start-up called PhonePe (which
was started by former Flipkart
engineers, and was eventually
acquired by Flipkart). One of
the most interesting PhonePe
products was a point of sale
(POS) terminal that cost a fraction of the price of traditional
POS terminals, and that allowed
credit cards to be swiped. While a
standard POS terminal could cost
Rs 20,000 (approximately US$300),
retailers could get PhonePe’s POS
unit with a security deposit of less
than Rs 700 (about US$10).
However, the most common
“POS terminal” was just a QR code
used by Paytm, whose “cost” is as
low as that of printing a QR code.
The drastic reduction in costs,
along with the targeting of specific
niche markets such as vegetable
vendors, roadside tea stalls, and
generally people closer to the
bottom of the economic pyramid,
represented a big shift in the focus
of Indian start-ups.
Most of them no longer had
to look at the U.S. for inspiration. Instead, they were looking at
problems faced by people who live
in what investors now call ‘India 2’
and ‘India 3’, the lower levels of India’s wealth pyramid. People such
as Vijay Shekhar Sharma focused
harder on this segment because
they could see the economic potential there before the founders at
The assumptions made for India
1 (those at the top of the pyramid
and closer to U.S. markets) no longer apply to those who live in India
2 and India 3.
In 2015, former chief economic
advisor to the Indian government
Arvind Subramanian used phones
as a proxy to separate the three segments; the approximately 200 million people who use smartphones,
the 400 million or so who use
feature phones, and those lacking
access to any phones.
Management guru C.K. Pra-
halad had argued that there were
fortunes to be made at the bottom
of India’s wealth pyramid. In ad-
dition, China had demonstrated
that if you had a large population,
you could build large businesses
down to ensuring timely deliveries,
they needed to get a grip on inven-
tories of books with their own ven-
dors, but they could not, because
many of their vendors had not
digitized their systems (and those
that had were not connected to the
Internet; if they could connect, they
lacked compatible databases). The
backend was not just about build-
ing your backend, but also pushing
various stakeholders to build theirs.
Even on the customer side, the
Bansals realized, while many were
ready to place orders online, they
were reluctant to make payments
online. Many Indians either did not
have credit cards, or the many who
did have them were uncomfortable
using them for online transactions.
That got in the way of customer
Flipkart’s answer to the problem
was simple: pay cash on delivery.
This simple tweak opened up
latent demand, and was one of the
reasons Flipkart grew quickly. The
reluctance on the part of Flipkart’s
customers to transact online offered them a peek into inefficien-cies in the payments space.
Yet as Haresh Chawla, a partner at the private equity firm True
North, pointed out in an essay on
FoundingFuel.com,c the Bansals
could not capitalize on their early
gains. This was happening as U.S.
and Chinese entities were eyeing
India, while other Indian entrepreneurs imagined new possibilities.
That is how digital wallet Paytm
was created by Vijay Shekhar Sharma.
Not only is that firm a unicorn now,
it integrated backward to build a e-commerce portal called Paytm Mall
to compete with Flipkart.
Many of the new possibilities
had to do with the launch of the
unified payments interface (UPI), a
mobile platform that allowed customers to transfer money as simply
as sending an SMS. UPI led to the
large-scale entry of banks into the
realm of payment apps.
This is not to suggest Flipkart
did not put up a good fight. The
first popular UPI app was from a
either did not have
credit cards, or
those who did were
using them for
That got in the
way of customer
answer to the
simple: pay cash