PhonePe raises another US$100 million
Raising money is not nearly as easy it used to be for fintechs, but that has not stopped PhonePe. India’s Walmart-owned payments fintech giant just raised another US$100 million from private equity firm General Atlantic as it races towards a US$1 billion fundraising goal. PhonePe is arguably the most prominent Indian fintech unicorn that has yet go public, with a valuation of US$12 billion, massive transaction volume and a commanding presence on the ubiquitous United Payments Interface (UPI) payments rail.
When it comes to PhonePe’s core payments business, low margins aside, the company is doing well. One cannot say it dominates UPI, but it has become the market leader with a 50% market share, edging past Google Pay. Given that there are almost 7 billion UPI transactions per month, it is no surprise that PhonePe’s total payments volume has exceeded US$1 trillion.
At the same time, PhonePe will benefit from regulatory missteps. Several years ago, the National Payments Corporation of India (NPCI), the regulatory body that oversees UPI, said it would impose impose a monthly cap of 30% of transaction volume on third-party payment providers. However, it never explained how it would enforce the rule, which would require denying services to the end customer. Most recently, NPCI extended the deadline for compliance with the monthly cap until December 31, 2024. We doubt the NPCI wants to seriously disrupt the UPI ecosystem, even if it dislikes the fact that PhonePe and Google Pay dominate the payments rail. We expect the regulator will keep kicking the can down the road and eventually put the rule on ice.
Meanwhile, PhonePe is embedding itself ever deeper into the UPI ecosystem. It recently became the first payments fintech to link two lakh NPCI’s RuPay credit cards to UPI. PhonePe also aims to piggyback on UPI’s global expansion, where it sees an opportunity to move into the huge forex market. In February, PhonePe said it would extend support for UPI international payments in the UAE, Singapore, Mauritius, Nepal and Bhutan. “Users will be able to make payments in the foreign currency directly from their Indian bank — just like they do with international debit cards,” PhonePe said in a statement.
In March, PhonePe announced that it had received an in-principle approval for its payment aggregator (PA) license from the RBI. This approval will allow the company to scale its payment solutions and enable digital inclusion for more Indian SMEs.
While PhonePe is no stranger to massive losses – it lost US$1 billion in FY2022 – the company has also learned from the mistakes of others. PhonePe has observed its competitor Paytm rise, fall and start to recover. It has observed Paytm go public before reaching profitability and decided that it wants to go a different route – profitability first, then an IPO. If PhonePe reaches its target of EBITDA profitability in FY2025, the company will have done in a decade what Paytm has yet to accomplish in 13.
