The digital payments leader partners with Cloudflare to accelerate and secure monthly mobile payments

Over the past five years, the digital payments industry in India has experienced a staggering growth. A report titled “Digital payments in India: A $10 trillion opportunityemphasizes that the market is at a turning point and its size is expected to more than triple from its current value of $3 trillion to $10 trillion by 2026. With this increase, digital payments (non-cash transactions) are expected to increase by two-thirds of all payment transactions by 2026.

As one of India’s leading digital payments and financial technology (fintech) players, PhonePe, with a user base of nearly one in four Indian citizens, is well positioned to lead this paradigm shift.

Founded in December 2015, the company has developed products and services tailored to the Indian market and has acquired a user base of over 435 million registered individuals. PhonePe has also made significant strides in digitizing offline merchants, with over 35 million merchants in Tier 2, 3 and 4 cities and beyond now using the platform. This extensive range covers 99% of all PIN codes in India. In terms of market share, PhonePe has consistently outperformed competitors such as Google Pay and Paytm.

Market share data source: NPCI

In the latest development, PhonePe has raked in $350 million financing from global growth equity firm General Atlantic at a pre-money valuation of $12 billion. This marks the first tranche of a total fundraising round of up to $1 billion that PhonePe started in January 2023. The company plans to use the newly raised funds to make significant investments in infrastructure, including data center development, and to scale financial services offerings across the country. PhonePe also plans to invest in new ventures such as insurance, wealth management and loans.

The fundraising is expected to strengthen PhonePe as it aims to accelerate the next growth phase for UPI payments in India, including UPI lite and Credit on UPI, facilitating greater financial inclusion for Indians.

Growth in digital payments is not without challenges

With its peak periods determining its network requirements, PhonePe sought a content delivery network (CDN) with the elasticity to accommodate any daily traffic flow. More importantly, that solution had to handle dynamic traffic without introducing any latency that could undermine the user experience.

“Each transaction would take three seconds to complete – as that time gets longer, people lose patience. Once a transaction takes 12 seconds, our users assume we’re in trouble and volumes drop to zero when they come to our turning competitors. Burzin EngineerPhonePe co-founder and Chief Reliability Officer told VentureBeat.

Because the quality of PhonePe’s customer experience is so important 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 working with banks, PhonePe wanted a single solution to provide real-time protection against threats such as denial-of-service (DDoS) attacks, malicious bots, and SQL injections. It also had to provide instant financial transactions on a large scale.

To protect itself against these threats and secure more than 3.6 billion monthly mobile payment transactions, PhonePe has partnered with San Francisco-based security, performance, and reliability company Cloudflare (NYSE: NET). “We were interested in Cloudflare’s tech stack. Compared to the other suppliers, it did not carry the baggage of 20-year-old technologies,” says Engineer. “Cloudflare was newer and had a modern API-driven content delivery network built specifically from the ground up.”

PhonePe’s leadership also leans on Cloudflare’s commitment to developing relationships in India and improving the topology of content delivery infrastructure across the country. As things stand, Cloudflare has multiple data centers in India, in cities like Mumbai, Chennai, and Hyderabad. These data centers store copies of static content from websites using Cloudflare’s CDN maintenance. When a user requests content from one of these websites, the content is served from the nearest Cloudflare data center, helping to improve website load times for users in India.

“Because all of our business is conducted domestically, the Cloudflare Web Application firewall (WAF), managed rule sets, and the ability to geo-block traffic resulted in immediate security benefits. Using the Cloudflare WAF, we cut off over 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.

“Limiting traffic to sources within a specific country can also be an effective way to reduce the risk of malicious attacks. By restricting traffic to a specific geographic region, we narrow 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 that PhonePe maintains that critical uptime. Engineer says it has detected and neutralized 180 million threats to the PhonePe application layer per month. In addition to protecting PhonePe’s applications, Cloudflare simplifies the security audit process and helps the platform meet compliance requirements.

Cloudflare also adheres to India’s data localization and data residency rules, simplifying PhonePe’s compliance requirements.

Serverless image resizing and adaptive bitrate video delivery for a smooth, responsive user experience

With security and compliance issues addressed and applications and networks protected, PhonePe focused on further improving the 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 every device and to improve performance at the point of service. The resizing process required over 50 bare-metal origin servers. Cloudflare Employees eliminated the need for those machines. “Once we transferred dynamic resizing and image delivery to Workers for more than 200 devices, all we needed to do was deliver one high-resolution source image,” explains Engineer. “Employees resize, cache and serve those images for us. It saves PhonePe resources, space and power. It also improves the user experience because it is faster.”

With support from Cloudflare’s technical team, PhonePe devised and implemented the change in less than two months.

Following the success of offloading responsive image processing to the edge, PhonePe continued to optimize video content delivery. It chose Current, the live and on-demand Cloudflare video service that dynamically adjusts each stream according to network conditions. The Stream service proved ideal for mitigating video delivery issues caused by inconsistent mobile internet performance.

“Stream changes the bit rate based on available bandwidth,” says Engineer. “Previously we could choose from three bitrates, but that was a one-time decision. Now Stream changes speed dynamically and eliminates stagnation and jitter and improves our customer experience.”

Using Workers and Cloudflare’s global network, PhonePe now offloads an average of 80% of traffic from its native servers and benefits from corresponding bandwidth savings and a 10-fold reduction in infrastructure costs. In a month, Cloudflare handles 775 billion requests for PhonePe — more than 289,000 requests per second — and PhonePe’s merchant notifications and image resizing use cases lead to 50 billion employee requests.

For PhonePe, where network and security issues directly affect its customers and trading partners, proactive Cloudflare support translates into peace of mind and a boost to broaden its horizons. “We will continue to grow all areas of our business, and this includes adding more and more use cases to the PhonePe app, increasing our adoption with offline and online merchants while expanding our financial services offering across India. improved,” said Engineer. “In the future, digital payments will need to be much more inclusive, and ‘Bharat’ (users outside subways) will really play a major role in this growth. We will continue to focus on building an offering for one billion Indians, who have the means to transact but do not know or understand digital payments.