PhonePe: Making the Most of India’s Digital Adoption

The start-up has defeated Google Pay in terms of market share and has become the top UPI mobile app in India.


While payment apps in India are coming up with new offerings to corner the market, this particular start-up kicked it up a notch. Have you ever heard of a payment app that has its own ATM? This unusual but brilliant move was made by Bengaluru-based start-up PhonePe.

Before we explore this first-of-its-kind offering by the payment app, we rewind six years to when the start-up began its humble journey from a simple digital wallet to its culmination into one of the leading fintech players in the industry today.

Inception 1.0

In 2015, Sameer Nigam, Rahul Chari and Burzin Engineer started PhonePe to cause much positive destruction in the way people look at digital payments. The aim was to develop an app to give an overall new experience to users while ensuring financial inclusion and easy access.

The trio, however, was unsure whether PhonePe would be a payments company or a platform company. The market was transitioning into a phase of digital wallets boom back then. The early entrants – Paytm and Mobikwik – had already gained traction in the crowded e-wallet market at the back of sound funding, cash backs and product development.

In April 2016, National Payments Corporation of India (NPCI), a government-backed consortium of banks, introduced Unified Payments Interface (UPI). Within a few days of this launch, e-commerce giant Flipkart, which was scouting for suitable acquisitions in the payments solutions space, announced its acquisition of PhonePe which saw ‘UPI’ as its golden ticket and was building a payments solution app based on the same.

In August, merely 4 months after UPI’s launch, the PhonePe app was made live. It became the first non-banking entity to launch a UPI app. It was only a year later that Google Pay and Paytm entered the UPI space, but PhonePe had gained the first mover’s advantage.

The start-up took a different approach from how the market was trying to solve the problem of online payments. They did not want to remain restricted in terms of product scalability by building a banking app, a recharge app or a utility payment app. Rather, the aim was to reach a wider audience with a scalable product and maintain inclusivity.

What does the PhonePe app do? It enables transfer of money from one bank to another (UPI allows a customer to pay directly from a bank account to different merchants, both online and offline, without details like IFSC code, net banking passwords, etc). Customers can use the app to pay bills, recharge pre-paid mobile numbers, recharge data card and DTH, send or request money from friends by entering their number, name or VPA, split bills between people, check bank account balance and scan QR codes to pay.

The app also sells products and services like groceries, insurance, food (via product promotion). What is fascinating about PhonePe is its evolution and growth over the past years. Within three months of its launch, over 10 Million users downloaded the app.

In a short span, it has surpassed its peers with over 280 Million registered users. It is processing over 100 Million transactions in a month and an annual total payment volume (TPV) of over $388 Billion, including 17.5 Million merchants across 500 cities.

Going Beyond a Digital Wallet

PhonePe has been in a continuous mode of evolution since inception. It entered the BFSI segment in 2017 by offering gold on its platform in partnership with SafeGold and MMTC-PAMP.

The start-up registered its wealth management division, PhonePe Wealth Services Pvt Ltd., marking its debut into financial services. It dispatched shared assets and protection monetary items like expense saving assets, liquid assets, worldwide travel protection and protection cover for COVID-19 in association with various financial organisations like Yes Bank, ICICI Prudential Life Insurance, Axis Bank among others.

It has now become the largest platform for buying digital gold with a 35% market share.

In the most recent development, PhonePe is planning to foray into stockbroking. The aim is to encourage its existing users to put a fraction of their unutilised funds in wallets into the stock market. This will intensify the battle in the stock market which is dominated by players like Zerodha, Upstox and others.

The fintech company has a vision of becoming a full-fledged diversified financial services player and stock broking is an addition to the same. The expansion and plunge into different categories is also a part of the company’s strategy of monetizing its customer base – offering financial service being one of them.

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PhonePe is processing over 100 Million transactions in a month and an annual total payment volume of over $388 Billion.

Making Inroads in Unorganized Market

In a bid to tap the huge opportunity in the retail market, PhonePe started focussing on Kirana stores owners and small-scale retailers and help them adapt to the new-age style of doing business.

The company has ‘PhonePe for Business’ app, which offers end-to-end control of the payment process, including instant payment confirmations, receipts, and reconciliations and grocery deliveries to Kirana store owners and small merchants.

PhonePe has recently launched its own ATM which will enable people to get cash from merchant partners through transactions with their mobile devices. The company said that the service will enable neighborhood stores to act as ATMs for PhonePe users. At the same time, it will also help merchants avoid the hassle of storing cash and making multiple trips to the bank branch to deposit their extra cash.

The brand is also advertising the SMEs and local shopping brands on its app to raise awareness and help them market their products. The app offers its merchant partners to grow their business by giving them a personalised store page on the app, allowing them to list their store timings, share their product catalogue, and promote home delivery options, thereby reaching out to a much wider customer base.

The app further offers voice notifications in 11 vernacular languages free of cost. This helps the merchants during peak business hours as the app announces the amount received from customers, saving all the time to check the customer’s phone screen or wait for a bank message.

PhonePe at present has 13 Million merchants on its platform and it is accepted as a payment option at over 17.5 offline and online merchant outlets across 500 cities.

The company has come up with a Bluetooth-enabled Point Of Sale (POS) device that is indigenously designed to help merchants of all sizes – be it local kirana stores, petrol pumps, food chains or quick service restaurants to help accelerate digital inclusion at all levels.

PhonePe was one of the first fintech companies to identify the needs and demands of the local merchants who are not equipped with technology like the big retailers, hence the POS device. This device works like a traditional calculator which is cheap, easy to use and highly durable, something a merchant would be interested in.

The App’s USP

PhonePe user interface is simple and easy to use even if one has never made a digital transaction before. This makes it a Unique Selling Proposition (USP) as different age groups of people are often challenged while making online payments and revisit its adoption unless out of compulsion.

This is an important feature in such a highly competitive and crowded payments app market. The app, since inception, was kept simple and hence scalable to incorporate more verticals, especially in the context of Kirana store owners and small retailers who might not be well-versed with digital mediums.

There is an ease of looking up terms, navigating across pages and options besides strong privacy measures on the app. In terms of users’ experience, it ranks at the top, in comparison to its peers – Paytm, Gpay, Razorpay and Instamojo.

The company also introduced a separate chat service for users and merchants in over 11 Indian languages to further smoothen the user experience.

In 2018, the start-up had launched Switch which offers more than 260 mini web applications and allowed users to switch between various apps, including travel, grocery, food and shopping, within the PhonePe app.

This innovation turned out to be unique as users do not have to download and install all these apps individually on their phones, they can easily access the services from Switch without any additional convenience fee or charge. This further added to the app’s USP of ease and comfort and created a superior product experience.

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PhonePe user interface is simple and easy to use even if one has never made a digital transaction before.

Clash of the Titans: Paytm vs PhonePe vs Google

To date, PhonePe is cashing on its first mover’s advantage. The start-up defeated Google Pay in terms of market share between November and January 2021 and became the top UPI mobile app. The company processed 968.72 Million UPI transactions involving nearly Rs 1.92 lakh crore in January 2021.

The duo dominate the UPI apps market and have over 75% market share together. Paytm Payments Bank app, on the other hand, stands third followed by Axis Bank app and Amazon Pay.

The technical glitches faced by the banking partners of Google Pay and the government-mandated cap on UPI transactions, boosted the number of UPI transactions for PhonePe and Paytm as customers moved away from the former.

However, this cannot be credited as the sole reason for PhonePe’s lead in the sector. The start-up has been aggressively investing in its offline merchant base which has increased its user base and transactions besides its massive adoption in Tier 3 and Tier 4. Both PhonePe and Paytm have been adding more use-cases, growing the overall UPI ecosystem.

Founders Sameer Nigam, Burzin Engineer, Rahul Chari

The Spin-Off

In December 2020, Flipkart divested PhonePe into a separate unit and partially sold its stake to its parent company, Walmart. PhonePe came under Walmart post Flipkart’s acquisition but continues to retain majority stake in shareholding pattern. The acquisition saw a rising growth of PhonePe as a brand.

At present, Walmart is considering spinning off the start-up to give the company more flexibility and freedom to pursue its development and get access to dedicated capital for its long-term goals. The partial spin-off will bring new opportunities for the start-up as it will be able to raise more primary capital, giving autonomy to operations.

PhonePe has come a long way since its inception from starting as a digital wallet to becoming the leader in UPI transactions.

As per the founders, the start-up aims to be profitable by 2022 and go public in 2023. The company bagged $700 Million from Walmart and other existing investors and another $21 Million from Flipkart, which still holds 87% stake in PhonePe, in December 2020. The post-funding valuation stood at $5.5 Billion.

Product innovation, diversification (fintech market) and the company’s mass-market focus (reach beyond metros) will continue feeling its future growth.

Muskan Khemka
Muskan Khemka
Muskan is an intern at Dutch Uncles, she has a finance and economics background and is currently pursuing triple majors in Economics, Media Studies and Political Science from CHRIST.

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