Paytm Group, India’s largest digital financial services platform, processes millions of dollars in monthly transaction value via its open APIs today. But its success with open APIs didn’t happen overnight. In fact, the company encountered significant challenges after releasing its initial APIs, but it listened to customers and rethought its approach in important ways that are now paying off.
When a digital financial services provider decides to open APIs, it typically does so to enable third-party developers to integrate its services into their products. In this way, open APIs can benefit low-income customers by bringing more and better products to the market while generating revenue for providers and third-party developers. Indeed, this is the approach that Paytm initially took when it rolled out its core set of APIs: one called “Collections,” which enabled businesses to collect payments, and another called “Payouts,” which enabled businesses to disburse payments to customers.
After it released its APIs, however, Paytm found that partner businesses were struggling to use them. Many simply lacked capacity. Others had the capacity but were either getting hung up on how to integrate the APIs into internal processes or struggling to get internal technology teams to prioritize the integration. In speaking with many of these businesses, Paytm’s leadership began to wonder: Could they add value by playing a more active role in the design of use case-specific products using their Payouts and Collections APIs? And could they help to remove any of the technical hurdles preventing more partners from using those APIs?
Innovating with its own APIs to create more use cases
To better understand common use cases for the APIs, Paytm sat down with various businesses around the country to understand their payment needs and challenges. The company discovered that a number of changes in the market had created new payment challenges for these businesses. It decided to create use case-specific products within the Paytm ecosystem to address these challenges such that third parties could plug into the products via APIs and customize them to suit their purposes. In effect, Paytm decided to proactively give businesses more reasons to use its APIs.
For example, the company learned that increased tax compliance requirements relating to employee benefits were making it hard for many businesses to distribute meal allowance payments to their staff. In response, it created a product called Paytm Food Wallet, a separate digital wallet that replaces physical food vouchers. This use case encourages use of the Payouts API when partners fund their employees’ Food Wallets. The wallet can be used at any one of Paytm’s ecosystem of 900,000 offline merchants who accept Paytm wallet QR payments and who are also registered as restaurants and food retailers.
One of the many businesses to start using the Paytm Food Wallet was multinational IT company HCL Technologies. The company simply opted to use the wallet inside of the Paytm app rather than integrate the wallet into its own systems. The wallet has built-in tax compliance features that allow only food allowance balances to be spent on approved items. And it allows HCL to easily customize the allowance configurations for staff at different salary levels to ensure tax compliance.
Paytm also saw an expansion of lenders, insurers and gaming companies in the market with digital channels that wanted access to a low-cost mechanism to disburse and collect payments from customers. An early adopter of the use case that Paytm developed was mPokket, an online lender that provides $5.6 million per month in instant, small-value, short-term student loans. According to mPokket, integration was far easier than it was with banking systems it had used in the past. It was also free, whereas banks had charged an integration fee. Leveraging the Payout API, the product enabled mPokket to seamlessly disburse funds to students. And the Collections API enabled repayment by a “significant proportion” of the students who opted to receive their loans into a Paytm wallet or account. Overall, the Paytm service enabled mPokket to increase the volume of its lending.
Creating a dashboard to help third parties overcome technical hurdles
Across the various use case-specific products that Paytm has developed with its APIs, Paytm has focused on making integration as simple as possible, recognizing that different businesses have different needs and capabilities.
For example, in addition to making its Payouts product available via APIs, Paytm introduced a dashboard. The dashboard removed many of the hurdles that partners were facing, including those related to technological capabilities and prioritization challenges. Whereas enterprise partners often take 30 days to integrate with the Payouts API, getting started on the dashboard typically takes two days. However, some partners still prefer the API because it allows them to integrate Payouts directly into their existing processes and systems, avoiding manual processes and reconciliations.
While this approach has required upfront customer research, investment and resource capacity, it has been paying off. Within the first three months of the COVID-19 lockdown, the Paytm Payouts APIs and related dashboard helped more than 5,000 businesses pay their employees, vendors and contractors more than $200 million. These transactions encompass everything from employee paychecks and food allowances to school loans and utility bills.
Not every DFS provider will be able to undertake this type of API initiative, but in markets where third parties face constrained expertise or resources, it could offer providers a way to increase use of their APIs while delivering more useful services to customers.