How tiny, cheap smart speakers unlocked the rise of digital payments in India

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Vegetable carts, flower shops, mom-and-pop stores: Small speakers that read out digital payment receipts are making fintech companies big money.

 

Abbas Ali uses both Paytm and PhonePe sound boxes at his vegetable cart in New Delhi. Adnan Bhat

 

• Digital payments have taken off in India in a big way, but fintech companies have not been making money from facilitating them. Sound boxes are solving this problem.

 

• The success of Paytm’s device has prompted other companies like BharatPe, PhonePe, and MobiKwik to launch their own versions of the sound box.

 

Abbas Ali, a vegetable vendor in an upscale neighborhood in New Delhi, started accepting digital payments in 2021. But every time a customer paid online, the 48-year-old, who can neither read nor write, would need to call his son to confirm that the payment had been received.

 

The customers, often in a rush, would get impatient. Ali would have to spend more time attending to them than he had back when he accepted only cash. Eventually, a fellow vendor suggested he subscribe to a “sound box” — a nifty internet-connected device that reads out payment confirmation messages. “Earlier, I had to wait for five to 10 minutes after every transaction to get confirmation,” Ali told Rest of World. “I can now focus on other customers while the payment is being made. I have installed two sound boxes … one from Paytm and the other one from PhonePe.”

 

The sound box device — first introduced by India’s largest fintech company, Paytm, in 2019 — has been a runaway hit among small Indian businesses. Neighborhood mom-and-pop stores (kiranas) and street vendors, who had traditionally shied away from paying for tech services, have warmed up to the sound box. The smart device — essentially a speaker bearing the logo of the fintech company facilitating the transactions — comes with a built-in SIM card. Most sound boxes can read out payment confirmation messages in English and multiple Indian languages, such as Hindi, Tamil, Telugu, Bengali, and Punjabi. In Indian cities and towns, sound boxes can now be seen across diverse businesses — from kiranas and clothing stores to produce carts and shops selling smoking products.

 

Sound boxes have become a lucrative proposition for Indian fintech companies. Digital payments have taken off in a big way in India in recent years due to the government’s unified payments interface (UPI) that allows users to make instant bank transfers with mobile phones. The volume of UPI transactions in the country grew from 20 million in the 2017 financial year to 60 billion by the third quarter of the 2023 financial year, according to data from the National Payments Corporation of India (NPCI), which runs UPI. The value of UPI transactions made in the same period skyrocketed from 1,000 crore rupees (over $121 million) to 100 lakh crore rupees (over $1.2 trillion), the data shows.

 

But this boom hasn’t helped fintech companies in India as they do not make money from facilitating UPI transactions. Sound box subscriptions have therefore become a lucrative revenue stream. A Paytm spokesperson told Rest of World that in the third quarter of the 2023 financial year, the company’s gross revenue from Paytm Soundbox subscriptions touched 1,197 crore rupees ($150 million). The company has 6.8 million devices deployed across the country. The spokesperson said Paytm has tied up with a domestic manufacturer to produce both the hardware and software for its sound box.

 

The success of Paytm’s sound box has prompted other fintech companies to launch their own versions. BharatPe was the first to rival Paytm in the segment — it launched its sound box, BharatPe Speaker, in June 2022. PhonePe followed suit with Smart Speaker a couple of months later — the company has so far deployed 2.2 million devices in India, a spokesperson told Rest of World. GooglePay joined the race earlier this year, piloting its Soundpod sound box in the country’s kirana stores. Several Indian banks, such as IndusInd Bank and AU Small Finance Bank, have also launched similar devices, hoping to cash in on the growing popularity of sound boxes.

 

Sajith Pai, partner at venture capital firm Blume Ventures, believes the device’s success lies in its ability to solve an important problem.

 

“Confirmation that money has come was a perennial issue for vendors,” Pai told Rest of World. “A lot of vendors had feature phones with SMS limits, and hence, confirmations of payments didn’t come in real time as SMS inboxes were full. Some asked to see customers’ phones or asked customers to send [the payments] again, which led to lots of arguments and a poor checkout experience. Sound box [services] seem to have solved that problem.”

 

While Paytm is the market leader in sound box subscriptions, the growing competition has forced it to slash its monthly fees by more than half. Ali had initially paid 300 rupees ($3.6) to set up his Paytm Soundbox in 2021, with a subscription fee of 125 rupees ($1.5) per month. After PhonePe launched Smart Speaker with zero setup charges and a monthly payment of just 1 rupee, Paytm dropped its subscription fee to 78 rupees (around $1). Though PhonePe has now raised its monthly charges and introduced a setup cost, Ali doesn’t mind paying for two subscriptions. “If one [device] doesn’t work due to technical issues, my customers can make payment on the other device,” he said.  

 

“As part of the launch offer, both the initial setup and the monthly rental were available at just 1 [rupee], provided the merchant does more than 25 transactions per month. There is now a nominal setup fee of 299 rupees [$3.64] charged to merchants followed by monthly rental charges that vary from 50 to 100 rupees [61 cents to $1.22] depending on the city where the merchant is based,” the PhonePe spokesperson said.

Sound boxes also help fintech companies cross-sell their other financial services to merchants.

 

Balwant Singh, 32, runs a grocery store in New Delhi with his mother. He bought a Paytm Soundbox in 2020 after realizing digital payment receipts could be doctored. “[Before sound boxes], people were using apps to create fake payment receipts. I got conned a few times,” he told Rest of World. Six months after subscribing, Singh received an instant loan of 3 lakh rupees (around $3,600) from Paytm. He used the money to add more products to his store. “I had never thought of taking up a loan since it involves lots of paperwork and could take months to get processed. Here, I got it instantly so I took it up,” he said. After he paid it off, Singh took another loan from Paytm for 5 lakh rupees (around $6,000).

 

The Paytm spokesperson noted that Soundbox subscriptions have helped the company expand merchant loan distribution. The number of merchant loans disbursed grew 253% year on year in the third quarter of the 2023 financial year, with the value of these loans reaching 1,825 crore rupees ($221 million), they said. “More than 85% of the value disbursed this quarter was to merchants using a Paytm payment device, indicating a strong correlation between device deployment and loan distribution. Additionally, 45% of disbursements were repeat loans to merchants [like Singh] who have previously taken a loan,” the spokesperson said.

 

The company also expects significant growth opportunities in the small credit market in the years to come. “Our device deployment is seeing sustained traction with deployments of 900,000–1 million devices every quarter,” said the spokesperson.

 

Upasana Taku, co-founder of digital payment app MobiKwik, told Rest of World sound boxes have the potential to aid fintech companies’ growth beyond revenue. MobiKwik launched its own device, MobiKwik Vibe, in January. “On deploying our sound boxes, we anticipate our user base to increase as it will likely attract new merchants looking for value-added services to help them manage their businesses more effectively,” Taku said, noting that the device enables fintech companies to gain deeper insight into transaction patterns and business operations. “This data can be used to develop more targeted and effective marketing campaigns, and identify new cross-selling [or] upselling opportunities for other products and services,” she said.

 

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