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Flipkart’s PhonePe enters offline commerce; will the gambit pay off?

11 July, 2017

PhonePe, the UPI-based payment app from homegrown e-tailer Flipkart’s stable, has rolled out a payment solution for offline commerce, a company spokesperson told VCCircle.

Following a soft launch last month, PhonePe is now being used as a payment option at over 2,600 Apollo Pharmacy stores and all Barista outlets in Bangalore, Mumbai, Delhi and Ahmedabad, the spokesperson added. Retail store chain Spencer’s, fast-food chain KFC and Café Coffee Day will also start accepting PhonePe soon.

Prior to this, PhonePe could only be used to send and receive money, pay utility bills, and recharge mobile phones. It’s also the primary wallet and payment system promoted on Flipkart’s platforms, including apparel e-tailers Myntra and Jabong.

“We are first launching in a bunch of chains, testing the platform. We will then scale it out to a much larger base pan-India. We currently have over 25,000 offline merchants (including from unorganised sector) live on our platform. In unorganised retail, we have started experimenting with specific use cases, with a bunch of quick response (QR) codes, and putting feet on the street to drive adoption of PhonePe among small retailers,” the spokesperson added.

Besides, PhonePe has tied up with payment aggregators like Pine Labs and Commdel to reach out to more offline merchants.

Experts seem divided on how beneficial the move will be for Flipkart. While some see it as a distraction from the e-commerce firm’s core business, others feel it will help it complete the consumer experience circle.

A crowded space
Although PhonePe’s foray into offline commerce could be called a natural progression of sorts, the company is venturing into a crowded territory dominated by the likes of Paytm, MobiKwik and FreeCharge. While Flipkart’s e-commerce business and brand value can swing things in its favour, building a user base and on-boarding third-party merchants are some obvious challenges it will have to overcome. Besides, wallets are a high-volume, low-margin business.

The Flipkart spokesperson acknowledged there were “many companies in the space,” but added there was still a massive gap in terms of adoption of digital payments.

Sandy Shen, research director at Gartner, says it boils down to scale—players who acquire consumers and onboard merchants emerge as the winner.

“Their [PhonePe’s] e-commerce business may help promote it to consumers. Flipkart can make it the default, if not the only, wallet on its marketplace. They can also offer other services not available from other wallets, e.g., offline, in-store payments,” Shen says.

To be sure, PhonePe is yet to take off even as a digital wallet. It has a minuscule market share, and awareness around the product remains low.

Anup Jain, managing partner at retail consulting firm Redback Advisory Services, thinks PhonePe’s offline foray will be a deviation for Flipkart from its core competence. He feels the e-tailer should instead invest in building a stronger brand and better portfolio, which will eventually lead to greater customer stickiness. Besides, for all the talk of differentiation and seamless payments, he believes there can only be so much innovation in the wallet space.

“The existing players have better chances of gaining acceptance offline. Besides, integrated payments seem to work better on a chat-based model as it has more consumer-stickiness—WeChat being a case in point. Recently, Hike too seems to have followed in WeChat’s footsteps. Global players like WhatsApp and Google are also eyeing the payments space,” Jain said.

Completing consumer experience
For Flipkart, providing a seamless and fast consumer payment option is crucial. And PhonePe’s success would help it solve that puzzle to a great extent.

Experts VCCircle spoke to feel Flipkart is only emulating global majors like Apple and Alibaba, which introduced their own integrated payment systems to provide wholesome consumer experience.

Despite the presence of multiple players, industry observers feel there is a case for adoption of PhonePe. Recent events like demonetisation, which boosted digital payments in the country, the runaway success of UPI and a shift in banks’ perception of wallets could work in its favour.

“There are no defined rules in this payments space yet, which is underserved and under-penetrated. Being the leader in its category, Flipkart can certainly examine which technology makes consumer experience better. Besides, it has the wherewithal to integrate technology with retailer experience,” said Ankur Bisen, senior vice president of the retail and consumer products division at Technopak.

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Flipkart’s PhonePe enters offline commerce; will the gambit pay off?

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