Walmart-backed payments giant PhonePe makes e-commerce push

In a move reminiscent of its successful early bet on the government-backed UPI network seven years ago, PhonePe, India’s leading mobile payments app, is now setting its sights on the e-commerce sector.

The Bengaluru-based startup, backed by retail giant Walmart, on Tuesday launched a hyperlocal commerce app, called Pincode, that is powered by the Open Network for Digital Commerce (ONDC), an Indian government initiative striving to democratize the e-commerce landscape by offering a zero-commission platform.

Pincode will work with local shops and is going live initially in Bengaluru, PhonePe executives said at a press conference on Tuesday. The startup, which also counts General Atlantic and Tiger Global among its backers, plans to slowly expand to more cities and amass 100,000 orders a day by end of the year.

Pincode currently focuses on categories such as grocery, medicines, food, electronics and home decor.

ONDC, a non-profit firm that was set up by India’s commerce ministry in 2021, is an “interoperable” network, where buyers and sellers can do business regardless of service they use, disrupting the consumers’ reliance on using proprietary services run by Amazon and Flipkart.

“This is the UPI moment for e-commerce,” said Sameer Nigam, co-founder and chief executive of PhonePe. “I think there is legitimate friction in the e-commerce industry. Would we have entered the e-commerce industry had ONDC not happened? Absolutely not.”

Scores of industry players including the 48-year-old retailer Sangeetha Mobiles, and restaurants are hoping that ONDC makes a dent in the market and forces incumbents to lower their fees, their executives said.

“Pincode is a brand-new shopping app and offers a revolutionary new approach to e-commerce, which puts all the local stores and sellers at the heart of the digital shopping growth story. Pincode is built on the ONDC network, which allows us to generate demand for merchants digitized by various seller platforms in an inclusive manner, while creating new opportunities for growth and driving innovation at scale,” he added.

PhonePe, valued at $12 billion, signing up to ONDC is remarkable in a number of ways.

1. In the Walmart-backed app, ONDC is courting a major player. The network has so far largely been ignored by the major giants such as Amazon, Google and Facebook
2. Even as PhonePe commands over 50% of all value on the UPI network, the company has been hunting for other avenues to generate revenue. PhonePe has recently said in recent quarters that it will use its large platform to cross-sell insurance and other services
3. PhonePe, which was acquired by Flipkart in 2016, separated from the e-commerce giant last year. Even as Flipkart doesn’t plan to get into mobile payments, TechCrunch previously reported, it’s interesting that PhonePe wants a slice of the e-commerce market

PhonePe said it will “invest significant effort” in Pincode and in “enabling every Indian shopkeeper spread across every nook and corner, over the next few years.”

India’s e-commerce market, currently dominated by Flipkart and Amazon, is estimated to be worth $133 billion by 2025, according to wealth manager Sanford C. Bernstein. ONDC poses a major disruption to the e-commerce sector, according to Morgan Stanley, but it still has a few things that need to be ironed out.

“We see execution challenges… such as in the ability to bridge the trust deficit between sellers and buyers, and provide real- time availability data for inventory management,” they wrote in a recent report.