States, we knew nothing about the music industry but we were having a ton of fun building. And I think we enjoyed working with each other so much that starting up again was a no brainer, I think where ten years of the entrepreneurial journey and especially the Flipkart stint helped us was identifying much larger markets.

One learning in the music industry was if the size of the pie is big enough, the proverbial size of the pie is big enough you can meander around and strike gold. Second was we’re much better at building large scale platforms and we enjoyed a lot more as technologists, building large scale massy high social impact platforms and building great experiences.

If I was building a consumer play I would have gone to a Mukesh Bansal, I think he’s the best branding like I’ve met in the country in this space. And just look at what he’s done with Cult, I mean he’s made sweating sexy. If we were trying to actually build a very, very large supply chain kind of a company I would have gone to people like Sujeet and others at Udaan and look at what they’re doing there.

When we decided that we’re moving on from Flipkart and we’re going to start over we were very clear that we want to build something which has technology not as the enabling function but as the reason for existence. So Burzin and Rahul I think were automatic calls, I did talk to Amod, I think he’s one of the most fertile thinkers I’ve met in my life, but again he decided to pursue the venture with Udaan or the venture with Sujeet and VG that eventually became Udaan. But those are the only three people I could think of. I think a lot of others who were in that team at Flipkart we’d also gone through this combustion engine, right, we knew so much about each other. We’d gone through adversity, we’d gone through upsides, we knew where the DNA match was the highest and the comfort level was the highest but I felt that for what we wanted to do next I wanted pure play technologists at the helm. So that was the founding team.

Hiring – Culture vs Capabilities:

Vikram:

So, Sameer, I’m going to pause you there and just sort of highlight a few things for our listeners. So, first, we always say that the best co-founders are found in shared history and for you guys that’s just like so true. But the two things that you talked about which is values and trust and they’re a bit interrelated and often young founders don’t think about it enough. Is my value system the same and would I trust this person to behave the same way and make the same decisions even if they’re far away and for people who don’t know Burzin is in the US most of the time and you guys have this implicit trust between you guys and that’s so fantastic to see.

And the second thing which is tech as a reason for existence and now when you say it I remember our conversation and you really wanted to get back to those tech roots. And then chose people who had that as their call which is the tech as the reason for existence. And thinking very sharply about this is the common DNA that I want in every single person at the beginning is another thing that founders underestimate. And I just want to talk about the rest of the team, because you’ve preserved that DNA and maybe not tech as the core but there is when you meet a PhonePe person you know it’s a PhonePe person and you’ve got pretty low churn and that’s the reason that people stick and love working at PhonePe, what is that?

Sameer:

I do believe actually it does go back at the core to value, tech and trust. Allow me a minute to actually sort of delve into that further. When I said values and trust separately there’s a reason for it. I think too many founders, young folks, confuse bonding with trust. When you’re building an organization we keep saying this at PhonePe down also, trust means nothing transparency is everything. And again I think something that we imbibed very early on it’s still my CFO’s nightmare but since the first month when we launched we told all employees we will always, always, always unless the Securities Exchange prevents us show the entire MIS and P&L of the company to all employees simultaneously. We do it every month, we’re five years old. So everyone at PhonePe who’s working there sees the EBITDA, sees the FCF, we have designers come and ask us things like how does the monetization work, it’s amazing. It’s amazing when that doesn’t get leaked at least till now it hasn’t. And it’s a longstanding trust model with the finance team and the legal team saying until that trust is betrayed we will always persevere. Now there will come a time when somebody might actually betray that trust but I genuinely believe if you operate in a model where the transparency is super high most human beings, most of the time will never betray that trust. And I think that’s what I meant by our trust model, that’s at the corporate level really in terms of the culture we wanted to build. If you aren’t learning then you’re just working for us and if you’re an employee you’ll just find a best employer.

We want to make it a lot more participatory, we want to make sure that ten years later when people talk about us like we were at Flipkart people say if you were at PhonePe you got such humongous grounding that you can do anything because you’ve learnt a lot. We were lucky at Flipkart, Binny and Sachin started that and we all sort of followed through on that promise providing tremendous learning. You hear of companies like Levers and others just institutionalized, so I think the flavor of trust is important, values is at a personal level. Values are about will you preserve short term cash or will you actually retain all your employees during Covid, will you pay their salaries and their bonuses and will you do all the right things and will you try and provide oxygen.

So you asked me and now answering your question on why people stay I think it’s a model of reciprocity and mutual respect and God knows I have a temper, you know that. We fight and we argue like cats and dogs on product but it’s never personal. And I think that’s important, that distinction between this is the right thing for the consumer or this is the wrong thing for the consumer versus you’re a idiot or not. I think it’s very important that entrepreneurs understand you said not just the product vision will set the culture in the first year or two. And so if you have people that are just listening to you and they’re hierarchical the culture is dead because no one’s going to speak up. But if you have a model where you’re just polite to people and you’re not willing to challenge ideas you’re also dead because then the business won’t grow. And I think striking that balance I like to believe the first 50-100 people we got were lot of them in the leadership roles today share that, that’s how we handpick talent, that’s how we identified who belongs and doesn’t. It was not pure tech jobs or business jobs it was do you have the temerity to say no, I disagree regardless of rank or file. Do you have a fertile enough brain where those ideas matter, I don’t want to hear really dumb ideas all the time just to be democratic about it I want really smart people, but I want people to be fearless.

Diving into UPI:

Vikram:

And when you articulate this thing about transparency actually full disclaimer my wife works for Sameer. And I was asking her, I said I’m going to do this podcast with Sameer, what is common to Sameer, Rahul, and Burzin and her pat answer was they’re very direct and they’re very transparent. And you will always know where they stand, right, and what you see is what you get. And I think your team is actually pretty mature and you didn’t hire like -- you did hire freshers later but in the beginning, you hired pretty mature individuals and they all appreciated the what you see is what you get. And, you know, the fact that it was respectful disagreements about issues versus disagreements about people and I think that’s been fantastic to see.

I want to switch gears on UPI and take you back to those times when between iSpirit and others there used to be these UPI sandbox conferences where people were tinkering around trying to build something on the back of UPI and it was like 15-20 people who had been dragged into a room saying why don’t you think about UPI. And you were there at ground zero, right, and actually we reconnected around some of that. What made you believe at that point in time and you had like sheer belief that this would be the thing that’s going to change everything. So what made you believe that?

Sameer:

When there’s massive as they say a Delta Force change coming, right, if I look at lead indicators in a space that’s heavily regulated by the way very important to see who’s driving the change. On that particular one we were looking at working with a bunch of the big banks on IMPS building that brokering layer that eventually actually UPI itself was.

And we realized that there’s we don’t have a prayer because like any other market in the world the Indian banking system is so strong that self-disruption for the larger good won’t happen. So IMPS was looking tough, the rails were there but you’ll have to do a lot of work to convince partners. When UPI was -- the first hackathon that we heard I think you were also there, we heard Mr. Nilekani, we heard Pramod Verma, we heard Sanjay Jain and Sharad Sharma but by the way I think what tipped it for us in that first meeting itself was the fact that the regulator was very, very excited, NPCI was very, very excited about the chances and we saw at least two or three big banks having said we’re in already, Axis and ICICI if I remember correctly.

So you had a few big banks willing to take the bet and then the RBI sort of sound bites started coming, Mr. Rajan, and he said we’re going to change the way payments happen and then we started hearing the government was getting excited about this. I think by the time we were two or three months in two things were certain, there’s going to be a legit shot at this happening. Now everyone we spoke to, and I remember you also talking to people, when all the banks were telling us this will never happen and everyone around them that actually can influence strategy and policy, was saying this is happening for me that’s a punt worth taking because it’s almost like crypto for example.

I would not enter and I still won’t enter the crypto market if it is not Central Bank backed but if the Reserve Bank said we’re going to launch a Central Bank backed crypto and everyone said nobody would adopt crypto like you’re all nuts.. So I think the enabling factors were there and the second thing and the reason I think we fancied our chances was just plainly put stage of life. Rahul and myself were knocking on 40, Burzin was knocking on 50, we’d tasted some success in our previous ventures, we had the luxury of taking that one percent punt for a very, very large opportunity, like we could afford to, we could afford to fail we knew what it looked like.

Vikram:

And it was going for growth in some sense.

Sameer:

Absolutely going for growth, right, I mean you’re doing it on a promise and if you remember when UPI launched SBI, HDFC, Bank of Baroda, Kotak, everyone was still pooh poohing it saying they’re not really happening. If de-mon carried it, the Prime Minister carried it, the Bhim app naming carried it. So you go for growth, when you can afford to you should go for growth.

Forces at work – Demonitization, Covid:

Vikram:

The one other thing and we’ll come back to de-mon is at that point of time you were imagining the future in a way that others weren’t and I remember one seminal white boarding session where you were talking about money transfers as easy as messaging and it needs to be integrated with messaging and now it’s a reality, everybody, that’s how you do it, send money, text right there and it is fully integrated. What I’m trying to decipher for early founders how do you get that kind of consumer insight, did you start immersing yourself with what consumers were doing, what was that aha moment?

Sameer:

So there were two parts to how we arrived there. One was experience, the second was insight, right.

The experience we’d had at Flipkart with things like the big billion day where the payment rails were just falling apart with the fact that while e-commerce had taken off 70 percent of people were still choosing cash on delivery because two factors, authentications with the OTP and God knows what else was there, it was such a nightmare. And I think the last thing that was remember Jan, Dhan, Man was going on at that time, a 100,000 accounts getting added a year but nobody was using net banking. It just told you that disruption is a must, what’s happening today can’t take us to scale. The future will have to look different if payments will take off. So it’s a problem to be solved at scale. In terms of the opportunity it was actually much simpler, when I look at just technology trends and consumer behavior for the last 25 years ever since the Internet came along 10, 15, 20 players in any market at any time have gotten together and said this sector is never going to look the same five years later.

It’s happened in ticketing, which was an obvious, it happened in -- because you never want to go and stand in the line, what’s the upside of standing in a long line at a railway station or airport. It changed completely, concerts, movie theatres, shopping. Shopping was more complex, that’s why e-commerce adoption is still sub 20 percent in most markets. But in any sector where the goods or services being exchanged between two parties are not in question and money is the easiest. I give you money, you give me money, money is money, the flavor of money is not changing. That transaction technology has to completely irreversibly just simplify. And for us in India given the mobile phone penetration, given the data penetration and given how small the e-commerce base was, 100-150 million people five years ago I remember. Everyone was investing in a startup saying the market will open up. Jio and Airtel said the data’s opened up and there was this vacuum in between and we just felt that if a brokering layer is connecting a hundred banks without me putting in that effort as long as I can build a mindblowing interface and keep it really simple I have an opportunity to run the population and say a billion people can make payments using an app. So that opportunity is very, very rare but it was very clear consumers would want it if you can deliver it. So I think that’s the way to think about it.

Vikram:

So going back to de-mon and now Covid and though not the best events in most people’s lives but they were big, big events for India payments. So let’s say some of these things didn’t happen would you be still here where consumer payments is ubiquitous and it’s a full blown pull product. We had to push people to use digital payments not very long ago.

Sameer:

I think without de-mon the urgency for people to find an alternative to cash for money transfer and salary remittances would not have happened and without that the enforcing permission for the government and particularly the Prime Minister and Niti Ayog and lot of people putting their name and face behind UPI the trust would not have come that early. That there’s no amount of money that can buy that kind of trust building by the government and that kind of forcing function. So I believe without de-mon digital payments in India would have looked very, very different, probably UPI may never become a complete story. There was just so much tug and pull that the banks may have prevailed in slowing things down. I think Covid is a different story, I actually do believe Covid is not the accelerant that people believe it is, I think Covid’s made digital payments permanent, it has not opened up the market further. And my reason for saying that is, you know, looking at the offline market, right, that’s the best measure of whether Covid had an impact. Because now you’re at home, the offline transactions were just absolutely exploding, Vikram, and 80 percent of transactions were already tier 2 and beyond. So it was already very clear that digital payments will grow from here. In fact Covid limited the ability of a lot of us to advertise on massy platforms like IPL, Covid limited the number of used cases we could offer. So I think it’s limited the consumer adoption, it has strengthened the per capita transaction volume. Those who’re using are never going back but those who should be using I think we’re moving slower than we could.

Toughest decision: Selling to Flipkart & learnings for founders

Vikram:

I actually think it’s a bit of both and you obviously have the data to back what you’re saying but for sure it has just come up in your wallet in terms of your own transactions stack it’s just potentially the number one option to pay for anything which wasn’t the case. But I also think a lot of people who were using it one off or one transaction suddenly are using it like this has become on the first screen of your phone.

Moving on to one big decision that you made very early, you know, lots of investors were chasing you, me included, and hopefully ahead of the pack. And you chose to sell to Flipkart, you had all the money at your doorstep but you chose to go back to Flipkart. What sort of drove that decision?

Sameer:

Yeah, it was one of the hardest ones in life, it came down to the following. I think we had an incredible set of investors knocking and you guys were leading there. You guys were willing to put faith behind us, there was Norwest as well, I remember, there was a few others, I think it came down to the following. It came down again to just core motivation. On Day zero when we started out Rahul had said I’m just so tired from the Flipkart journey as exhilarating as it was I want to build a really, really small team and do something like Whatsapp, they’re just 20-30 people, no more than a 100 in the company, that was his sort of holy cow.

But he was as excited if not more excited by financial inclusion and financial services even beyond payments at the time. So when we looked at what he wanted to do and what I wanted to do -- I wanted to build an app store and I wanted to build a bunch of other stuff even then you’d remember that. You guys are like these guys are nuts, I wanted to build a mobile browser, I wanted to build a bunch of stuff. Payments was the common leg, now once we agreed on payments and this is while we were talking to all of you there was Paytm and Freecharge and all these other guys and they were raising bucket loads of money particulary I think Paytm at the time. And I think what became very apparent to us was we’re taking a -- there’s a one percent probability that UPI succeeds, so the odds are already stacked up against us but if that one percent happens, if we aren’t first to market and we can’t really blitz from there with a paid capital war chest it won’t work. Now the investors we had would have backed us on the capital but the thread seemed to be out of the way at least a bunch of them. Flipkart on the other hand was a very, very interesting proposition, Binny had come in again as CEO, we knew each other well enough over all these years where I think he knew and the board knew that we would go for growth and we would go for scale. We were transparent about the fact that we’re going for growth but they knew that we’d go for scale right after, we wouldn’t hold back. So that alignment was there, and then Binny told us we’ll let you run completely independently and the culture is different. I think that was it, right, that was sacred to us, I think we’d passed the age in life where we’re willing to inherit culture and not build it our way.

Vikram:

I always think it was a very special situation because if it wasn’t you and Chari and Burzin who were actually Flipkart insiders and loved Flipkart I don’t think anyone else would have done the decision and second I think it was a pretty big deal. If it wasn’t actually these people that were there on the other side who knew you guys would take such a big bet it wouldn’t have happened. So I think it was just one of those things that magically came together and it was a special situation. So I don’t know if there is that much to learn for other founders from it but I do think there’s a big learning for founders from it in how you structured it to make sure that you stay independent, run it independently on independent capital or culture was independent. So talk a little bit about that for founders who are maybe thinking about potentially selling but are worried about whether they will pursue their dream or whether they will be allowed to pursue their dream in an independent fashion.

Sameer:

So today at our scale we also talk to a lot of founders, right, for potential active hires, acquisitions etcetra and I think two learnings that I had during that whole episode, one, I think founders really need to understand whether they’re trying to merge with the larger sort of company because they want an exit or because they want a space where they can incubate what they were working on, is it safe harbor or is it an end state. If it’s an end state don’t fool yourself, a party that’s buying you is clear about why they’re buying you aside of a talent or for some IP but they want to have a point of view. In our case because UPI didn’t even exist and because Flipkart didn’t have a payments arm as such it was easy. Binny was looking at what’s happening in payments and said I think this group deserves to have a play in payments it’s going to be huge. I would like you guys to incubate it independently, so it was easy. So first you need to be very transparent about what you’re looking for as the seller before the buyer can actually sort of make a point of view. Don’t fool yourself. I did that with my first venture with Binny, I remember. We had this really cool platform that was powering Gaana and a bunch of startups, it made no money. We were just married to the IP, we were just having fun. And Binny told us I will not stop you, you decide one month after we launch if you still want to be doing this. And in a month we’d done more downloads on the B2C side than we’d done in three years on the other side and we’re like why are we doing this, so hard learning. It’s very hard to give up on your dream and merge it with another so I think that’s one clear learning. I think the second one if you are particularly if you want to incubate what you’re doing, model it like a startup then don’t demand parity on salary and having all the perks of a large 10,15, 20 billion dollar company, be scrappy. Again you’d remember this, we continued working in this really, really dingy office outside of HSR, we didn’t have car parking, people would come in and deflate the tyres, the village there. We structured the cash commitment over a three-year committed model based on targets, so our upside was linked to delivery, all the risk was ours. The upside was higher than the average person at Flipkart if we delivered. So we managed to structure it in line with how their board, us, Binny everyone wanted to actually operate this, that I think is easier said than done in most cases. We knew people there, so you’re right, I think we got it cheap a bit, everyone knew each other.

Payments: What now? What’s next?

Vikram:

And it’s just a fantastic story and you should tell it a lot more. I’m going to move gears to payments and payments evolution, and this is going to end in a fight but I’m going to go there anyway. So start with do you think we’ve essentially driven payments penetration at the expense of the business model and I’m just saying we collectively all of us, and is that sustainable?

Sameer:

I think I know where you’re going with that. To me I think there are serious question marks on the UPI model if that’s where you’re going except this whole I don’t think I can pretend that I haven’t. I think the zero MBR policy is a bad idea, I think it’s a bad idea for two reasons, one, any industry at its nascent stage trying to drive a change in consumer behavior requires a lot of investment. This has been true even in the offline world for decades, we used to have 2 percent cash backs and discounts in the physical stores, I mean, you’re talking about the digital world now. It takes a lot of money, it takes a lot of marketing, it takes a lot of building trust and product systems and tremendous IP and God knows engineers are super expensive, you know this better than most.

So to not have a clear revenue model and an incentive for entrepreneurs means you’re forcing people to make unnatural choices. Early stage entrepreneurs are not entering the payments market in a way I would have loved to see. People often tell us, well, you use marketing, well, I had the opportunity, I sold my company, I didn’t have a single share in my company, that’s what it cost. But that’s one in a million people, right, we were just in a different stage of life. If we’d raised capital from you guys at Matrix and come and told you I’m going to spend a billion dollars doing it for social good but we won’t ever make money I know which door you’d show me. And I think that’s a really bad structural choice that they made, that’s one.

Second, and never lose sight of the fact that we were all building the application layer and core platform leg but money movement is happening through the banks. And I think this notion that somehow you can disrupt how payments are happening and also disrupt the business model and the investment model of the banking system below it and weaken it I think is fool’s paradise. It’s like trying to tell Jio and Airtel and Vodafone and all these Telco’s we want a tower at every square kilometer in India, we want you to pay for spectrum, we want everyone to have 5G and by the way you’ll never make a penny because we gave you spectrum, yeah, that doesn’t work.

Vikram:

And you know, this is the one maybe that gets me which is we’re probably ahead of every country in the world with our payment system. But every country in the world affords a payments company to make money on their core business model. And that allows for investments in like you said infrastructure fraud security and right now we are trusting the payments companies with a lot of our data. And unless we provide a business model collectively as a country I just don’t think payments innovation will happen and I think you touched upon a very important topic which is young founders are not starting up in payments. And so they’re going to drive a lot of the innovation and unless there’s a core business model I just don’t think that that will happen and I know you have a pretty loud voice and I’m hoping some of that voice actually gets through. Switching gears, right, to this often used say which is, fine, you can’t make money on payments, but you can make money on data monetization. And so, what do you think about that?

Sameer:

See, that was interesting. I think there is some merit to it, I think payments data is the gold standard of data, right, and I think to that end the fact that the payments market is opening up so fast is helpful. I think that data if harnessed well can unlock a lot of value in the financial services if that is the case. Again the problem is with how the ecosystem is shaping up. The banks are the custodians of the data is the sponsors in this model of UPI but they don’t have a relationship with the consumers that are not banking with them today. So you may have a lot of money movement, transaction movements, etcetra but you’re invisible to the customer. On the other side companies like us if we can’t make money off payments directly we have to use that data and try and figure out alternate business models around it. Now where’s the trust at, the trust is highest with the banking system, then it goes on to the insurance etcetra and then to the fintechs, and I think that’s correct because the tech behemoths of the world haven’t done a very good job on the privacy front. Now on the one side regulation is coming in and again correctly so limiting the amount of data abuse that is happening in terms of the capturing. On the other side you’re creating perverse incentive to capture and exploit and monetize that same data. So I think that friction would expose itself today by the way, I think it’s looming, it’s going to come up in the next about 24 months because at some point the data privacy bill will go through, at some point this very unique non personal data privacy Act will go through which is saying that your and my data is public goods. And companies like us will get squeezed right in the middle, we’ll get squeezed because we’re sitting on a copious amount of data, we could capture a lot more and upset the customer but open up the financial inclusion agenda. Or we could clamp down on the data, do right by customers on the data side and then forego ability to monetize and therein lies the conundrum

Vikram:

Well, I think I’ll add two things, one, I don’t like the phrase data monetization because that inherently is just like a wrong term that you’re taking my data and you’re monetizing it and that’s your core business model that just can’t exist. But if you also go back to maybe the more -- the early days where everyone had rose tinted glasses on what this would be one of the core principles was that the data or the choice of sharing one’s data would reside with the user. And I think as we sort of put people like yourself in a position where the only way to monetize is to create something from the data. The user no longer actually has a choice or no longer has control and I think that was fundamentally core to this entire system getting designed by the initial architects, Pramod and everyone else and including you guys. And do you feel like that this is just taking away from that early goal where the user had full control?

Sameer:

Yes, I think the good news is I think account aggregator as a concept is starting to come of age. I think we will finally see regulated entities be able to use infra like Aadhar and eKYC sooner than we imagine. I think the dust has settled at least on KYC which is a very big enabling factor, the dust has settled on the account aggregator model so the regulators are well within their rights to say banks must give the consumer’s data to the consumer when they demand it. I think the building blocks are in place, let’s look at the last piece which is will businesses follow. It’s all fine and dandy to say everyone can use this, does anyone want to. I think that’s where you’re going to, I think it’ll happen. I think it’ll happen with or without zero MDR for a different reason. I don’t think insurance penetration, stock broking, banking, lending all of these categories, I don’t think the business model for those categories was ever dependent on whether you have a payments business or not in the first place. I actually think that assuming that if you’re a great payments company you’ll also be great at the other is again foolish. If data were making people very, very successful on these business models everybody would be in that category simultaneously even in the old guard, that’s not true. So I think access to data through account aggregator will open up, I’m pretty bullish on that, we’ve applied for it, we’re waiting for our final license. I think access to infrastructure like eKYC that will really make it easy and open up the funnel will open up. I think India’s core public private partnership model still works really, really well. I think the Aadhars in court case did rattle it and challenge the way it was being designed and I think some correction happened in the consumer’s interest by the way. I think the privacy model was required, I think the risk is actually not on that side, I think the risk is political. I think the risk is that we’re also entering an environment globally where regulators and governments are trying to say I need access to that data for governance as well. Their promised land is they have access to that data as well. Well, how much data will you give to a private company even with or without consent and how much will you give to the government. I think that is the next ten year flashpoint, I don’t think a private company in a regulated space like payments or banking or any of these sectors will be able to even with consent innovate the way they want to if there’s a risk that the data that they’re collecting can be secured by the government this freely, I think we need to find the right balance.

Vikram:

One of the things that I’m always thankful for is how thoughtful some of you guys who are actually building this are and how you’re thinking at a systemic level versus just thinking about yourself. So appreciate it and thank you. Last set of questions, you’ve always got this ability to see the future in a way that most people don’t. So if you had to start one or two companies around payments, fintech, transactional ecosystems what would those be?

Sameer:

Banking for sure, I think banking will look very, very different in ten years from here again. Again you’re seeing all of those early sort of delta force changes happening, right. Regulators demanding and bundling, demanding democratization and you’re hearing the government saying penetration is not good enough, products are not reaching people. And you’re hearing a whole bunch of 25 year old kids saying I can build this better. I think there’s a Tsunami coming there so I think banking is one. If I was 15 years younger I would have entered lending today and the reason I say that is slightly different. I think lending is not just about building great platforms, I think it’s also about a lot of risk taking with in India no collections model. This is not the US, you don’t have a Credit Bureau where your lives will get shut off because you didn’t pay a credit card bill because you were in vacation. You get penalized back, you can’t get a house loan if you default on a car loan and so on. Here what’s the punishment, if there’s no punishment to do unsecured low based lending which I think that’s the only part of the entire India’s tax story as well where we’ve always had a different point of view. I think it’s the right answer for India but I think legal system needs to brighten up. If it does and I’m willing to give it twenty years to transform, if I’m 25 again 25 year old me right now in a heartbeat.

Vikram:

Awesome. Sameer, firstly, thank you for joining us. This has just been an awesome candid chat. Anything that you wanted to share and sort of final thoughts to give?

Sameer:

No, thank you. Always a pleasure chatting with you, Vikram, and I think final thoughts are it’s an absolutely amazing time to be in the tech industry in India. What excites me the most and I’m too old to benefit from it but I think there’s the right kind of capital, there’s long patient capital in India. I think founders today are able to make outsized bets and still hold on to enough equity like in the Bay where they’ll be in the driver’s seat longer. So I think we’re starting to see startups which are actually become long sustainable companies, not just exit worthy startups. I think that for me is the big thing I’m seeing. It’s not the Unicorn every day it’s the fact that there are 50 sectors in which people are saying I’m going to really, really transform India and I think they have the patience to do it which is super exciting so we’re trying to be there.

Vikram:

You know, I’m super excited about the breadth of companies that are getting created and disrupting pretty much every industry in India. So on that note thank you for the time, really appreciate it.

Sameer:

Thanks, Vikram. Bye, bye.