- PhonePe is shedding low‑margin lines (rent payments, real‑money gaming) that cost ~₹1,500 cr annually.
- Revenue grew 40% YoY to ₹7,114 cr in FY25, but the pivot targets higher‑margin data‑driven services.
- Its 650 m+ user base fuels merchant services, lending distribution, insurance, wealth, and a proprietary app store.
- The IPO will be a 100% Offer‑for‑Sale, signalling confidence in cash reserves (>₹1,100 cr) and cash‑flow stability.
- Regulatory caps (30% UPI share) remain a risk, but the new model reduces exposure to volatile segments.
You’re overlooking the biggest shift in Indian fintech – PhonePe’s strategic pre‑IPO reset.
For nearly five years PhonePe has ruled the UPI arena, capturing almost half of all digital payments in India. Yet the real profit engine has never been the zero‑MDR UPI glue; it’s the ability to turn 650 million registered users into consumers of high‑margin financial services. The company’s latest Draft Red Herring Prospectus shows a 40% revenue jump to ₹7,114 cr in FY25, but the story deepens when you examine the two regulatory hits that forced a dramatic pivot.
Why PhonePe’s Revenue Pivot Beats the Rent & Gaming Setback
In September 2025 the RBI’s tighter payment‑aggregator framework shut down PhonePe’s credit‑card‑based rent payment product, a line that contributed roughly ₹1,262 cr (about 9% of gross margins). Simultaneously, the new Promotion and Regulation of Online Gaming Act and higher GST eroded real‑money‑gaming revenue from ₹245 cr to ₹71 cr in the first half of FY26. Together, these exits carved a ₹1,500 cr hole in the top line.
Instead of scrambling for quick fixes, PhonePe is converting the loss into a multi‑pronged “flywheel” built on three pillars: merchant services, lending distribution, and wealth‑plus‑insurance. Each pillar leverages the massive transaction data set and network effects that only a UPI leader can command.
Merchant Services: Turning Transaction Volume into Recurring Fees
PhonePe’s gateway now charges online merchants a modest fee for every UPI, card, wallet, or net‑banking transaction processed through its platform. At scale, a 0.2% fee on billions of rupee‑worth of payments translates into steady cash flow. The company also monetises hardware (SmartSpeakers, POS machines) and offers premium settlement and reconciliation tools for a subscription‑style charge.
Advertising inside the app creates an additional revenue stream. Brands can purchase “near‑by” or “relevant‑user” placements, turning the app into a media inventory that rivals traditional digital ad networks. While each component looks modest, the aggregate creates a high‑margin, low‑capital recurring revenue base.
Lending Distribution: High‑Margin Commissions from Data‑Driven Credit Scoring
PhonePe’s role as a Lending Service Provider (LSP) is a textbook example of “bank‑as‑a‑service” without the balance‑sheet risk. By analysing transaction histories of 4.7 crore merchants and millions of consumers, the platform can surface credit‑worthy borrowers for partner banks and NBFCs. The resulting commission‑based fees are typically 1‑2% of the loan amount, yielding double‑digit ROIC compared with traditional merchant‑acquiring margins.
Because the model is commission‑only, PhonePe does not need to allocate capital for loan loss provisions, preserving its strong cash position while tapping into the burgeoning Indian credit market, which is expected to grow above 15% CAGR through 2030.
Insurance & Wealth: Capturing the Wallet Share of the Indian Middle Class
Through its Share.Market platform and an expanding insurance vertical, PhonePe is positioning itself as a one‑stop financial hub. Users can buy life, health, and motor insurance, as well as invest in mutual funds and digital gold, all within the same app that they use for everyday payments. The “fix” for the lost rent revenue is simple: shift a payment transaction into a higher‑margin product like a term‑life policy or a systematic investment plan.
Insurance commissions in India typically range from 5% to 12% of the premium, while wealth‑management fees (AUM‑based) sit around 0.5%‑1%. Given PhonePe’s user base, even a modest conversion rate can generate billions of rupees in incremental revenue.
Indus Appstore: Building a Home‑grown Digital Ecosystem
PhonePe’s Indus Appstore is an ambitious attempt to create a domestic alternative to Google Play and Apple’s App Store. By curating local developers and taking a cut of in‑app purchases and advertising, PhonePe can capture another layer of monetisation that is currently untapped in the Indian market. While still early, the app store aligns with the broader strategy of owning the end‑to‑end digital experience.
Regulatory Landscape: The 30% UPI Share Cap and What It Means
The RBI has hinted at a 30% ceiling on any single player’s UPI market share to curb systemic risk. PhonePe’s current 47% dominance could force a divestiture or partnership in the future. However, the company’s diversification reduces reliance on pure payment volume, making the cap less of an existential threat and more of a catalyst for further non‑payment revenue growth.
Investor Playbook: Bull vs. Bear Cases
- Bull Case: The pivot unlocks high‑margin, low‑capex revenue streams; cash reserves >₹1,100 cr provide runway; UPI dominance ensures data moat; FY26 adjusted EBITDA expected to breach ₹400 cr as merchant services and LSP commissions scale.
- Bear Case: Regulatory cap could force a share‑sale or partnership, diluting brand; competition from Tata‑Digital’s Paytm and Adani’s fintech push could erode merchant acquisition; execution risk in scaling insurance and wealth products.
Bottom line: PhonePe is trading at a discount to its peers because the market is still pricing in the short‑term revenue gap from rent and gaming. If the new flywheel gains traction, the upside upside could be significant, especially for investors looking to add a diversified fintech exposure ahead of a high‑visibility IPO.