For greater startup use of dvr shares

For greater startup use of dvr shares

The National Payments Corporation of India’s (NPCI) nod to WhatsApp to offer payment services using the Unified Payments Interface (UPI) will make the market for payment services more competitive. This is welcome. Google Pay, Flipkart (Walmart)-owned PhonePe and Paytm are among the largest UPI payment apps. It is ironic that the share of Indian companies in the payments space is smaller than that of foreign companies. Blame India’s delay in permitting and encouraging the use of differential voting-right (DVR) shares by startup founders to retain control even while drawing in capital from abroad.

A product of the application programming interfaces (APIs) dubbed IndiaStack, meant to make use of Aadhaar, and the NPCI’s infrastructure for interbank transfer of funds, UPI has revolutionised the digital payment system by onboarding most banks and a rapidly growing customer base. UPI allows funds transfer at any time of the day from one bank account to another bank account linked to a phone number and Aadhaar, bringing down the use of cash, simplifying merchant payments and lowering costs. Paytm did most to popularise UPI payments and has Indian entrepreneurs at the helm, but is substantially owned by foreign capital. The concern is that when Indian entrepreneurs access foreign-controlled pools of funds, they could end up losing control over their companies.

While the rules around DVR shares have been liberalised recently, the choice before Indian startups was either to bootstrap themselves or potentially lose control by accepting foreign capital. It would be useful to have a larger supply of Indian venture capital as well, including from Indian pension funds, who need to diversify their asset classes.