Have you seen the new PhonePe ad? You know, the one where they show how you can link your credit card to your PhonePe wallet. Well, this ad actually tells us a lot about what PhonePe is planning to do next. Today, let’s talk about how PhonePe started, Phonepe business model, how it actually makes money, what its long-term game plan is, and how government rules might affect companies like PhonePe.
How PhonePe Started
Back in 2016, something big happened in India’s payment world. First, NPCI (the guys who manage payments in India) hosted a big event called a “hackathon” in February. The PhonePe team was there, and they quickly realized that UPI (Unified Payments Interface) was going to be huge. They decided right then to fully focus on UPI technology. By April 2016, UPI was officially launched for everyone.
Then, in November 2016, demonetization happened. Remember when the government suddenly banned certain notes? Right at that moment, PhonePe was ready to jump in and capture the market. In just three months, PhonePe got around 10 million users! They quickly became a big player alongside Paytm and Google Pay.
Here’s how PhonePe’s growth looked:
| Time Period | Milestone Achieved |
|---|---|
| April 2016 | UPI launch |
| November 2016 | Demonetization event |
| Within 3 months | Reached 10 million users |
| December 2024 | 200 million monthly transacting users |
How PhonePe Dominates Payments
By December 2024, PhonePe had around 200 million users making transactions every month—that’s almost one-third of all the people in India! This huge success made PhonePe consider listing its company publicly on the stock market at a valuation of around $12 billion. On the other hand, Paytm listed at $20 billion, but its value dropped later to around $5-6 billion.
But how did PhonePe beat giants like Google and Meta (Facebook)? The answer is pretty simple—they understood that payments aren’t just about technology; it’s about reaching people personally. Unlike big global tech companies, PhonePe built a huge team that went everywhere in India, especially rural areas, setting up QR codes at small shops. About half of PhonePe’s expenses go toward paying employees, showing how serious they are about having people on the ground.
How PhonePe Makes Money
Now, let’s talk about how PhonePe actually makes money. Surprisingly, PhonePe doesn’t really earn directly from UPI transactions, because these are free for us users and the shopkeepers (merchants). Instead, the government gives PhonePe money (subsidies) to cover their costs for running the UPI system. This subsidy was huge, around ₹2600 crore in FY2023 and ₹5000 crore in FY2024.
| Financial Year | Government Subsidy (₹ crore) |
|---|---|
| FY 2023 | 2600 |
| FY 2024 | 5000 |
| FY 2025 (projected) | 1500 |
Risks with Government Subsidies
But here’s the problem—subsidies aren’t reliable. The government can stop giving them anytime. In fact, for FY2025, the subsidy dropped to ₹1500 crore. Because of this risk, PhonePe is now trying hard to make money from other services.
PhonePe’s Long-Term Plan
PhonePe’s long-term plan is to keep users inside their app for more than just payments. They want people to get used to their app so much that they start using it for booking tickets, paying electricity bills, phone recharges, internet payments, and even stock trading. Basically, they want to offer many different services to earn money.
The founder of PhonePe, Sameer Nigam, said they have already launched around eight or nine new businesses like lending (loans), insurance, and even an app store. These businesses are completely different from each other and offer big opportunities. So, they’re planning to grow a lot in the next 4-5 years.
Merchant Discount Rate (MDR)
Another big way PhonePe can make money is if the government brings back something called MDR (Merchant Discount Rate) on UPI payments. MDR is basically a small fee merchants pay whenever someone uses digital payments. Right now, MDR on UPI is zero, meaning PhonePe doesn’t earn directly from these payments. But if the government starts MDR again, PhonePe would gain the most because they control 50% of the UPI market.
Revenue Sources Apart from UPI
Apart from UPI, PhonePe makes about 90% of its money from other things like debit and credit card transactions, selling advertising, providing card swipe machines (POS devices), and financial services. They recently launched a local online shopping platform called “Pincode” and a stock-trading app called “Share.Market.”
Financial Performance
PhonePe has grown really fast over the years, but if you remove the subsidies, it’s actually losing money. For example, in FY2023-24, they earned ₹197 crore profit excluding subsidies, but the subsidy alone was ₹570 crore. So you can see how important subsidies are for PhonePe.
| Financial Metric | Amount (₹ crore) |
|---|---|
| FY 2023-24 profit excluding subsidy | 197 |
| FY 2023-24 subsidy amount | 570 |
Regulatory Challenges
To make sure no single app becomes too dominant, the government introduced a rule saying no third-party UPI app can handle more than 30% of total transactions in the country. Initially, they planned to enforce this by December 2022, but the date got pushed to December 2024, and now it’s extended again to December 2026. If enforced, PhonePe would need to lose some of its market share, which could affect their profits badly.
Conclusion
To sum it up simply: PhonePe is India’s top UPI payment app with over half of the market share. But UPI doesn’t make them direct money; they rely on government subsidies. Those subsidies aren’t guaranteed forever, so PhonePe is diversifying into other services to stay profitable. Their non-UPI revenue mainly comes from credit and debit card payments, financial services, and ads.
Although PhonePe earns less revenue (₹2,725 crore) compared to Paytm’s ₹10,000 crore, they’re confident about their future. When PhonePe announces its IPO plans, we will see how company performs then till lets just wait & watch.
Leave a Reply