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PhonePe lodges FIR against 3 suspended Paytm employees for burning QR codes

A PhonePe ex-employee, now suspended from Paytm also, apparently posted videos of himself burning PhonePe QR codes in Greater Noida

What’s the news: Three employees of digital payments company Paytm were charged with mischief, theft, criminal conspiracy and unlawful assembly at Greater Noida on July 29, 2022, for allegedly burning QR codes of a competing digital payments company – PhonePe. A video making the rounds on WhatsApp shows the three men, including a former PhonePe employee, destroying PhonePe’s QR Codes. These QR codes are used to send money to the merchant’s accounts through online banking channels and is a contact less payment method where payment is performed by scanning the QR code from a mobile application.

Why it matters: PhonePe and Paytm have been longstanding rivals in the digital payments and fintech space. While such matters are conventionally discussed amongst companies, the public issue is likely to create a more hostile environment between the two, and affect market behaviour of the two companies. The loss of PhonePe’s QR codes – unissued or otherwise – will impact merchants using the QR codes for their transactions. Given that UPI apps are almost-perfect substitutes, consumers tend to use one instead of the other. In the same vein, merchants, which display QR codes both to enable transactions as well as a mechanism for advertising or promoting fintech brands, might end up deploying those from a competitor.

Impact on merchants: PhonePe said that the burnt QR codes cannot be replicated as each one has a unique identification in digital form and is provided to the onboarded merchants with PhonePe “after completing the necessary compliances in accordance with the Reserve Bank of India guidelines.” The QR codes are installed at various merchants stores etc, after following the necessary process of compliances.

PhonePe demands an investigation: On July 28, Vikas Verma, Territory Sales Manager at PhonePe, received a WhatsApp video that showed Devanshu Gupta, a former employee, Aman Kumar Gupta and Rahul Pal burning a number of PhonePe QR codes “with the clear intention of causing wrongful loss.” As per the FIR lodged at Surajpur police station, of which MediaNama has seen a copy, the accused were engaged in the act “with glee” and even invited other people to witness the alleged crime via video calls. According to the complaint, the video also shows Pal setting fire to the stack of QR codes with PhonePe’s branding on them.

Gupta was working at PhonePe from December 31, 2018 to January 31, 2022 as the Territory Sales Manager. His former employer described him as “a disgruntled ex-employee,” trying to damage PhonePe’s reputation by circulating the video on WhatsApp. Further, it said Gupta had prior knowledge about the whereabouts, for obtaining PhonePe’s QR codes. The company accused him of hatching a plan to steal the company property.

“The intention to harm the reputation of the Complainant [PhonePe] becomes clear from the fact that the attached video is being circulated on WhatsApp to bring it to the notice of the public at large,” said the company. Stating that the crime “may form a part of a larger conspiracy to malign the reputation and cause further financial loss” for PhonePe, it demanded an investigation as to how the accused got access to such a large number of QR codes.

“The above mentioned accused persons and other unknown persons have committed cognizable offences under the IPC and a thorough investigation is required to unearth the conspiracy,” said PhonePe.

Paytm suspends employees: Meanwhile, Paytm put out a statement that the matter is between PhonePe and its ex-employees.

A Paytm spokesperson told MediaNama, “This matter is between Phonepe and its ex-employees. We condemn the act committed by these rogue employees, who have already been suspended from the company pending a detailed investigation. We do not tolerate any act of misconduct and always stand by the highest standards of work ethics. Paytm has been the pioneer of QR code payments in the country and takes great pride in significantly contributing to the growth of India’s digital ecosystem.”

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In a tweet, PhonePe co-founder Sameer Nigam responded by highlighting that the ex-employee of PhonePe works for Paytm now, and there are 10 other people in the video.

A worsening situation: The incident also marks the worsening of a longstanding rivalry between the two fintech companies. In 2021, the WealthQuint published an article comparing the two companies’ UPI in favour of PhonePe. By 2022, the two entities have become competitors to claim the lion’s share of the digital payments market. As per the National Payments Corporation of India’s (NCPI) UPI app transaction data for June 2022, PhonePe seems to be leading in this race with 2,732.59 million transactions worth ₹ 5,01,474.48 crore while Paytm accounts for 877.50 million total transactions worth ₹ 1,02,119.90 crore. Google Pay remains second to PhonePe in UPI transactions (2,025.89 million total transactions worth ₹ 3,55,137.20 crore) in June 2022.

A Moneycontrol article discussing the feud between PhonePe and Paytm envisioned deep discounts in the future due to the recent incident. It also mentioned how the two companies are bitter rivals with one company’s executives accusing the other of being a “sovereign risk.” PhonePe is owned by US retailer Walmart while Paytm has Chinese backers like Alibaba and Ant Financial, said the article. There is also the fact that the incident is reported at a time when both companies are working on speaker features for their respective apps. This will essentially confirm the success of a transaction, easing the stress on merchants to ensure that they get the payment for their products, it said.

Paytm started work on launching its ‘Soundbox’ feature in 2020. Moneycontrol quoted CLSA, a brokerage firm, that said 80 percent of the fintech company’s 3.8 million point of sale devices deployed in stores were Soundboxes as of June. Meanwhile, PhonePe that remains the leader in UPI transactions came out with its own speaker last month.

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Aside from PhonePe and Paytm, there are also other companies in this race like Google Pay and BharatPe.

This story was updated with more information and hyperlinks for better context at 11:25 AM on August 4.

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