Flipkart-owned payments app PhonePe, which entered the offline commerce space, now has over 25,000 merchants, the company said. Meanwhile, the company said that it controls 80% of merchant transactions on the unified payments interface (UPI), as indicated by this Business Standard report.

This takes significance as the National Payments Corporation of India (NPCI) is focussing its efforts on increasing the number of person-to-merchant payments (P2M). For the month of July, the NPCI said that 20% of all UPI transactions were merchant based. In July, the number of UPI transactions stood at 11.63 million and a majority of them coming in from BHIM. Ravi Shankar Prasad, Minister of Electronics and Information Technology told Parliament that close to 50 lakh (5 million) transactions happened on the BHIM App, worth Rs 1500 crores.

Meanwhile, PhonePe mentioned that it has partnered with payment aggregators like Pine Labs and Commdel and that “a lot of merchants are being on-boarded through them”. It is also going live with 15 pan-India chains in the next quarter. In the online space, it is adding over 50 online merchants across food, travel, shopping as merchants.

MDR on merchant transactions

A spokesperson for PhonePe said that company is still charging merchants for every UPI transaction. It is worth remembering that banks are allowed to charge merchants a higher fee for UPI transactions as compared to P2P transactions. On the UPI, merchants are charged a merchant discount rate (MDR) of 0.25% for payments below Rs 1,000 and 0.65% for all other charges.

However, banks have a revenue split with third party payment companies and aggregators on the MDR earned. PhonePe declined to give details on the revenue split with YES Bank, its sponsor bank for UPI. For example, Razorpay had mentioned that banks share about 20 basis points per transaction happening on the UPI.

PhonePe vs Paytm

Paytm has been increasingly focusing on its e-commerce business Paytm Mall, especially the O2O commerce space which it recently entered. Paytm has started cataloging inventories of physical shops to enable discovery of products online. At these stores, consumers will be able to scan Paytm Mall QR codes in order to follow the store online, place orders and get offers, and pay via Paytm. The company also delisted 85,000 sellers from Paytm Mall to remove fraudulent merchants and fake products from the platform, and said it will be adding a further 3,000 agents to expand into tier-II and tier-III cities and towns to bring on board neighbourhood kirana stores and local authorised brand outlets. The reason Paytm has edge over PhonePe in the offline payments space is simply because:

  1. It is accepted at a larger number of merchant outlets. For the financial year ended March 31, 2017, Paytm processed 100 million offline transactions a month.
  2. It has a significantly larger user base. At the end of FY17, the company claimed it had 218 million wallets, however, it had not disclosed how many of them were active.