How we launched, scaled, and exited a digital wallet startup in 3 years

The opportunity: digital mobile payments

Growth in market liquidity

Market liquidity in billions of USD — April 2015 to December 2017 — Iran
Market liquidity in billions of USD — April 2015 to December 2017 — Iran (Sources: Shaparak)

Migration of transactions to digital channels

Electronic payments as % of total market liquidity in Iran — April 2015 — December 2017 (Sources: Shaparak)
Electronic payments as % of total market liquidity in Iran — April 2015 — December 2017 (Sources: Shaparak)
Electronic payments in billions of USD in Iran— April 2015 — December 2017 (Sources: Shaparak)
Electronic payments in billions of USD — April 2015 — December 2017 (Sources: Shaparak)

Cash was losing shares, but still growing in value

Cash payments as % of total market liquidity in Iran — April 2015 — December 2021 (Sources: Shaparak)
Cash payments as % of total market liquidity in Iran — April 2015 — December 2021 (Sources: Shaparak)
Cash payments in thousands of trillions of IRR- April 2015 — December 2021 (Sources: Shaparak)
Cash payments in thousands of trillions of IRR— April 2015 — December 2021 (Sources: Shaparak)
Cash payments in billions of USD- April 2015 — December 2021 (Sources: Shaparak)
Cash payments in billions of USD— April 2015 — December 2021 (Sources: Shaparak)

Cash vs. digital payments

Cash vs. digital payments as a share of total market liquidity in Iran — 2015–2017 (Sources: Shaparak)
Cash vs. digital payments as a share of total market liquidity in Iran — 2015–2017 (Sources: Shaparak)

Number of electronics payment devices

A segmented view of the total number of electronic payments devices in Iran — (Sources: Shaparak)
A segmented view of the total number of electronic payments devices in Iran — figures in millions of units— (Sources: Shaparak)
Number of commercial bank branches per 10,000 population — Iran vs. US vs. South Korea — 2004–2018
Number of commercial bank branches per 10,000 population — Iran vs. US vs. South Korea — 2004–2018 (Source: The World Bank)

Digital transaction by payment medium

A segmented view of the volume of electronic transactions in Iran — numbers in millions for each month — (Sources: Shaparak)
A segmented view of the volume of electronic transactions in Iran — numbers in millions for each month — (Sources: Shaparak)
A segmented view of the value of electronic transactions in Iran — numbers in millions for each month — (Sources: Shaparak)
A segmented view of the value of electronic transactions in Iran — numbers in millions for each month — (Sources: Shaparak)

Focus on microtransactions

Distribution of volume of transactions by transaction value on IPGs and PoS payment modes in Iran, 2017
Distribution of volume of transactions by transaction value on IPGs and PoS payment modes in Iran, 2017

Internet and smartphone penetration

% of the total population using the internet in Iran — YoY growth rates (Source: World Bank)
% of the total population using the internet in Iran — YoY growth rates (Source: World Bank)
Smartphone and mobile internet penetration, Iran, 2015–2020Smartphone and mobile internet penetration, Iran, 2015–2020
Smartphone and mobile internet penetration as share of the total population, Iran, 2015–2020

The opportunity: a mobile-first digital wallet solution

The solution

Phonepay’s digital wallet transaction processes similar to PayPal, AliPay, and WeChatPay
Phonepay’s digital wallet transaction processes similar to PayPal, AliPay, and WeChatPay
Phonepay’s digital wallet and QR-based payments MVP — launched in ~1.5 months
Phonepay’s digital wallet and QR-based payments MVP — launched in ~1.5 months

Launch and go to market strategy

  • Payments in inner-city taxi commutes
  • Payments in mom&pop grocery stores and bakeries
  • Payments in street vendors

Payments in inner-city taxi commutes

Phonepay
Phonepay

Scaling a double-sided marketplace

  • Software: the software solution, or in this particular case, the merchants’ mobile application, focused on informing merchants of transactions, their balance, and immediate settlements via our escrow accounts to the extent possible unless we needed to resort to the ACH railing that would require 4–14 hours for settlements. The immediate settlement was a key differentiating feature of our product that no other players in the marketplace, including bigger tech players and banks, were offering at the time.
Phonepay
Phonepay
  • Hardware and operations side: our launch operations team was focused on the ground operations of onboarding merchants and making them ‘transaction-ready’. This entailed finding geographies of density for daily commute, onboarding municipal and regulatory stakeholders, pitching value and signing up drivers and registering their information (including names, IDs, vehicle information, licenses, bank accounts, etc.), installing our QR-based PoS terminals, installing the merchant mobile apps, providing promotional gifts and items for onboarding their clients, and providing them with later support.
Phonepay
Phonepay

Operations and merchant growth structure

  • Merchant onboarding: that consisted of 1 coordinator and 10 launchers
  • Support: that included 5 support staff
Phonepay
Phonepay

It takes time for a merchant to become a loyal user

Phonepay
Phonepay
Phonepay
Phonepay

Growth in year-1 of launch

Onboarded and active merchants in the first year of operations — by week
Onboarded and active payers in the first year of operations — by week
Number of transactions in the first year of operations — by week
Transactions per payer in the first year of operations — by week
Transactions per merchant in the first year of operations — by week
Number of payers per merchant in the first year of operations — by week
  • First and foremost, we had somewhat acquired most of the easily attainable segments of the taxi market. Any massive growth would have required marketing expenditure, which we didn’t have at the time and needed to raise capital for Stage B. Any massive growth would have required us to move to other market verticals including those with high daily frequency in transactions such as grocery stores which also required additional investment into our product, infrastructure, and personnel resources
  • Second, an active passenger normally takes 1–2 taxi rides per day. The average consumer may only use a cab 1–2 times per week. Therefore, the frequency of taxi payments and transactions per unit user was originally quite low. Again, to grow healthily, we need to diversify and move to other payment verticals

The pros and cons of competition

Competition in the taxi sector

  • Established tech players: from a variety of backgrounds including the financial services and internet sectors who were focused on the taxi payments sector and wanted a share of the market we had established
  • PSPs and banks: with the traction of QR-based payments, PSPs and banks that had customer facing applications launched their digital wallets on a national scale, which due to the scale of their users, expanded the market adoption rate in the short run but also put us in disadvantage of scaling to the mass market
Asan Pardakht and the launch of their QR-based digital wallet

The competition helped us grow

Onboarded and active merchants by week after the launch of operations
Onboarded and active payers by week after the launch of operations
No. of transactions by week after the launch of operations

Targeted growth

And then, it became ugly…

Exit in Q1 2020

Onboarded and active merchants by week after the launch of operations
Onboarded and active payers by week after the launch of operations
No. of transactions by week after the launch of operations

Assessing opportunities for an exit

  1. Guard our current market shares within the payments ecosystem
  2. Grow the business in customer scale and interaction rates, sustainably
  • Help reduce operating and financial transaction costs
  • Help improve customer experiences, substantially
  • Provide our tech-savvy team as a desperately desired asset to add to their current operating model and business ecosystem

Exit to a mega-retailer

  • Access to the wide range of our merchants external to the retailer and their insights and analytics
  • Access to our scale of payer consumption habits
  • Moving a large share of their payments off of the ACH railing system and into their own ecosystem to save on massive transaction costs
  • Migrate customers loyalty, gift cards, and couponing programs to the platform, which moved the product towards a FinTech super-app
  • Grow the loyalty program from the retailer's silos of companies to a larger spectrum of businesses and merchants external to the retailer
  • Integrate an online e-commerce platform into the wallet to compete with the online delivery players in the market — become a digital native super-app
  • Develop a fraud detection and prevention unit for the +10 million customers of the retailer
Early designs of the digital wallet super-app in early 2020

Market data after 2017

Market liquidity

Market liquidity in billions of USD — April 2015 to December 2021 — Iran (Sources: Shaparak)
Market liquidity in thousand of trillion of IRR — April 2015 to December 2021 — Iran (Sources: Shaparak)

Digital payments

Electronic payments as % of total market liquidity in Iran — April 2015 — December 2021 (Sources: Shaparak)
Electronic payments as % of total market liquidity in Iran — April 2015 — December 2021 (Sources: Shaparak)
Electronic payments in billions of USD in Iran— April 2015 — December 2021 (Sources: Shaparak)
Electronic payments in billions of USD — April 2015 — December 2021 (Sources: Shaparak)

Cash vs. digital

Cash vs. digital payments as a share of total market liquidity in Iran — 2015–2017 (Sources: Shaparak)
Cash vs. digital payments as a share of total market liquidity in Iran — 2015–2021 (Sources: Shaparak)

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Nima Torabi

Nima Torabi

1.3K Followers

Never not learning, always growing — nothing is written, and nothing is not written, the journey is the goal