Why Fintech Giant PhonePe Is Betting Big On Commerce With Pincode ONDC App

Fintech super app ambitions notwithstanding, PhonePe recently took on a totally different mantle. The launch of Pincode signalled PhonePe’s commitment to hyperlocal ecommerce through the Open Network For Digital Commerce (ONDC).

At a time when its core business is yet to hit profitability, the extension into a new vertical certainly elicited a few questions, but according to Lalit Singh, Pincode general manager and PhonePe’s director of product management, ONDC represents a bigger opportunity than UPI and digital payments is for PhonePe.

Speaking to Inc42 on the sidelines of the ONDC-centric Building Bharat 2.0 event in Delhi, Singh said that the potential for ONDC to permeate various layers of commerce means that it can be a massive standalone business for the Walmart-owned fintech decacorn.

PhonePe’s ONDC Bet

Pincode, which is a ‘buyer app’ in the ONDC value chain, focusses on listing ONDC-empanelled sellers similar to any other app that aggregates retailers and kiranas at a hyperlocal level. The app, available on Android and iOS, currently has a presence in Bengaluru and will soon be extended to other cities.

As far as ONDC is concerned, aggregating small retailers and bringing them online is just the beginning. And that explains some of PhonePe’s bullishness in ONDC.

The grander ONDC vision covers high-volume B2C segments such as grocery delivery, food delivery, electronics, mobility, and more. Eventually, ONDC will also cover B2B use cases such as input ecommerce, multi-layer B2B2C operations as well as pureplay B2B ecommerce, Shireesh Joshi, the ONDC’s chief business officer told Inc42.

According to ONDC’s Joshi, the network has crossed a milestone of 5,000 daily orders in the retail category, primarily driven by grocery, FMCG with mobility also surging in recent weeks thanks to the addition of the Namma Yatri ride-hailing app in Bengaluru. ONDC’s transaction rate is up from 200 orders per day in January, and just a few hundred orders most of last year, Joshi claimed.

‘ONDC Bigger Than UPI’

Overall, ecommerce in India is expected to represent a $400 Bn opportunity by 2030, growing at a CAGR of 19% from 2022, and Pincode wants a slice of this, even if the open network means competition is going to get heavier as scale increases. Giants such as Reliance are said to be on the verge of making a big ONDC play. PhonePe is rising up to the task early.

“The way we see digital commerce we are very bullish that this will be bigger than payments. So we will not be able to do it justice without a separate product. Convincing a customer to open PhonePe for anything other than payments and then expect them to shop and transact, that’s a big challenge. So it’s about the customer’s perception of the app.”

Pincode began as the ‘Stores’ tab within the PhonePe app, a position it continues to occupy today as well, besides the standalone app. For all intents and purposes, this is PhonePe’s ecommerce vertical with users able to sign in using their PhonePe credentials.

Given the tight synergy, why the need to launch a separate app? “For one, the user behaviour is completely different. In PhonePe, we want the user to come into the app and ideally exit in 2-3 seconds after completing the payment, while for shopping, we want them to spend more time,” Singh added.

Besides this UX challenge, of course, treating Pincode and PhonePe separately enables the company to drive a stronger product narrative in each respective segment. PhonePe is the UPI app, while Pincode is the ONDC app. The focussed approach strengthens the product identity for customers.

Claiming that Pincode is growing 100% day-on-day, Singh added that besides a standalone app there’s also a tab on the PhonePe app, which makes it easier to acquire customers. “PhonePe as our primary channel, where we have an icon, banner etc. We are promoting Pincode heavily on PhonePe in Bengaluru where we are live.”

The Pincode ONDC Playbook

Interestingly, the government’s position is that ecommerce companies looking to join Open Network for Digital Commerce (ONDC) should do so from their core platforms, rather than creating offshoots. “I would tell Koshy (ONDC chief) to exclude those e-commerce platforms which are not coming to the network with their main platforms. Some are building ONDC-specific platforms. That’s not our aim,” Commerce and Industry Minister Piyush Goyal said as per reports.

Of course, in this case, Pincode is not directly connected with Flipkart at least as far as the company structure is concerned, even though PhonePe and Flipkart have Walmart as a common majority shareholder. PhonePe recently redomiciled to India and separated itself completely from Flipkart.

ONDC offers a two-sided product proposition for companies with seller and buyer apps. The fact that PhonePe chose the buyer side i.e. the storefront side is telling, because it involves lower spends on customer acquisition. Like Singh said, “All parties are joining ONDC. Logistics companies, seller platforms, FMCG players and more are joining. So then we thought let’s build on this and start solving the buyer side and let the network solve the supply part i.e. sellers.”

But Goyal said that startups and ecommerce players that are building separate apps to join ONDC are using the network effect without doing any of the heavy lifting on the seller side. At the moment, PhonePe’s Pincode is not directly bringing sellers to the ONDC network, but this could change in the future.

Singh added that the growth of UPI and with it PhonePe gives the company more conviction that this separate app for ONDC is the right direction. For instance, banks also had the UPI path, Singh said, but PhonePe embraced UPI as its primary focus and today leads the market.

But slowly, PhonePe has added other parts to the fintech app to the point that today is almost a super app. And in a similar way, PhonePe’s Pincode app will also potentially solve ONDC seller problems after figuring out the buyer experience.

“Right now, our core focus is building a hyperlocal consumer brand and the experience for everything that ONDC will offer. Building a buyer app is not a sort of one-template job. For example, fashion shopping is different from buying vegetables, so even buyer apps are adding value because consumers need a lot of information too,” Singh added.