On a busy Wednesday afternoon, Vivek Gupta, who runs a food kiosk in a corporate locality in Mumbai’s Andheri and prefers accepting digital payments from his customers, decided to do only cash sales. There was a reason for this.
His customers had showed him text messages on their phones confirming the payment. But when Gupta sat down to reconcile his sales and receipts, it didn’t match. Either a few customers could have cheated him or the payment would have got lost mid-way. Gupta wasn’t alone. Many such merchants who adopted UPI moved back to cash in 2021-22 because of the lack of verification process and, eventually, loss of business. But Gupta realised he couldn’t substitute UPI with cash for long. When he was looking for a viable solution, sound box came his way.
Soundbox is like a point of sales voice system, which confirm receipts of payments made digitally. Today, it’s a lucrative proposition for Indian fintech companies. It is easy to establish a direct correlation between its adoption by merchants and a rapid spurt in digital payments, especially in since mid-2022. UPI registered 9.96 billion transactions in July 2023, with the total value for the month hitting ₹15.34-lakh crore, according to data from the National Payments Corporation of India (NPCI). The transaction volume skyrocketed around 58 per cent year-on-year, while the total value was up by 44 per cent. Nearly 60 per cent of these merchant transactions is aided by an instant sound box confirmation.
According to a PwC India report, UPI transactions are likely to reach 1 billion per day by 2026-27, accounting for 90 per cent of India’s retail digital payments. Paytm was the first company to deploy sound box, followed by PhonePe and BharatPe. But for companies, which took pride in operating only digitally, what prompted the need for a physical device?
Big fight for revenues
Necessity is the mother of inventions, and it was no different with soundboxes. While the need to win the confidence of merchant is one part of the game, the real intention in upping the soundbox play could also be the critical necessity to post tangible revenues. By mid-2022, the valuations of fintechs, including the listed Paytm come under trouble. Investors started questioning whether fintechs were even built on tangible business models. It was also around the time when it became more or less apparent that there was not much money to be made through just the UPI play, and the RBI’s diktat for tighter norms for the sector was just round the corner. There was a dire need to ‘think out of the box’ and that birthed soundboxes.
Today, fintech unicorns Paytm, PhonePe and BharatPe compete fiercely to deploy these speaker devices in stores. The best part is that merchants are willing pay a fee to hear a computerised human voice confirm the receipt of payment. Merchants can either buy a soundbox from the company or pay monthly or yearly rental charges, depending on the which company’s soundboxes they deploy.
For example, BharatPe charges a monthly rental in the range of 0 to ₹199 plus GST, depending on the merchant’s business on BharatPe QR.
Estimating a decent business size of 4-4.5 lakh merchants for soundbox in India, BoFA sees the segment as an opportunity to change the revenue mix and aid profitability for Paytm.
“As Paytm charges ₹100 per month for soundbox, the visibility on subscription revenue is high. We expect EBIT (earnings before interest and taxes) margins to be around 40 percent in steady state, and expect payback on these boxes in 12-14 months (expense per box is ₹1,250).”
PhonePe, which is the second-largest player in this market, has announced record-high distribution of 20 lakh smartspeakers in February 2023. At present, the Walmart-owned fintech has deployed around 40 lakh of its smartspeakers.
“The volume of digital transactions made to businesses has been increasing at a rate of 175 per cent owing to the extensive consumer adoption of digital payments. This has further amplified the demand for a stronger payment validation mechanism, especially in instances where it is challenging to keep track of several transactions carried out during peak hours at various QRs,” said PhonePe’s spokesperson.
According to Paytm’s FY23 annual report, the company’s merchant base has grown to 3.4 crores, with deployed payment devices increasing to 68 lakh from 29 lakh in FY22, thus accelerating its subscription revenues. The report added that around 6.8 million merchants were paying for subscriptions as of March 2023, doubling from 2.9 million as of March 2022.
In FY22-23, a total of 13,721 million sound-box-based transactions have been completed through Paytm-enabled Sound boxes.
Shaking up competition
The success of sound boxes has prompted the traditional POS or point of sales players such as Pinelabs and a whole host of banks to relook at their POS offering. Even large banks such as HDFC Bank, Axis Bank and ICICI have launched their soundboxes, while global tech giants such as Amazon and Google are testing their products.
Adding up numbers
The real question is whether soundboxes can be a significant revenue stream for the fintechs and the players entering the market. In a recent report, BoFA sees the segment as an opportunity to change the revenue mix and aid profitability for Paytm. “We estimate Paytm could add another 1.5 lakh devices in the next 2-3 years,” said the global broking firm.
However, the real allure of the sound box extends beyond its auditory alerts — it provides invaluable insights into merchant behaviours, facilitating the offering of loans based on this data. Which is why over time, whether it adds to the bottomline or not, soundboxes will find greater relevance in the merchant ecosystem and is here stay.