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Over the past five years, the digital payments industry in India has seen staggering growth. A report titled “Digital payments in India: A $10 trillion opportunity” highlights that the market is at a turning point, projected to more than triple in size from its current value of $3 trillion to $10 trillion by 2026. With this increase, digital payments (non-cash transactions) are expected to make up two-thirds of all payment transactions by 2026.
As one of the leading players in the Indian digital payments and financial technology (fintech) space, PhonePe, with a user base of nearly one in every four Indian citizens, is well-positioned to take the lead in this paradigm shift.
Founded in December 2015, the company has crafted products and services tailored to the Indian market and gained a user base of over 435 million registered individuals. PhonePe has also made substantial inroads into digitizing offline merchants, with over 35 million merchants across Tier 2, 3 and 4 cities and beyond now using its platform. This extensive reach covers 99% of all PIN codes in India. In terms of market share, PhonePe has consistently outperformed competitors such as Google Pay and Paytm.
|As of Nov 2022||PhonePe||Paytm||Google Pay|
|Total value of transactions||5.91 lakh crore||1.29 lakh crore||4.10 lakh crore|
|Volume of transactions||3.42 Bn||1.08 Bn||2.54 Bn|
|Market share (volume)||46.12%||14.59%||34.28%|
Market share details source: NPCI
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In the latest development, PhonePe has secured $350 million in funding from global growth equity firm General Atlantic at a pre-money valuation of $12 billion. This marks the initial tranche of an up-to-$1 billion total fundraising round that PhonePe began in January 2023. The company intends to use the newly acquired funds to make significant investments in infrastructure, including the development of data centers, and to build financial services offerings at scale in the country. PhonePe also plans to invest in new ventures such as insurance, wealth management and lending.
The fundraise is expected to bolster PhonePe as it aims to accelerate the next phase of growth for UPI payments in India, including UPI lite and Credit on UPI, thereby facilitating greater financial inclusion for Indians.
Growth in digital payments is not without challenges
With its peak periods defining its network requirements, PhonePe sought a content delivery network (CDN) with the elasticity to absorb every daily traffic surge. More importantly, that solution had to handle dynamic traffic without introducing any latency that might undermine the user experience.
“Each transaction should take three seconds to complete — as that time increases, people lose patience. Once a transaction reaches 12 seconds, our users assume we are having problems, and volumes drop to zero as they turn to our competitors,” Burzin Engineer, PhonePe co-founder and chief reliability officer, told VentureBeat.
Because the quality of PhonePe’s customer experience is so significant to customer retention, the company also needed a way to manage and efficiently deliver its static image and video content. Most importantly, as a fintech platform partnering with banks, PhonePe wanted a single solution to provide real-time protection against threats like denial-of-service attacks (DDoS), malicious bots and SQL injections. It also had to ensure instantaneous financial transactions on a massive scale.
To protect itself against these threats and secure over 3.6 billion monthly mobile payment transactions, PhonePe has partnered with San Francisco-based security, performance and reliability company Cloudflare (NYSE: NET). “The Cloudflare tech stack interested us. “Compared to the other vendors, it wasn’t carrying the baggage of 20-year-old technologies,” said Engineer. “Cloudflare was newer and had a modern API-driven content delivery network purpose-built from the ground up.”
PhonePe’s leadership is also banking on Cloudflare’s commitment to developing relationships in India and improving the topology of its content delivery infrastructure nationwide. As things stand, Cloudflare has multiple data centers in India, located in cities including Mumbai, Chennai and Hyderabad. These data centers store copies of static content from websites that use Cloudflare’s CDN service. When a user requests content from one of these websites, the content is served from the nearest Cloudflare data center, which helps to improve the loading times of the website for users in India.
“With all of our business being conducted domestically, the Cloudflare Web Application Firewall (WAF), managed rulesets, and the ability to geo-block traffic resulted in immediate security benefits. Using the Cloudflare WAF, we cut off more than 90% of malicious attacks by restricting traffic to sources within India. The WAF uses a combination of rules and machine learning to identify and block potential threats, such as SQL injection attempts or cross-site scripting (XSS) attacks,” said Engineer.
“Restricting traffic to sources within a particular country can also be an effective way to reduce the risk of malicious attacks. By limiting traffic to a specific geographic region, we reduce the pool of potential attackers and make it more difficult for malicious actors to access your website,” he added.
Cloudflare also plays a key role in ensuring PhonePe maintains that critical uptime. Engineer says that it detected and neutralized 180 million threats to the PhonePe application layer per month. In addition to protecting PhonePe’s applications, Cloudflare simplifies the security auditing process and helps the platform meet its compliance requirements.
Cloudflare also adheres to India’s data localization and data residency regulations, thereby simplifying PhonePe’s compliance requirements.
Serverless image resizing and adaptive bitrate video delivery for a smooth, responsive user experience
With its security and compliance concerns addressed and its applications and networks protected, PhonePe concentrated on further enhancing its user experience using Cloudflare Workers traffic-handling technology and the API-first Cloudflare global network.
Initially, PhonePe optimized their millions of source images locally to ensure they were responsive on any device and to improve performance at the point of service. The resizing process required over 50 bare-metal origin servers. Cloudflare Workers eliminated the need for those machines. “Once we offloaded the dynamic resizing and delivery of images for over 200 devices to Workers, all we needed to provide was a single high-resolution source image,” explains Engineer. “Workers resize, cache, and serve those images for us. It saves PhonePe resources, space and power. It also improves the user experience because it’s faster.”
With support from the Cloudflare engineering team, PhonePe conceived and implemented the change in less than two months.
After the success of offloading its responsive image processing to the edge, PhonePe moved on to optimizing its video content delivery. It chose Stream, the live and on-demand Cloudflare video service that dynamically adapts each stream to network conditions. The Stream service proved ideal for mitigating video delivery issues caused by inconsistent mobile internet performance.
“Stream changes bitrate based on available bandwidth,” said Engineer. “Before, we could choose from three bitrates, but it was a one-time decision. Now, Stream changes rate dynamically and eliminates stall and jitter and improves our customer experience.”
Using Workers and the Cloudflare global network, PhonePe now offloads an average of 80% of the traffic from its origin servers and enjoys corresponding savings in bandwidth and a tenfold reduction in infrastructure costs. In a month, Cloudflare serves 775 billion requests for PhonePe — over 289,000 requests per second — and PhonePe’s merchant notifications and image resizing use cases trigger 50 billion Worker requests.
For PhonePe, where network and security issues directly affect its customers and merchant partners, proactive Cloudflare support translates to peace of mind and a boost to broaden its horizons. “We will continue to grow all parts of our business, and this includes adding more and more use cases to the PhonePe app, increasing our acceptance at offline and online merchants while also enhancing our financial service offerings across India,” said Engineer. “Going forward, digital payments will have to be a lot more inclusive, and ‘Bharat’ (users outside of metros) will genuinely play an important part in this growth. We will continue to be focused on building offerings for a billion Indians, who have the means to transact but either don’t know or don’t understand digital payments.
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