PhonePe’s journey to become one of the most valuable start-ups
By Sanjay Maurya
The world is rapidly going toward digitalisation; thus, it only makes sense to refer to this period as the “digital era.” Almost all of our needs, including shopping for groceries and clothing, are easily met. The development of the e-commerce industry is to blame for this shift in how we shop. E-wallets were created as a result of the physical shopping trend shifting from brick-and-mortar stores to online retailers.
With the introduction of e-wallets, purchasing online has become more convenient, and carrying cash around is no longer necessary. Without using actual currency, we can quickly move money between accounts using e-wallets. It is simple and quick as long as both the buyer and the seller have e-wallets. A popular digital wallet called PhonePe allows you to send money via UPI, recharge prepaid phones, pay utility bills, and do many other things.
An overview:
PhonePe is an Indian start-up that specialises in financial technology and digital payments with its headquarters in Bengaluru, Karnataka. In December 2015, the trio Sameer Nigam, Rahul Chari, along with Burzin Engineer founded PhonePe. In August 2016, the Unified Payments Interface (UPI)-based PhonePe app went online. Flipkart, a Walmart subsidiary, owns PhonePe.
PhonePe app is installed with 11 Indian languages. Users of PhonePe can send and receive money, recharge data, DTH, mobile, and utility cards, pay for goods and services, buy insurance, mutual funds, gold, and silver, and invest in liquid and tax-saving funds. Through its Switch platform, PhonePe also enables customers to schedule their Ola rides, pay for Redbus tickets, and book flights and hotels on Goibibo.
More than 2.5 billion offline and online business locations in 15,700 cities and villages accept PhonePe as a form of payment. By December 2019, the app has handled 500 billion transactions and had served more than 10 billion users as of June 2018. With over 15 crore active users each month, it currently has over 35 crore registered users. The Reserve Bank of India has granted PhonePe a licence to issue and operate a semi-closed prepaid payment system under Authorisation Number: 75/2014, dated August 22, 2014.
PhonePe Net Worth
In FY22, PhonePe’s revenue increased by 138% to Rs 1,646 crore, while its losses (excluding ESOP costs) decreased by 15% annually to Rs 671 crore.
PhonePe Mission and Vision
PhonePe was established with the goal of serving as a global, frictionless, and secure mobile payments network. “To construct a broad, scalable & open transaction environment that produces the maximum positive impact for all stakeholders,” reads PhonePe’s mission statement.
Top PhonePe Features
PhonePe is one of the most innovative apps which has managed to change how currency is carried about in India. The following are a few of PhonePe’s most notable attributes:
The First UPI Linked E-Wallet in the Country
One of the first apps to support the government-backed Unified Payment Interface, or UPI interface, is PhonePe. It is a platform built on the Immediate Payment Service (IMPS) infrastructure that allows for two-party bank account transactions.
The software makes use of special identifiers like cellphone numbers or VPAs, also referred to as one-of-a-kind addresses. The app offers a safe alternative by allowing users to avoid providing IFSC or account information during these transactions.
No need to provide a bank account number –
When utilising PhonePe, users do not have to provide any important information, such as bank account information or an IFSC number. Because of this, PhonePe is regarded as offering a protected and safe environment. On this platform, you can access about 30 banks, including SBI, HDFC, ICICI, and others. After verifying the information, such as your mobile number, you only need to link your account with UPI and you are ready to go.
Whenever you make a transaction, UPI then retrieves your account information through a secure route. It’s vital to keep in mind that you won’t be able to link your PhonePe account to your bank account if it is not active in UPI. The refunds from Myntra or Flipkart can still be deposited into your account, though.
Easy-to-use Authentication Method –
PhonePe eliminates the need for several authentications, making it simple to use. Without supplying your card information or waiting for OTPs to complete the transactions, you can transfer money between bank accounts using PhonePe. This holds true whether you’re paying for in-person or online buying.
No Requirement for Regular Top-Ups
The advantage of maintaining a relationship between your account and the app is that you won’t need to frequently top up your e-wallet account. You won’t have to worry about running out of money after linking your account because the funds are deducted immediately from your bank account.
Simple Payments, Transfers, and Recharges –
Once your account is connected to PhonePe, you can stop paying your bills in person. You only need to log in to the app, choose the necessary symbol, and then press “Pay Bills.”
Higher Limit Per Transaction –
Since the PhonePe app is connected to your bank account, you can send payments worth hundreds of dollars or more. The single transaction cap on PhonePe has been raised to Rs. 1 lakh. With PhonePe, you may also take advantage of the wallet balance’s lifetime. Even if you only conduct two transactions a year, your account will continue to be open.
Greater Security
You can be sure that PhonePe’s platform is supported by the government, which means all of your transactions will be more secure.
Business Modal of PhonePe
PhonePe is a payment platform that uses UPI. Money can be transferred from one bank to another using the app. It also has other features. PhonePe sells products and services such as groceries, insurance, and cuisine through its smartphone app. The job of the company is to advertise the items. PhonePe may be used to recharge mobile phones. PhonePe can also be used to pay for electricity and gas bills.
PhonePe introduced a POS machine, which can now be found in practically every shop and Kirana store in India. People can make payments using the POS system. PhonePe is now a licenced insurance broker. The Insurance Regulatory and Development Authority of India has granted the digital payments and merchant aggregator a licence for insurance broking (IRDAI). PhonePe will now be able to sell insurance solutions from a number of insurance companies to its consumers. It can also provide customised insurance products to its large customer base.
PhonePe’s Revenue Model
PhonePe earns money by promoting various products through their app. It also earns money from a partner via the ‘Switch’ platform. When clients recharge their phones, recharge points/centers typically earn a commission from the telecom operators. Similarly, PhonePe receives a commission when customers recharge their phones via the service.
The company earns a commission on any internet purchases made through its app. PhonePe has a massive user base. Data is the key to profit in today’s world. The database provides various useful insights. Customers’ payment patterns are affected by how much money they move and when they transfer it. Furthermore, one can derive a customer’s purchasing pattern as well as the retailer’s or store’s information.
PhonePe’s customer base continues to increase as a result of promotions and other offers on its app. As of October 23, 2021, the largest digital payments platform has stated that it will charge up to Rs 2 in processing fees for all cell recharges made using its digital app. Though PhonePe is now executing a “limited scale experiment,” as the Fintech giant refers to it, and is not yet a full-fledged launch, it has planned to charge Re 1 for recharges between Rs 50-100 and Rs 2 for recharges above Rs 100.
However, recharges under Rs 50 are still considered free. As part of the experiment, it was discovered that the majority of consumers either do not pay anything or pay merely Re 1. Since PhonePe is the first company in the digital payments industry to introduce the idea of processing fees, many customers across the nation are allegedly upset about it.
These consumers have voiced their complaints via tweets and other social media platforms and may even decide to stop using PhonePe. In opposition to the idea of charging users, rival Paytm to PhonePe reportedly said, “Trust develop karna bhi ek process hai. Iss Process ki keemat nahi hoti.
PhonePe Marketing Strategy
PhonePe only recently set aside an INR 8,000 crore marketing budget to expand across the nation while also fending off growing competition. Aamir Khan and Alia Bhatt, two extremely well-known Bollywood actors, were signed by the corporation as part of the agreement to serve as brand ambassadors. Until it reaches its target of 500 million verified members, the corporation hopes to add more than 100 million users annually.
The business largely relies on TV, social media accounts, and a YouTube channel to promote new features and deals. PhonePe presents a different tagline with each TV ad. The company’s current slogan is “Karte Ja, Badhte Ja” Users have been deliberately encouraged by the firm to purchase Gold through its site.
PhonePe’s Journey
The digital payments business, founded by Burzin Engineer, Rahul Chari, and Sameer Nigam, was purchased by Flipkart in April 2016, just five months after it was formed. Phonepe, a third-party payment app (TPAP) on the Unified Payments Interface (UPI) network that is mostly recognised for its leadership position, initially concentrated on utility bill payments, merchant payments for shopping, and a limited number of bus ticket booking and cab booking capabilities (redBus tickets and Ola rides).
According to the corporation, it has a 42% market share in terms of the amount of UPI transactions. By October 2020, according to PhonePe, it would have more than 258 million registered users, 100 million or more monthly active users (MAU), and generate close to 1 billion digital payment transactions. But there’s a problem. Due to the government’s policy of 0% MDR, despite holding the top spot on the UPI interface, the company won’t generate any income.
The policy eliminates any money that banks and payment service providers (PSPs), such as third-party UPI apps, may earn for facilitating digital transactions. It was introduced by revisions to the Payment and Settlement Systems Act, 2007. It is not unexpected that PhonePe has tested the waters in a few lucrative industries given the UPI’s flawed revenue model.
The PSP registered three additional firms with the Ministry of Corporate Affairs (MCA) following Walmart’s acquisition of Flipkart. These include PhonePe Technology Services, PhonePe Insurance Broking, and PhonePe Wealth Services, which distribute mutual funds and third-party insurance. The company has introduced numerous products, including super funds, liquid funds, and tax-saving funds, in the mutual fund market.
These are intended for Tier 2 and Tier 3 consumers, people who have never used a financial solution other than traditional banking. Terence Lucien, head of mutual funds and gold at PhonePe, claims that the introduction of seven new, carefully curated sets of MF categories would cater to investors who desire more freedom and control when creating their investment portfolio.
Another significant area on which PhonePe has concentrated is insurance. Beginning in 2020, the company entered this market and introduced a number of insurance products, including domestic travel insurance, international travel insurance for business and leisure travellers, Covid-19, dengue and malaria insurance, hospital daily cash, personal accident cover and bike and car insurance.
Sameer Nigam:
In 2015, Sameer Nigam along with Burzin Engineer and Rahul Chari co-founded PhonePe. He currently serves as its CEO (CEO). In addition, he held the position of Senior Vice President, Engineering at Flipkart. His first business, Mime360, which links content owners and publishers, was introduced in 2009.
On January 14, 2016, he made a personal investment in the company Artifacia. He was included in The Economic Times’ list of the top 40 under 40 Indian business leaders. Sameer Nigam’s net worth as of 2017 was Rs. 17.7 crore.
Funding for PhonePe
Over the course of 14 rounds so far, PhonePe has raised $1.99 billion in investment. On 15th of April, 2022, PhonePe Private Limited Singapore, the company’s Singapore-based subsidiary, gave the company an extra $297 million injection.
Along with the $700 million that was revealed in December 2020, PhonePe recently completed a $350 million financing round from Walmart. Since PhonePe was acquired by its parent company, Walmart, Flipkart has been providing consistent finance, with Walmart joining the company on multiple times.
PhonePe Acquisitions
PhonePe has so far acquired the following 5 companies: Indus App Bazaar, Zopper, GigIndia, OpenQ, and WealthDesk. OpenQ and WealthDesk were acquired by the Walmart-backed business for a combined $75 million, according to sources dated May 18, 2022. OpenQ will be purchased for $25 million, according to a prior report from Bloomberg, while WealthDesk will be bought for about $50 million.
The deal states that even after the acquisition, both organisations would continue to run independently, with the initial teams and founders joining PhonePe. On March 22, 2022, GigIndia was purchased, which was the earlier acquisition. On May 19, 2021, PhonePe was going to pay a price of $60 million to buy Indus App Bazaar. Affle, a current investor, objected, therefore it wasn’t done at that time.
The three parties involved—PhonePe, OSLabs, and Affle Global—had “amicably settled the situation,” according to PhonePe’s final announcement on the acquisition of OSLabs, the parent company of Indus, which was published on July 29, 2022. Later, PhonePe said it would pay more to purchase Affle’s entire shareholding, which was worth $65 million.
PhonePe’s Future Plans:
Despite a lack of international capital for startups, PhonePe is looking to raise up to $1 billion from General Atlantic and its current backers, who include Tiger Global Management, the Qatar Investment Authority, and Microsoft Corporation.
The all-equity transaction, which is expected to close in the next two weeks, could increase PhonePe’s valuation to around $13 billion, including the newly committed funds, according to the sources. In a market for digital payments that Boston Consulting Group projects would triple in size to $10 trillion by 2026, the price places PhonePe among the most valuable brands in India.
Despite being in talks with SoftBank Group Corp.’s Vision Fund, an investor in PhonePe’s parent firm Flipkart, Walmart will still be the company’s top investor. SoftBank has been obliged to adopt a defensive approach and has significantly decreased its investments this year as a result of portfolio losses.
