Earlier this week, two of India’s leading fintechs congregated at the point-of-sale (PoS) — a segment, they believe, will bring in high margins and recurring revenues for their businesses over the next few years.

Paytm launched a new version of its indigenous—and widely successful—Soundbox. After the July launch of the Paytm Pocket Soundbox and the Paytm Music Soundbox, comes the ‘Paytm Card Soundbox’ which provides audio alerts for not just UPI transactions but also for ‘tap-and-pay’ card payments across Visa, Mastercard, Amex, and RuPay networks.

Pine Labs, on the other hand, rolled out a pocket-friendly version of its standard PoS terminal (‘Mini’) that combines a QR code soundbox and a card terminal. It, too, can accept both UPI and ‘tap-and-pay’ card payments across networks. “Indian merchants are aspirational. They want this, plus that,” Amrish Rau, CEO of Pine Labs, tweeted ahead of the device launch.

THE UPSHOT

The ‘aspirational’ small merchant base—which includes vegetable sellers, florists, carpenters, electricians, mom-and-pop stores—is roughly a 40-45-million market, and is fast becoming the hottest battleground for Indian fintechs.

Not only do fintech companies want to sell these merchants QR codes and PoS devices in bulk, but also cross-sell other financial products as well as earn subscription revenues from them.

Paytm, of course, has been a pioneer in the segment with the Paytm Soundbox—an audio-based payment confirmation device that instantly alerts merchants of a transaction—launched in 2020. It has deployed about 8.5 million Soundboxes across the country, with merchant subscriptions for the device accounting for 8% of Paytm’s monthly revenues in the June quarter (Q1 FY24). The ‘made-in-India’ Soundbox alone has added Rs 600 crore to Paytm’s topline, and has emerged as a key merchant retention tool. It has also allowed Paytm to grow its merchant loan disbursals, with those owning the device applying for bigger loans.

Paytm and Pine Labs are far from the only players rushing to grab a slice of this merchant PoS pie.

Both PhonePe and BharatPe also introduced sound-based payment devices in 2022. PhonePe and BharatPe are estimated to have deployed about 4 million and ~1 million sound devices at merchant PoS, respectively. There are also newer entrants like Mobikwik (which got into the space in 2023), Google Pay (which is piloting its own merchant device) and Jio Financial Services (which is rumoured to be launching a Soundbox-like device for JioPay). Then there are the banks that are also vying for a share of this burgeoning market. The likes of HDFC Bank, IndusInd Bank, and SBI have all launched their own QR codes as well as merchant devices.

Despite the growing competition, brokerages are of the view that Paytm will continue to enjoy its first-mover advantage in the space. The payments major would have deployed over 85% of all audio-based payment devices in circulation today. Paytm processed more than 5 billion digital payment transactions through its Soundbox devices in FY22, and sold 1 device every 6 seconds in 2022, per a company statement.

BofA Securities estimates that the Vijay Shekhar Sharma-led firm can add another 15 million devices in the next 24-36 months as more small merchants embrace digitisation. The soundboxes not only allow merchants to build more trust with the consumer but also help them process transactions more seamlessly. “On the merchant side, an absolute must is a fast checkout experience and elimination of the cost barrier in point-of-sale digitisation,” said Navnit Nakra, Chief Revenue Officer of Pine Labs, at the launch of Mini.

Paytm’s and Pine Labs’ new devices also come at a time when both contactless card payments and credit card transactions are surging. With the RBI allowing the linking of RuPay cards with UPI, more and more cardholders are now looking to use their credit cards for daily payments across food joints, supermarkets, pharmacies, etc. A quick ‘tap-and-pay’ comes in handy for small-ticket transactions below Rs 5,000 (per RBI norms). Additionally, contactless payments take only 12.5 seconds on average, which is much quicker than standard transaction methods, thereby allowing merchants to manage peak hour rush smoothly.

“India has seen remarkable growth in contactless card payments,” Gautam Aggarwal, division president, South Asia, at Mastercard, said in a statement. “By putting the cardholder in control and uniquely encrypting each transaction, such payments reduce the risk of loss or counterfeit and double billing,” he explained.

Postscript: Not to be left out of the soundbox euphoria this week, PhonePe announced that Bollywood superstar Amitabh Bachchan would now be the voice of its SmartSpeakers that alert merchants of payments and other notifications. It’s game on!

Edited by Ranjan Crasta