PhonePe secures multi-million-dollar in a bid to accelerate growth and become a super app

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The Indian digital payment landscape has grown multi-folds over the last few years, and PhonePe has been at the forefront of this revolution. The prepaid payment instrument provider currently holds the majority of the digital payments market in India. It has over 400 million registered users on the platform and more than 35 million merchants accepting digital payments.

In the Unified Payments Interface (UPI) segment, the payment method which has become the most popular way for consumers to transact online in India and processes more than 7 billion transactions per month, PhonePe is leading with approximately 40% of these total transactions. In December 2022, PhonePe had a 46% market share in the digital payments space, according to data reported by the National Payments Corporation of India (NPCI).

In its bid to limit any single prepaid payment instrument provider from processing over 30% of UPI transactions a month, Indian regulators are enforcing a market cap on each player. This is a growth concern, especially for PhonePe, which currently leads the UPI transaction volume in India. The regulation, which is now slated to come into effect on December 31, 2024, can limit the growth potential PhonePe, and as a result, the firm is expanding its footprint into other business verticals such as wealth management, insurance, and lending to offset any potential revenue loss. As part of its growth strategy and to invest in other business verticals, PhonePe secured a multi-million-dollar deal from General Atlantic.

• In January 2023, PhonePe announced that the firm had raised US$350 million in a new funding round at a valuation of more than US$12 billion. The firm is anticipated to raise another US$650 million, which PhonePe is projected to close in Q1 2023. Despite the funding winter, the digital payment giant’s ability to raise a multi-million-dollar deal represents the growth potential in the Indian digital payments segment over the next five years.

To add more services to its digital payments stack and drive revenue growth, PhonePe has been seen diversifying its services for some time now. In May 2022, for instance, PhonePe announced the acquisition of WealthDesk, an investment platform, and OpenQ, a wealth management platform. With the firm seeking to enter into the lucrative consumer lending space, PhonePe is again expected to explore acquisition deals from the short-term perspective. Expanding the scope of its service offering is also beneficial for PhonePe given that it has a strong presence among Indian consumers. With one out of four consumers using the prepaid payment instrument, offering more services on its platform will also drive customer loyalty. 

Diversification of services into wealth management, insurance, and lending will not only assist the firm to offset any potential revenue loss but will also accelerate PhonePe's path to profitability. Given the growing competition in the Indian digital payments market, which also includes other global and domestic players such as Amazon Pay, WhatsApp, Google Pay, and Paytm, diversification of services is also relevant from the competitive viewpoint.

Paytm, similar to PhonePe, has been seen diversifying its services for both merchants and consumers in India. However, unlike PhonePe, which is currently exploring the lending space, Paytm has already taken a head start in the sector. In the credit segment, Paytm has experienced strong growth in both the merchant and consumer lending business over the last few quarters. Paytm, in strategic collaborations with financial institutions, is distributing loans in India. In December 2022, alone, Paytm recorded a growth of 330% year over year in loan disbursements. With the significant increase in the lending segment, along with some increase in its commerce vertical, the firm is projected to report healthy growth in its operating revenue.

In addition to diversifying its services, PhonePe is also planning to invest in infrastructure, including the development of a new data center. In 2022, the firm also shifted its base to India. This will allow the firm to mark an easier entry into the highly-regulated Indian financial services market. Furthermore, in 2022, PhonePe also completed its separation from Flipkart, the e-commerce behemoth in India.

For PhonePe, getting consumers to embrace insurance and investment products, can lead to a competitive advantage over other players such as Amazon Pay and Google Pay. Furthermore, a potential foray into the lending segment, a high-growth space, will ensure a dominant position for the prepaid payment instrument provider from the short to medium-term perspective.

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