Well-regulated, mkt-based mechanism necessary for UPI MDR: Sharath Bulusu

Bulusu explains the rationale behind the need for merchant discount rate (MDR) for UPI, the company's focus on Indian languages, and credit strategy

Google Pay has cornered 37 per cent of all UPI transactions processed in the country last month. While digital transactions like UPI are generally free for customers, they incur costs for fintech firms and banks. Sharath Bulusu, director of product management, Google Pay, explains to Ajinkya Kawale in a video interview the rationale for implementing a Merchant Discount Rate (MDR) for UPI and outlines the company’s credit strategy.

According to the Budget details, funding allocated to incentivise fintechs and banks for facilitating free Unified Payments Interface (UPI) transactions has decreased by 42 per cent compared to the previous year. What does this indicate?

In the long run, the payments ecosystem has to be viable in a country of our scale. I think having a well-regulated market-based mechanism to build a commercially viable business is important. We can debate and figure out different ways to do that. The most common model in the payments world is MDR, and there can be a combination of mechanisms. 

Creating avenues to be able to build sustainable businesses is important because that is another way of reducing risk in the ecosystem. All the players are moving huge amounts of money on behalf of consumers, and merchants. It must be ensured that they can continue to invest and innovate to support new use cases. 

Do you anticipate that MDR may be introduced for UPI transactions?

Everyone in the ecosystem is looking forward to some mechanism. NPCI has already introduced it in some places such as credit cards connected to the UPI. I'm in no position to speculate about its timing, but it does look like things are moving in that direction, which is the right way. 

The government can’t keep subsidising that growth either. They can incentivise it, and that’s why they are called incentives. At some point, you would have to stop incentivising and tell everyone that here are the rules of the game, following which companies can figure out the business models they want to pursue. 

What alternative solutions do you propose to address concerns about market share in UPI?

We are still early in the life of UPI and there’s a lot of growth that can happen. Creating the space for innovation and growth is probably the more urgent need of the hour, and that's not solved by capping volumes.  We have to create space for new fintech firms. Rather than seeing this as a problem where there has to be a cap, the way we see it is to foster innovation and enable more players. What happens then is that the competitive ecosystem balances out based on how everybody is performing. 

How does the SoundPod from Google Pay differentiate itself from other products in the market? How many devices have you distributed? 

We haven’t publicly shared the number of SoundPods we have distributed. But we aim to more than double our presence (of SoundPods) in the market over the next year or so. I'm less worried about whether there are entrenched players in the market, or whether there are more or fewer players. We tend to focus on doing the best job with our products and get it out there, and users will always have a choice. If it's a question of differentiation, it always comes down to the same basics. Customers and merchants expect it to be accurate and fast.

Let’s also remember that there are different entities involved in this, different network conditions, and different types of devices, and it is hard to ensure that all of that happens reliably. It is what we as a technology company can do well; ensuring that there is a uniform experience. 

How do you expect to fuel the next wave of growth in payments and acquire an additional 300 million users?  

We have been investing heavily in Indian languages. Supporting them completely in a full-featured way is one way to induct more customers. There are different parts of Google investing in the use of artificial intelligence (AI) to generate content in different languages.  There’s a lot of work we need to do in customer education. The problem for India is not just about people who are unbanked, it is about those who are underbanked are not taking full advantage of the financial ecosystem. 

How do you plan to address teething issues when it comes to credit especially after the regulator hiked risk weights on unsecured credit last year on the back of signs of high delinquencies?  

The regulator has a vantage point from where they can see things that no individual player cannot. People figure out when they have to be more cautious and less accordingly. The regulator may be balancing across many other macroeconomic variables. The way we see it is if the risk weights are higher they are higher for everyone, and it is a level playing field. 

We would rather grow a bit slowly and do it responsibly. In credit, faster is not necessarily better. You have to be more careful and thoughtful. We have four lending partners at present, and there will be more which we will talk about in the coming days.

With several fintechs aiming to become super-apps, what is the company’s strategy for navigating this trend?

It's a question of what the strategy is and what is the view of a market. At Google, we tend to believe that we would like to solve all needs, but want to ensure that we are building it in a way that genuinely brings some new advantage or value to the user. It’s not that we have not introduced other capabilities.