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An Indian Fintech Entrepreneur’s Views on UPI

Ever since UPI (Unified Payments Interface) alpha launched on 11th April 2016, I see much confusion amongst various stakeholders. For me, the most relevant question is will UPI kill payment gateway aggregators and PSPs (payment service providers) ?

My answer is No. If you’re interested to know more, please read on…

To understand in detail, let’s understand below 5 pointers:(1) What is UPI (Unified Payments Interface) & what is it’s objective ? And who is an Aggregator /PSP & what is their objective?

For the uninitiated, UPI is a layer on top of the IMPS etc (see image above) which will work on a network of banks, facilitating account-to-account transfers in a simple and secure manner .

In other words, UPI (standalone) will just be another way of transferring funds from ones’ bank account to another without going through the hassles of adding someone as a beneficiary / IFSC / account no (NEFT) or entering MMID / mobile no (IMPS) . The objective is to simplify the payment process vis-a-vis NEFT / IMPS which didn’t reach critical mass required to make India cashless — both from person-to-person (P2P) and merchant payments standpoint.

Whereas, a n aggregator /PSP is one which continuously works towards empowering its customers aka Merchants ( in our case, mostly long-tail online merchants and individuals desirous of collecting online payments) with as many payment options possible & more. For example, debit cards, credit cards, net-banking, cash-on-delivery, IMPS, cash deposits, prepaid wallets etc. The objective is to provide one stop payment collection solution that encompasses all possible payment instruments in one bucket. But that is not all. The PSPs also supports its clients by creating new products & features to enhance their business outcome too!

Now here is what a PSP brings to the table which UPI does not today :

  • Provide other payments instruments which comprises a significant majority portion (~ 60 -80 %) of the total online payments. May be, UPI might become the new net-banking, by replacing it as a payment mode.
  • Detailed information on received payment (who paid & for what), apart from providing transaction management, reconciliation, insights etc.
  • Customisation at every level (payment options, payment page, etc) which is beyond a simple push-n-pull movement of money via UPI.
  • Trust custodian — one who provides protection against any dispute between merchant & consumer (this is completely missing in UPI today).

(2) What UPI adds to existing systems & processes?

The apps that will be built on top of UPI architecture might not only be easy to use — but the mobile first, secure & interoperable ( any bank to any bank) nature of UPI makes it one of a kind. With the learnings of digital wallets and IMPS adoption in the past , NPCI now has all the ingredients to revolutionise the the way Indians pay one another.

(3) Can UPI act as a catalyst and benefit Indian Fintech ecosystem?

We at Instamojo will add “UPI as a payment option” in the checkout page (representation image below) along with other available payment instruments and ride the wave of consumer adoption.

(4) Can UPI adversely affect anyone in the Fintech space?

Launch of UPI at this time is actually a blessing in disguise for payment agnostic players like Instamojo. Because the likely causalities of UPI will be those who have invested time & money in building non-interoperable and siloed products. Namely,

  • Digital wallets — UPI doesn’t allow interoperability of wallets on its platform today. Hence, P2P payments might shift entirely via UPI.
  • Net-banking network providers — Many players in the ecosystem had long enjoyed the relationship they had with each banking partner to put the net-banking infrastructure in place. If UPI picks up, it might become a one stop solution to get connected to all the network of banks due to inter-operability. Thus making all their hard work redundant. Now simply getting connected with UPI architecture via one banking partner will give exposure to all others banks required to process merchant payments.
  • Card network providers — If UPI is going to hurt anyone in a meaningful way, it will be the card networks like VISA/MC which will loose out of the Debit Card interchange to some degree, provided RuPay card become predominant.

Moreover, this revolutionary approach might make more consumers “online payment ready” in a very short span of time. And I hope, what Telecom revolution did for communication, UPI does the same for the Fintech space in India.

(5) What happens if UPI takes off massively?

Most digital wallets will lose relevance in the P2P payments space and will ultimately phase out and die like good old pagers . However, there can be a counter argument that in a winner-take-all or winner-take-most market, the digital wallet provider with largest merchant acceptance network might win due to inter-operability as consumers would gravitate towards the player which provides max fungibility for one’s wallet balance.

So, merchant payment collections via net-banking and wallets will be replaced by UPI. VISA / MasterCard will loose it’s share of revenues from debit card processing since RuPay (India’s own VISA/Mastercard) will share the interchange nuggets which is part of UPI now.

However, aggregators and PSPs will still be central to a Merchant, since such players bring other modes of payment collections too e.g. credit card, unified reconciliations of orders with payments, integration & APIs, customization, industry specific pricing & features, data and analytics and possibly discovery — apart from UPI enabled payments too!

On top of above, an online Merchant who is shifting from NEFTs / Cheque / Cash to PSPs for their payments need, will still turn t o the PSP as the pain-points still remains the same , with or without UPI coming into play i.e.

  • Integration & APIs
  • Order and transaction management
  • Unified reconciliations — orders with payments
  • Refund management
  • Dispute resolution
  • Customization — at every level
  • Industry specific pricing & features
  • Data & analytics
  • Support management
  • Risk management

Even if UPI solves all the above issues for an Online Merchant, they will still solve a portion of their payment collection needs, as UPI does not support VISA / Mastercard led credit card processing which stands at 20–25 Mn active users in India today.

Conclusion

It is evident that UPI is a boon and might be the much needed catalyst to increase the digital shopper base of India and in the process, might take a stab at the real enemy — CASH or unaccounted money exchanging hands; thus hurting the progress of our economy!

Hence, UPI is working very closely with banks under the guidance of RBI. In turn, banks are partnering with various players to take this new payment instrument to merchants & consumers.

Footnote:

  • For an aggregator/PSP , it will all be the same — only the graph of the credit card processing will dip while a new segment will rise.
  • Lastly, if someone thinks that banks will themselves act as an aggregator and offer UPI directly to the Merchants. W ell , they tried that before by offering IMPS to merchants which did not work . For argument s sake if one says it failed because of the complex MMID etc and now with a simpler process it will work, it won’t work for entire suite of payment instruments that a merchant needs.
  • And finally, if one believes that banks would offer a bundled solution of Cards + UPI — well I would say its will be a good debate to be a part of but end of the day, even banks know what they are good at i.e. retail banking / CASA / lending & deposit arbitrage!

Credits:

Guest blog post by Sampad Swain, Instamojo. The original article can be accessed here

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Reach, Revenue, Retention – Sampad Swain, Co-Founder and CEO at Instamojo. #PNHangout

Logo-FullSampad Swain is co-founder and CEO at Instamojo – a platform that lets you sell & collect payments instantly by just sharing a link. Today, individuals & businesses are using Instamojo to sell & collect payments for digital downloads, physical goods, event tickets, services, subscriptions & much more. He was also the co-founder of WanaMo.com and DealsAndYou. In this #PNHangout he spoke to us about his journey at Instamojo and the Instamojo Mantra.

The marriage of commerce with payments

The basic premise around which we started Instamojo was – how can we help the common man accept online payments from his customers. Payments typically have always catered to people who understood technology or who could afford to have a team who understands technology.  So our aim was to cater to the rest of the world who are not tech savvy.  He or she wouldn’t necessarily use technology but he or she would accept payments from her customer and it is around this hypothesis that we have been building our product ever since.

Now what we were doing at Instamojo is bring the convenience of online payments to the common man which essentially meant marrying commerce with payments. Moreover, as we had started the company in the US and not in India, we realised that we had to funnel our core hypothesis to one of bringing payments to a non-tech savvy person.  So we knew we had to build a structure around this.  India is the first market we are trying to get a strong foot hold in and we are working on expanding to other geographies using the same model where you can share a link and you can collect payments with it. We are skimming the surface of what we are trying to achieve at Instamojo but the last two years have been a brilliant journey of us not only building the product but also learning how the payment system works as there are a lot of stakeholders (such as the banks, regulators like the RBI, etc.) involved and more importantly, our customer base has expanded to over 10,000 customers worldwide and it continues to grow.

The evolution of Instamojo

Our journey from when we began to where we are now has had three distinct phases:

The idea phase:

When we started, we wanted to release a product to the market which caters to non-tech audiences collecting payments and we realised that the easiest way to do this was to give the Instamojo user a unique URL (a.k.a. imojo.in payment link) which he can share with his customers over sms, email, social media, etc. which they can click on to pay for his product.  This was the core product that we started building.

Sampad Swain BWWe were not concerned with releasing a perfect product when we began as our main focus was to test if our hypothesis was correct. So we knew that we had to release the product as soon as possible and then iterate rapidly based on the feedback we received from our customers. In fact from the idea to the release it took about 3 weeks to roll-out the product to the market. We would talk to our customers’ everyday through social media channels like twitter and blog posts where they would give us their feedback which we would then allocate to one of three different buckets – reach, revenue and retention. Reach was our primary focus early on, so we built features at Instamojo which accentuated that portion of the business model. We had to ship products which catered to the statement of reaching more people as early as possible. Take feedback, iterate and make it better every day, so that when somebody comes back to use the product again they would see that it is a better product compared to what they had used previously.

The product building phase:

The product building phase started when I went to Silicon Valley for six months where we were part of the 500 start-ups accelerator program in Mountain View – California. At this point we had crossed the reach phase of our three buckets and we were looking at enhancing our revenue channels. So we focussed on features that helped us increase our revenue month over month and we released around 24+ features which aimed at increasing our revenue base. After Silicon Valley, we went onto to raise almost $500K from our investors and now with some money in the bank, we decided to focus on retaining our customers.

The business building phase:

We now had gained traction in reach and revenue. So we began building features to retain our customers. For example if a user had previously faced issues while using Instamojo, he would consider using a different product. So the idea was to keep the platform as simple as possible without demotivating the user. The user would share a link and collect payments; nothing else thereby providing a simplified user experience. This is how the product has evolved from idea to conception in the last 18-20 months.

The Instamojo Mantra:

At Instamojo, our philosophy is very practical i.e. release those products which are more data driven to the market because the chances of getting a product right in the market increase significantly as data never lies. Consequently, we do everything based on the three buckets i.e. revenue, reach and retention. It is critical to understand what matters to the business because when you are a small company, your resources are limited and your bandwidth is limited. Since you have to do more with less, it is very critical that you are aware of what the business needs right now. Also, I have seen very few companies who have succeeded at focusing on these three aspects together early on.

So when implementing features, we keep a tab on the customer feedback that we receive as we already have thousands of feedback requests from our current customers. We then try to tag the feature request to the three buckets and we analyse which bucket’s problem this feature will help us solve. If our focus is revenue and the feature falls into reach, then it would not be worked on at that instant. Implementing a feature because I love how to engineer it is something that we have never done.

There are three specific traits that we look for when adding someone to our team

  1. The person should be more engineering driven in their mind-set. When I say engineering driven I mean that his software should do more work than human effort should.
  2. He or she should be an independent “tinkerer” i.e. he or she can work independently while working as a team and he or she can basically tinker with a problem statement.
  3. The most important one for the company is a get shit done attitude – getting up and saying that I can get this done and doing it quickly.

These three aspects are what we really care about and this is what our Instamojo culture is.

#PNHANGOUT is an ongoing series where we talk to Product Managers from various companies to understand what drives them, the products they work on and the role they play in defining the products success.

If you have any feedback or questions that you would like answered in this series feel free to email me at appy(dot)sg@gmail(dot)com. 

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My learning from taking an idea to product to business – Sampad Swain, Instamojo

Instamojo.com was released to public on 24th April, 2012. That’s little over 2 years back. Here’s a screenshot of how it looked then with the boilerplate message:

Although, we haven’t shifted from our core vision but we definitely have learnt a lot more about who are our customers, what do they want and what should we do to make them happy which in turn will help us meet our business goals as well.

Now, here’s our homepage today in all its glory (WIP):

Along the way, we have learnt a lot about e-commerce, payments, laws & regulations, fraud detection, security, distribution & much more.

Most importantly, we learnt over a period of time how to marry design with commerce for the right final outcome for our customers (thanks to@sengupta and @kingsidharth)

Shameless promotion: Today, Instamojo.com has one of the highest payment conversion rates in the e-commerce industry.

1. Idea phase

We never spent much time on perfecting from the start. Main idea was to release the product to an initial set of customers quickly (we took around 3 week’s time); then start iterating vigorously based on that feedback. However, we never got distracted by others’ worldview of our product vision. So, we took that as an opportunity to learn and shape it accordingly.

Our initial estimate was, let’s build 80% of our core promise and iterate at a supersonic speed. Hence, lot of our core technology decisions was around this hypothesis like choosing Heroku over Amazon AWS for faster deployments & freeing engineering bandwidth (thanks to @hiway). However, we recently shifted over core infrastructure to AWS (thanks to @saiprasadch) since at scale it works best, both economically & reliability point of view.

Also from business point of view, we decided we will never chase moving targets (learning from our previous pivot). In simpler words, we narrowed down our focus & made decision making process almost binary. That, in a way set forth our straightforward, no-nonsense, more data-driven culture from day 1 which we keep following across functions (much thanks to@gehani).

2. Product building phase

This is the most exciting phase of any startup. But truth be told that this phase is also the most treacherous too.

I’ve known many smart founders fall in the trap of loving their product way too much (including me in my last startup) and slowly decay to oblivion even before reaching the business phase.

I think this is due to the fact that technical founders find this phase most apt to their persona i.e. building, hacking without much interaction with customer(s). Hence, they fall into the trap of just building and not selling or interacting with customers enough to understand what should be built & what shouldn’t.

We at Instamojo heavily relied on past data to help us cross this phase. Fortunately, we had got some customers who kept us on our toes to keep improving the product and add more. While at it, we kept on charting our product road-map into 3 buckets:

  1. Reach
  2. Revenue
  3. Retention

And depending on the impact of each bucket to the business then, we decided our product road-map.

During this phase, we released 25+ big features in 9 months depending on each bucket’s impact on the business & customer-set, thus balancing both growth in business metrics & customer development.

3. Business building phase

This phase, according to me is the most hardest phase; and one we are experiencing. In this phase, we get to hear good’ol phrases like “good problems to have than having none” which frankly is so true.

This phase is all about numbers (for both internal & external stakeholders) like

  • Figuring out all possible customer acquisition channels (both paid & non-paid).
  • Market sizing with absolute TAM (target addressable market) etc.

In simpler terms, business phase is all about growth:

  1. Growth in revenue metrics
  2. Growth in user acquisition metrics
  3. Growth in ________________ (fill in the blanks for your business)

We at Instamojo are experiencing this from all corners. We grew almost +10X in last 6 months in all possible business metrics. We finally hired our 1st full-time sales person last month. We are growing at a rate of almost 1 hire every 2 weeks across engineering, sales, operations, risk/safety, marketing etc functions (P.S. if you’re interested, here’s our careers page).

Closing words

“Growth” is any startup’s much needed oxygen. But I couldn’t stress more on the fact that with scale comes newer issues, more responsibilities, pressure to deliver always etc. However in my opinion, the fundamentals of growth has to be laid down much before the “business phase” with clear focus on long-term sustenance.

We at Instamojo tackle these with being completely clear about our “big vision” and “what we stand for” to start with.

So over-communication is a great tool to garner more steam and momentum, so that we have less time to worry and more time to build against odds.

Reblogged from Sampad Swain’s blog.