Mumbai: Today, we celebrate the remarkable success of digital payments in India. Since its launch in 2016, the Unified Payments Interface (UPI) has experienced exponential growth. As of December 2024, there were 16.73 billion UPI transactions, amounting to ₹23.25 lakh crore.
Interestingly, the roots of digital payments in India can be traced back to the launch of Electronic Top-up in January 2004. By the time UPI gained traction, most Indians were already familiar with digital transactions, averaging four electronic top-up recharges per month over the prior 12 years.
As pointed out by Brad Jones “A lot of people probably forget PayTM started as a top up platform.” incidentally, the spark to write this article was ignited by reading an article by Brad Jones, which I would strongly recommend-Distribution is the key to success in digital financial services
The Transition from Paper Vouchers to Electronic Top-up
Before Electronic Top-up, prepaid mobile recharges were predominantly done using paper vouchers. These were credit card-sized, plastic-coated cards with a hidden number beneath a scratchable coating. Users would reveal the number and dial a USSD code like *123*<number># from their feature phones to load talk time.
For telecom operators, manufacturing these cards cost around ₹1 each. Distributing them involved a complex supply chain: from manufacturing to company warehouses, from there to distributors, and finally to retailers. This process mirrored Fast Moving Consumer Goods (FMCG) distribution models, which is why telecom sales teams often hired talent from companies like Pepsi and Coca-Cola.
The launch of Electronic Top-up removed the need for physical cards, saving the ₹1 manufacturing cost per recharge. Initially, it was expected to swiftly replace paper vouchers. However, it took 17 months — until April 2005 — for Electronic Top-up to become the dominant recharge method.
Challenges in Adoption
Despite the apparent benefits, telecom sales teams initially preferred paper vouchers. Understanding why requires insight into the sales cycle, which consists of three stages:
- Primaries— Telecom companies selling to distributors.
- Secondaries— Distributors selling to retailers.
- Tertiaries— Retailers selling to customers.
For paper vouchers, processing fees were deducted at the primary stage. For instance, a ₹200 voucher might include a ₹50 processing fee and ₹25 in taxes, leaving the customer with ₹125 of talk time. Since the fee was determined upfront, it helped sales teams meet their monthly targets more easily.
Electronic Top-up, however, worked differently. Distributors would sell a lump sum, say ₹1,000, to retailers. Retailers like Tom, Dick, and Harry might break it down as follows:
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Tom: Five ₹200 recharges
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Dick: Ten ₹100 recharges
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Harry: Twenty ₹50 recharges
In this case, the processing fee was only calculated at the tertiary stage, often in the following month. This delay made it harder for sales teams to achieve their monthly processing fee targets.
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To overcome this hurdle, telecom companies had to revise their sales targets and compensation structures to align with the new model. This marked a critical turning point in the evolution of Electronic Top-up.
The transition to Electronic Top-up not only streamlined operations but also set the stage for the digital payments revolution in India. In future articles, I will explore more stories about the evolution of prepaid top-ups and digital payments.
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