The idea for PhonePe was conceived during one of Flipkart’s major sales events in 2014 when payment systems failed. Realizing the need for a platform that made financial services and payments simple, Chari and Nigam founded PhonePe in 2015, with Engineer rejoining the team.

In 2014, the Indian government embarked on a mission to democratize and modernize financial services across the country. This mission saw the introduction of programs such as the Unified Payments Interface (UPI) and the Account Aggregator system, which significantly broadened access to financial services. Complementary initiatives like Aadhaar, India’s digital identity system, and the Open Network for Digital Commerce (ONDC) further strengthened these efforts. These initiatives led to the introduction of modern identity verification standards, the establishment of better financial infrastructure, and mandates around digitization and accessibility.

As a result, millions of Indians gained access to financial services for the first time. While only 35% of Indian adults had a bank account in 2011, this number had grown to 80% by 2021. Simultaneously, India’s digital economy flourished, with smartphone adoption rising from less than 20% in 2014 to over 60% in 2022. This digital transformation is ongoing, with digital payments, facilitated by programs such as UPI, projected to constitute nearly 65% of overall transactions in India by 2026, up from 40% in 2021.

PhonePe’s Founding Story

PhonePe’s founding team shares a deep bond of friendship and profession. In the 1990s, Rahul Chari and Sameer Nigam studied at the University of Mumbai together, becoming close friends and roommates. Nigam later met Burzin Engineer in Los Angeles as they started their careers, and the trio remained connected as they progressed in their professional lives. Their paths converged again in 2009 when they founded Mime360, a digital media distribution platform. Flipkart acquired Mime360 in 2011, and while Engineer soon left to join another startup, Chari and Nigam stayed on to build Flipkart’s infrastructure.

The Emergence of PhonePe

Launched in 2015 amidst this digital revolution, PhonePe has become a cornerstone of India’s digital payments landscape. Founded by Sameer Nigam (CEO), Rahul Chari (CTO), and Burzin Engineer (Chief Reliability Officer), PhonePe started as a digital wallet and has since evolved into a comprehensive financial services platform. For consumers, PhonePe offers a wide range of services, including money transfer, insurance, investment, and shopping tools. For merchants, it provides payment acceptance, lending, and advertising solutions. By leveraging UPI and ONDC, PhonePe has gained significant traction, surpassing 500 million registered users by November 2023.

PhonePe’s Journey and Growth

PhonePe and Flipkart were intertwined from the beginning. Just a year after its founding, Flipkart acquired PhonePe for less than $20 million. In 2018, Walmart acquired a majority stake in Flipkart, bringing PhonePe under its umbrella. However, in 2022, Flipkart and PhonePe severed ties, allowing each to pursue their own initiatives independently.

Despite these changes, PhonePe has carved out its own identity. By January 2023, it had become the most valuable payments company in India, surpassing its parent company Flipkart. The co-founders remained at the helm, guiding PhonePe to new heights.

The PhonePe Product Suite

PhonePe is a versatile platform offering a range of financial tools for both consumers and businesses. Initially focused on digital payments through UPI, PhonePe has expanded into various financial services, creating a comprehensive ecosystem for its users.

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Consumer Offerings

1. Payments

PhonePe’s core consumer product is its digital wallet and UPI payments tools. Through the PhonePe app, users can send and receive money, pay bills, purchase goods and services, top-up airtime, and more. While UPI integrations remain the most popular payment method, PhonePe also supports transfers via its closed-loop wallet and debit and credit cards. The app allows for easy account linking and immediate transactions, including cross-border UPI payments launched in February 2023.

2. Insurance

PhonePe offers a variety of insurance plans across health, life, vehicle, and travel through numerous partners. Having acquired an insurance broking license in 2021, PhonePe had sold 5.6 million policies by July 2023, targeting the majority of uninsured Indians.

3. Investments

PhonePe provides investment products, including mutual funds, equities, and other options, along with robo-advisory and personal finance management tools. To bolster its efforts in these areas, PhonePe acquired wealth management startups Wealthdesk and OpenQ in 2022.

4. Pincode

Launched in April 2023, Pincode is PhonePe’s hyperlocal commerce and shopping app. Built on ONDC, Pincode allows buyers and sellers in India to transact directly, offering goods and services across various categories. It quickly gained traction, crossing 50,000 downloads within its first month.

Business Offerings

1. Payment Gateway

PhonePe’s payment gateway enables merchants to accept online payments. Introduced in June 2023, it offers digital onboarding, integrations with commerce platforms like Shopify, and modular checkout experiences.

2. Offline Payments

PhonePe provides offline payment solutions, including point-of-sale systems, QR codes, and reconciliation tools, allowing businesses to accept various payment methods. The PhonePe ATM service offers cash withdrawals for customers. In June 2023, PhonePe launched a “one-stop-shop” POS device, consolidating its grip on the offline payments space.

3. PhonePe Switch

PhonePe Switch allows users to browse merchants, order, and pay within the PhonePe app, giving businesses access to over 450 million users.

4. Advertising

Businesses can advertise on the PhonePe app through Brand Ads and Rewards, reaching a broad user base with targeted promotions.

5. Merchant Lending

PhonePe offers limited credit products to businesses through lending partners. Announced in June 2023, these loans are approved and deployed directly through the PhonePe app. PhonePe is also developing its own credit score to streamline the lending process.

PhonePe Revenue Model

The PhonePe revenue model is multifaceted, leveraging various sources to generate income. Here’s a detailed look at how PhonePe earns money:

1. Mobile Recharge

PhonePe earns a commission from telecom operators for every mobile recharge transaction. Recently, it has started charging platform fees of ₹1 to ₹2 per transaction for recharges above ₹50.

2. Bill Payment

PhonePe earns a commission from companies for bill payments made through its platform.

3. Gift Vouchers

PhonePe offers gift vouchers for several applications, earning a commission on each sale.

4. Apps & Offers

PhonePe hosts various apps like Dominos, OYO Rooms, Flipkart, and Zomato. It earns a commission on payments made through these apps.

5. Digital Gold

When users buy digital gold through PhonePe, the platform charges a slight premium over the actual price.

6. Mutual Fund

PhonePe charges a commission on mutual fund schemes purchased through its app.

7. UPI (Unified Payments Interface)

While PhonePe doesn’t make money directly from UPI transactions, it uses data analytics to develop new products and enhance its services.

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Revenue Model Breakdown

PhonePe’s major revenue streams come from recharges, bill payments, and commissions on various financial services. It also generates revenue through affiliate marketing, advertising, and value-added services for merchants. Although it does not charge fees for UPI transactions, PhonePe leverages its large user base to promote other financial products and services, driving its overall revenue.

Traction and Growth

PhonePe has seen tremendous growth since its inception. By 2017, it surpassed 10 million app downloads and achieved 1 million daily transactions. In 2018, it processed 1 billion transactions, doubling that number by 2019. By 2020, PhonePe had over 250 million registered users and 25 million merchants. As of November 2023, PhonePe serves more than 500 million consumers and 37 million merchants, controlling over 40% of the UPI market.

Valuation and Investments

In May 2023, PhonePe raised $100 million from General Atlantic as part of an $850 million fundraising round, valuing the company at $12 billion. This made PhonePe the most valuable fintech startup in India, compared to competitor Paytm’s $5 billion valuation. With total funding of $2.6 billion as of November 2023, PhonePe is poised for further growth.

Key Opportunities and Risks

PhonePe’s expansion into new product verticals offers significant growth opportunities. The company is well-positioned to capitalize on India’s digital payments boom, with the UPI system transforming commerce in the country. However, regulatory uncertainty and intense competition pose significant risks. PhonePe’s path to profitability remains unclear, with the company not expecting to turn EBITDA-positive until 2025.

Conclusion

PhonePe’s journey from a digital wallet to a comprehensive financial services platform exemplifies its resilience and adaptability in the ever-evolving fintech landscape. With robust support from investors and a rapidly expanding user base, PhonePe is well on its way to redefining digital payments and financial services in India. However, navigating the challenges of regulatory changes and competition will be crucial for PhonePe as it continues to grow and innovate.

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