PhonePe
- Jinal Sanghavi
- Feb 16
- 7 min read
Updated: Jul 24
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PhonePe was founded in 2015 by three cofounders, Sameer Nigam, Rahul Chari and Burzin Engineer, ex-Flipkart and longtime friends. Initially, it launched as a digital wallet facilitating mobile recharges and bill payments. But in 2016, just a few months before demonetization, it adapted to the changing digital finance landscape in India and launched its flagship product on UPI. And, that completely changed the game for the company. Today, as of March 2024, the company is said to have about 53 crore registered users, approximately 20 Crore monthly active customers, 50+ Lakh net payment devices deployed, and processes 770+ Crore transactions monthly amounting to $1.5 Tn on an annualized basis in Total Payment Value.
In this episode, we discuss in depth the founding story, the enabling macroeconomic climate, its business model, financials and what the future holds for the company.
Hope you enjoy the episode as much as we did when making it.
Here are key timestamps for the podcast:
00:00 – Introduction: Shantanu welcomes listeners and introduces the podcast and co-host Jinal.
00:37 – Jinal’s Introduction: Jinal shares her background in economics, startups, ISB, and Amazon India.
02:10 – Shantanu’s Introduction: Shantanu discusses his background in mechanical engineering, steel plants, and startups.
03:04 – Topic Intro – PhonePe: Jinal explains why PhonePe is being discussed—its significance and acquisition by Flipkart.
04:30 – What is PhonePe: Shantanu describes PhonePe’s function as a financial intermediary/super app.
05:23 – PhonePe Founders’ Story: Jinal shares the backgrounds of Sameer Nigam, Rahul Chari, and Burzin Engineer and their connection to Flipkart.
08:00 – Why They Built PhonePe: The founders’ motivation around solving Flipkart's payment issues during Big Billion Day.
10:23 – Acquisition by Flipkart: Early sale of PhonePe to Flipkart and strategic reasons for it.
12:02 – Company Culture: Discussion of PhonePe’s values, integrity, and emphasis on company culture.
13:58 – Key Events in 2016: UPI launch, Jio revolution, and demonetization propelling PhonePe’s growth.
16:00 – Competing with Paytm: Comparison with Paytm, marketing strategies, and “Indianness” of PhonePe.
18:32 – PhonePe’s Scale in 2024: Jinal shares usage and statistics (users, transactions, market position).
19:58 – Business Model Overview: Shantanu details merchant and customer revenue drivers, government subsidies, sound boxes, POS, and more.
23:00 – Expansion Areas: Diversification into Pincode, Indus App Store, wealth management, and how data powers growth.
25:35 – Financial Performance: FY23-24 revenue, PAT figures, and sustainable growth strategies.
27:03 – Competition and Market Share: How PhonePe surpassed Paytm and Google Pay, focusing on rural/vernacular solutions and UPI lead.
29:38 – User Experience Comparison: Discussion on UI/UX: PhonePe vs. Paytm vs. Google Pay—functional strengths and weaknesses.
32:14 – Regulatory Challenge: Potential NPCI market cap on UPI transactions and the challenge ahead for PhonePe.
About PhonePe
PhonePe was founded in 2015 by three cofounders, ex-Flipkart and long time friends, who we discuss in more detail in the podcast. Initially, it launched as a digital wallet facilitating mobile recharges and bill payments. But in 2016, just a few months before demonetization, in August 2016, it adapted to the changing digital finance landscape in India i.e. launched its flagship product on UPI. And, that completely changed the game for the company. It was all about timing, really.
At the time, rapid penetration of affordable smartphones, access to low-cost high-speed Internet service, forward-looking governmental policies such as the PM Jan Dhan Yojana and ongoing investments in Digital Public Infrastructure (DPI) such as Aadhaar were creating unique tailwinds for population-scale financial inclusion solutions to be developed in India.
As of March 2024, the company is said to have about 53 Crore registered users, approximately 20 Crore monthly active customers, 50+ Lakh net payment devices deployed, and processes 770+ Crore transactions monthly amounting to USD 1.5 Tn on an Annualized basis in Total Payment Value.
PhonePe's business model
Send, Spend, Manage, Grow - that was the initial business model. It’s now evolved to something much biggest, especially in the last couple of years. The annual report says: “At PhonePe, our ambition is to build Internet platforms that help all Indian citizens improve their lives, realize their aspirations and unlock their true potential.” This is why they launched Pincode, Insurance, Share.market and many others. But, these are yet to really take off, facing strong competition in each of the businesses
PhonePe’s early decisions like investing in data infrastructure and housing data in India have been big decisions that really paid off for the team. Its Core Platforms power horizontal capabilities that are foundational to all products and businesses - either PaaS (Platform-as-a-Service) and SaaS (Software-as-a-Service).
Scale, Performance and Reliability - are the primary focus areas for our Core Platforms teams. The north star metrics for these focus areas are total volume of transactions, transactions processed per second and the success rate of transactions, respectively.
I also came across a mention that I found quite interesting in the annual report: Our Knowledge Stores are high-throughput, steam computation data stores, powering real-time decisioning based on a variety of variables for a specific user or a cohort of users. An example is, “Yatra”, which is designed to track an individual user's early journey on the PhonePe app and drive programmatic nudges for new users to get easily acclimatized to the PhonePe App.
Financials
In FY23-24, its revenue crossed INR 5,000 Cr mark, as it grew 74% Y-o-Y, while turning adjusted PAT positive, i.e., PAT excluding costs related to Employee Stock Options (ESOP). In fact, the standalone Payments business recorded Adjusted PAT of INR 710 Cr for FY23-24 versus INR 194 Cr loss for FY22-23.
Financial strategy
The company reports says that it is anchored on three key pillars: (1) predictable and sustainable growth in revenue, (2) diversification of revenue streams, and (3) continuous improvements to the bottom line.
Diversification of revenue: The PhonePe consumer app has become an essential part of our users’ lives, with a steady 99+% 30-day retention rate. The PhonePe Consumer app offers a wide range of services to consumers, including Mobile Recharges, Bill Payments, Peer-to-Peer money transfers, travel bookings and transit payments. They have also developed an in-house Ads platform that provides enhanced brand and performance marketing value to its advertisers
On the merchant side, they have started monetizing our vast national network of 4+ Crore merchants, by providing Smart Speakers (Voice based Payment Confirmation Devices) and launching our own EDC (Electronic Data Capture) devices. While payments and financial services remain the more mature parts of PhonePe, they have also made next-gen investments in emerging business lines that we believe are critical to solving for India’s long-term success. For example, Indus Appstore localizes the experience for India’s vast and diverse consumer base, allowing consumers to discover apps conveniently in 12 Indian languages, which represents 93% of India’s language preferences.
Another interesting mention is its Focus on Cross Sell/Up Sell other products - Leveraging its expansive UPI-based distribution network, they’ve launched and scaled Fintech distribution services like Insurance and Mutual Funds for customers, and EDI-based lending for merchants. How are these doing, though? Any early reads?
One key aspect of differentiation on how rich PhonePe’s data is – building services from the bottom of the funnel up top versus the reverse that most companies end up with – example Google’s search, Amazon’s customer views, etc. This gives PhonePe the deepest of insights in customer behaviour and shopping patterns.
Risks and Opportunities
A potential 30% cap on the market share of any company processing payments via the Unified Payments Interface (UPI) is a roadblock to PhonePe's public listing, its founder and chief executive Sameer Nigam said during a discussion at the Global Fintech Fest (GFF) in Mumbai. It’s also quite unfair an ask, we think. How do you tell companies to stop sign-ups and degrow their customer base? The onus need to be on the other companies to grow. Honestly, there are tons of UPI players, with little barrier to entry.
Going global
In the last year, the company has expanded globally with partnerships in 6 countries (Singapore, United Arab Emirates, Nepal, Sri Lanka, Bhutan and Mauritius), thus enabling UPI payments for consumers traveling abroad.
Parting thoughts
1. PhonePe is going to dominate the Indian new-age tech. Much like Zomato is doing. And, I say that not only because of its current dominance in payments but because of the team behind it, its willingness to take risks in these different businesses and sheer execution – in a crowded UPI market, almost 1 in every 2 transactions are through PhonePe.
2. Which bets are likely to work? We think they have a chance in financial services like Insurance, lending, etc. E-comm and Indus seem really far flung that require other big capabilities. But we are quite intrigued to where they go
3. Will it IPO soon – yeah, seems very likely by 2026. Referring to the mention in Walmart’s May investor call, John David Rainey, CFO of Walmart said this: We love the portfolio we have. And if you just focus on the international portfolio right now, there are some real shining stars there, whether it's Walmax or our China business or what's happening in India. But we've indicated that we expect both the top line and operating income for international to outpace the enterprise, over the next five years. What -- I can't help but mention Flipkart and PhonePe. Part of the improvement we saw in the international segment in the first quarter, was the improvement in those two companies. They continue to do extremely well. PhonePe, right now, is generating a level of total payment volume. So think, you know, GMV in our business, but in the payment business, is total payment volume, that is $1.5 trillion. Like -- these are like crazy numbers.
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