How PhonePe is Making Money
The digital payments ecosystem in India has been changing in the last ten years and PhonePe is at the core of the revolution. PhonePe is one of the largest fintech companies in India, having established itself in 2015 by Sameer Nigam, Rahul Chari, and Burzin Engineer and boasts more than 500 million registered users and billions of monthly transactions.
However, as millions of Indians pay through the app using free UPI, the question that arises in the minds of many people is: How doesPhonePe earn a profit when it does not charge users to send money?
That is due to the fact that the business model of PhonePe is far more varied than just peer-to-peer payment. Let’s break it down.
1. Merchant Discount Rate and Merchant Transactions.
When you make a payment to a shopkeeper, cab driver or online retailer using PhonePe, it might seem that the transaction is free to you, however to the business, it is a little more than that.
- UPI person-to-merchant (P2M): UPI is free of charge, but in the case of Card, wallet, and other instruments, merchants pay phonePe MDR.
- QR codes and POS devices: PhonePe provides merchants with QR codes and POS service and is offered commissions on each transaction made through credit cards or wallets.
This is a vital part since PhonePe has already partnered with 35 million and above merchants nationwide in India, and this merchant network becomes a source of revenue as cash becomes substituted by digital payments.
2. Included in this list is Financial Services Cross-Selling.
PhonePe is not merely a payment app, but it is establishing a full-stack fintech platform. The app has expanded into:
- Insurance: The health, motor, life, and travel insurance policies are marketed through the platform. PhonePe makes commissions when selling policies.
- Mutual Funds and Investments: With the help of PhonePe Wealth, it is possible to invest in mutual funds, gold, and tax saving instruments. Distribution fees are raised by each investment done on the platform.
- Loans & Credit: PhonePe also offers the growth of personal loans and credit cards, as well as BNPL (Buy Now, Pay Later) products with the financial institutions, sharing the interest or commission.
This is important as financial services command greater margins than pure payments.
3. Recharge and Bill Payments
- Mobile recharges and payments of utility bills were another of the earliest sources of revenue of PhonePe.
- Mobile top-ups, DTH, electricity, gas, water, and broadband are used by users as a form of payment.
- PhonePe receives commissions from service providers to be a digital distribution channel.
- The margins are small but the volume of transactions is huge thus making this a stable source of income.
4. Advertising and Brand Partnerships.
- Having hundreds of millions of active users, PhonePe has emerged as an ideal ad platform.
- Ads in the app: PhonePe provides brands with an opportunity to place sponsored banners, cashback deals, or offers on the application.
- Cashback campaigns: Cashback campaigns are sponsored by partner companies (such as brands of FMCGs, food delivery apps, or e-commerce players) on PhonePe and serve as advertisements.
The reason why this advertisement income is substantial is that the engagement rates of the Indian apps on PhonesPe are among the highest.
5. App Store and Switching Software.
In 2018, the PhonePe introduced an in-app platform named PhonePe Switch, in which third-party applications such as Ola, Dominos, IRCTC, and MakeMyTrip are integrated.
- People do not require downloading other applications, they can use services in PhonePe.
- PhonePe makes commissions and charges on each transaction that is carried out in these partner mini-apps.
This ecosystem approach enables PhonePe to be more than a wallet; it is a super-app of payments and services.
6. Wealth Management and Digital Gold.
PhonePe was among the pioneer UPI apps to enable people to purchase and sell digital gold.
- The company gets a spread margin in each of the gold transfers with its bullion partners.
- It serves as a point of entry to lure investors to more profitable mutual funds and wealth products.
PhonePe slowly creates a long-term wealth products customer base by introducing the customer to small-ticket investments.
7. Future Potential (International Remittances).
PhonePe has already indicated cross-border UPI, although it is yet to roll out. After opening, it is able to make a profit through transaction fees on NRIs and international users, challenging the traditional remittance players.
The Monetization Strategy of the PhonePe.
- Transaction-based revenue MDR by merchants, POS devices, QR-based payments.
- Financial services commissions Insurance, mutual funds, loans and investments.
- Service fees Service charges, payment of bills, sale of digital gold.
- Ad income Brand campaigns and in-app promotions.
- Platform partnerships- Commissions on PhonePe Switch apps.
This is a diversified model that has helped PhonePe to become less reliant on UPI and grow towards profitability.
Challenges Ahead
In spite of being successful, PhonePe encounters certain challenges:
- UPI Zero-MDR Policy: UPI P2M does not charge a merchant (under some thresholds) making small ticket transactions difficult to make a profit with.
- Strong Competition: Google Pay, Paytm, and BharatPe are the same players competing in the market.
- High Marketing Expenditure: PhonePe gives out high cashback and rewards in order to keep users.
However, with its huge base of users and growing financial system, PhonePe is in a good position to monetize beyond UPI.
Conclusion
The history of PhonePe is evidence that fintech is not only making things free to transact but it is creating a financial ecosystem around payments.
PhonePe has discovered several sources of revenue by monetizing via merchant services, cross-selling insurance and investments, advertising, and platform partnerships, and the UPI payments are still free of charge to users.
With India rapidly moving towards a cashless economy, the monetization strategy adopted by the PhonePe guarantees that the company does not simply become a payment application, but a full-fledged financial services network to millions of people in India.
To know more about other brands – VISIT
