Site icon The Invincible India

Startup Deep Dive : PhonePe — free UPI, paid distribution, and a valuation that fell as the IPO neared

The Invincible India
The Invincible India Startup Deep Dive featured graphic for PhonePe.

PhonePe moves roughly 46% of every rupee that changes hands over India’s UPI rails, more than any other app in the country, as of August 2025. It charges the people making those payments nothing at all. That contradiction, a market leader with no visible price tag on its core product, is the whole puzzle of PhonePe: how a company built on a free rail is trying to become profitable enough to go public.

The answer changed shape twice in five months. In October 2025, General Atlantic put fresh money into PhonePe at a valuation of $14.5 billion. By March 2026, as bankers began pitching the same company’s initial public offering, the number on the table had fallen to $9 billion to $10.5 billion. Nothing about the UPI business had collapsed in between. What had changed was how much of a discount public investors were willing to pay for a company that still runs GAAP losses. This piece walks through why.

Quick facts

Company PhonePe Limited
Founded December 2015; acquired by Flipkart in April 2016; became an independent, India-domiciled entity in December 2022
Founder(s) Sameer Nigam, Rahul Chari and Burzin Engineer
Businesses UPI and digital payments, merchant payment services and devices, financial services distribution (loans, insurance, mutual funds, stockbroking), Indus Appstore
Latest FY revenue ₹7,115 crore (about $741 million) for FY25 (year ended 31 March 2025)
Latest FY profit/loss Net loss of ₹1,727 crore in FY25; adjusted profit after tax, excluding ESOP costs, of ₹630 crore
Listed Private. Filed a draft IPO prospectus in September 2025, an updated draft in January 2026; the listing was paused in March 2026
Market value / last valuation Reported at $14.5 billion in a General Atlantic round in October 2025; IPO pitches in March 2026 reportedly cited $9 billion to $10.5 billion
Key shareholders or CEO Walmart holds the majority stake (reported around 71.8%); General Atlantic holds roughly 9%; CEO is co-founder Sameer Nigam

What they do

PhonePe is a digital payments and financial services app used by consumers to send money, pay bills and buy things through India’s Unified Payments Interface, and used by millions of small merchants to accept those payments through QR codes and card machines. On top of that payments layer, it distributes financial products it does not itself underwrite: loans originated by banks and non-bank lenders, insurance policies sold on behalf of insurers, mutual funds, and brokerage through its Share.Market arm. It also runs the Indus Appstore, an Android app marketplace aimed at users who want an alternative to Google Play. The common thread is distribution: PhonePe owns the relationship with the user and the merchant, and increasingly rents that relationship out to banks, insurers and asset managers for a fee.

The origin

Sameer Nigam and Rahul Chari met as students at the University of Mumbai and stayed close through their early careers; Nigam met Burzin Engineer separately while working in Los Angeles. The three first built a company together in 2009, a digital media distribution platform called Mime360, which Flipkart acquired in 2011. Nigam and Chari then built Flyte, a music download store, inside Flipkart from February 2012. Flyte shut down in June 2013, with Flipkart citing music piracy and the difficulty of collecting small online payments in India as the reasons it could not scale, as reported by MediaNama in May 2013. That specific failure, not being able to collect small payments cheaply and reliably, became the founding insight behind PhonePe: build the payments rail first, and the businesses that need it will follow. Nigam, Chari and Engineer founded PhonePe in December 2015, and Flipkart acquired the young company in April 2016 for a reported $10 million to $20 million, according to MediaNama’s report at the time and later company retrospectives.

The struggle years

PhonePe’s near-decade has not been a straight line up. Two episodes stand out as genuine, dated setbacks rather than the usual growing pains of a young company.

The first came on 5 March 2020, when the Reserve Bank of India placed Yes Bank under a moratorium after the lender’s near-collapse. Yes Bank was PhonePe’s sole banking partner at the time and, per TechCrunch’s reporting that week, accounted for roughly 40% of all UPI transactions in India. PhonePe went dark for its users for at least 24 hours, with some reports citing money stuck in transit for over 52 hours before normal service resumed; YourStory reported the app came back to life after about a day once PhonePe activated alternate bank partners. It was a reminder that a payments app is only as reliable as the bank underneath it, and PhonePe had built its entire business on one.

The second was a retreat rather than an outage. PhonePe had pushed into hyperlocal e-commerce through an app called Pincode, built on the government-backed ONDC network, to connect neighbourhood kirana stores with nearby shoppers. In December 2025, TechCrunch reported that PhonePe wound the Pincode app down and redirected its web traffic back to the main PhonePe site, its latest step back from e-commerce ambitions that had never found the scale of its payments business. Both episodes point to the same lesson: PhonePe’s core payments network is resilient, but everything built on top of it, whether a banking partner or a new business line, has proven far more fragile.

The turning point

PhonePe launched its UPI-based app in August 2016 in partnership with Yes Bank, one of the first apps to go live on the young interface. Three months later, on 8 November 2016, the government withdrew ₹500 and ₹1,000 notes from circulation overnight, a demonetisation that erased roughly 86% of the currency then in circulation, per contemporary reporting. Before that date, PhonePe was a new entrant with a UPI feature few people had reason to use, competing against wallets and cash. After it, according to the company’s own account of its history and reporting from YourStory, PhonePe became the first UPI app to cross 10 million downloads by January 2017, just five months after launch, and the largest single driver of UPI transaction volume in the country. The numbers on either side of that one event, a barely-known UPI app in October 2016 and the country’s leading UPI app by January 2017, are the clearest evidence that demonetisation did not create PhonePe’s business, but it compressed years of adoption into a few months and handed the advantage to whichever app was ready. PhonePe, having launched three months earlier, was ready.

The money behind it

PhonePe has raised roughly $3 billion since 2015 across disclosed rounds, according to funding trackers including Tracxn, though the precise cumulative figure varies by source depending on how secondary sales are counted. Three moments in that funding history matter more than the total. Flipkart’s April 2016 acquisition, reported at $10 million to $20 million by MediaNama, gave the founders distribution and capital they could not have raised as a standalone startup. Walmart’s 2018 acquisition of Flipkart brought PhonePe under Walmart’s ownership by extension, and Walmart has remained PhonePe’s majority shareholder, reported at around 71.8% ahead of the IPO, according to Inc42’s review of the company’s shareholding pattern. General Atlantic became the most active outside backer from 2023 onward, investing a reported $1.15 billion in total across multiple tranches, including a $100 million round in April 2023 that valued PhonePe at $12 billion (TechCrunch) and a further $600 million round in October 2025 that valued the company at $14.5 billion, its largest single-company India bet, according to Entrepreneur India.

Separating from Flipkart came with a cost that had nothing to do with the business. PhonePe completed its move from a Singapore holding structure to an India-domiciled one in December 2022, a step regulators and the government had been encouraging as “reverse flipping.” Because the flip triggered capital gains for existing shareholders on their Singapore-entity shares, investors had to pay long-term capital gains tax on the transition. CEO Sameer Nigam said in January 2023 that investors paid almost ₹8,000 crore in taxes to bring the company home, a figure Business Today reported at the time; Walmart separately confirmed to Business Standard that it had paid most of a roughly $1 billion tax bill tied to the move. It is one of the largest tax bills any Indian startup restructuring has produced, and PhonePe absorbed it before it had gone public or generated the liquidity an IPO would provide.

That funding history sets up the valuation puzzle from this piece’s opening. General Atlantic’s October 2025 round marked PhonePe at $14.5 billion. When PhonePe filed its updated draft IPO prospectus with the securities regulator in January 2026, reports pointed to a target market value near $15 billion, per MediaNama. But by March 2026, as the listing timeline slipped amid what MediaNama described as geopolitical tensions and unsettled markets, PYMNTS and BW Disrupt both reported bankers discussing a lower band of $9 billion to $10.5 billion, a cut of roughly a quarter to a third from the last private mark. Tiger Global and Microsoft, both minority investors, are reportedly using the IPO to exit their positions entirely, according to TechCrunch’s January 2026 report, regardless of where the final price lands.

How it makes money

The part people get wrong about PhonePe is assuming UPI is the business. It is not: UPI carries no merchant discount rate in India, so PhonePe earns nothing directly from the payment that made it famous. Instead, according to its own DRHP-reported revenue split, 88.5% of PhonePe’s operating revenue in FY25 came from what it calls payment services: transaction fees on non-UPI rails such as bill payments, digital gold and travel bookings; platform and subscription fees charged to merchants for card machines and smart speaker devices; and advertising sold against its user base, which generated ₹6,300 crore, up 31.6% year-on-year, according to Entrackr’s review of the filing.

The fastest-growing piece, though far smaller in absolute terms, is financial services distribution. PhonePe does not lend money or underwrite insurance itself; it holds a broking licence, not an insurer’s licence, and it does not carry lending risk on its own books. Loans are disbursed by its 56 bank and non-bank partners, and PhonePe earns a commission for origination: it had facilitated ₹14,270 crore in loans this way as of September 2025, according to Inc42’s analysis of the business model. On insurance, it had sold 1.85 crore policies across 29 insurers by the same date, earning broking commissions rather than underwriting margin. This is a fee-on-fee model: PhonePe’s margin sits in the spread between what a lender or insurer is willing to pay for a qualified customer introduction and what it costs PhonePe to acquire and retain that customer’s attention through the app. Financial services revenue reflects the shift: it rose from ₹28 crore in FY23 to ₹181 crore in FY24 to ₹557.6 crore in the full FY25 year, and had already reached ₹452.8 crore in the first half of FY26 alone, according to Outlook Business’s reporting on the DRHP numbers, a sign the segment is compounding faster than the payments business it was built on top of.

The numbers

Figures below are PhonePe Limited’s consolidated operating revenue and net loss, in ₹ crore, as reported in press coverage of its financial filings for each year.

Fiscal year Operating revenue (₹ crore) Net loss (₹ crore) Adjusted PAT, ex-ESOP (₹ crore)
FY23 (year ended March 2023) 2,914 2,795 Adjusted loss of 738
FY24 (year ended March 2024) 5,064 1,996 197
FY25 (year ended March 2025) 7,115 1,727 630

Read together, revenue nearly two-and-a-half-timed over two years while the statutory net loss roughly halved, according to Business Standard’s and Entrackr’s reporting on the successive filings. The gap between the statutory loss and the “adjusted” profit figure PhonePe prefers to highlight is almost entirely employee stock compensation: PhonePe recorded ₹2,358.6 crore in share-based payments to employees in FY25 alone, per Entrackr, which is treated as a non-cash cost and stripped out of the adjusted number. Both figures are real; they just measure different things, and a reader comparing PhonePe to a listed peer should know which one is being quoted.

Where the money comes from

PhonePe’s revenue is overwhelmingly a payments story with a financial-services story growing inside it. Merchant payments, as distinct from consumer UPI transfers, grew from 14.75% of operating revenue in FY23 to 30.78% by September 2025, according to Outlook Business’s review of the DRHP, meaning the company is increasingly paid by the shopkeeper’s side of the transaction, through devices, subscriptions and value-added services, rather than by the consumer. Financial services, as covered above, grew from under 1% of revenue in FY23 to over 11% by the first half of FY26. The surprise in the split is how small everything outside payments and financial services still is: the Indus Appstore, stockbroking, and mutual fund distribution are mentioned in filings as contributing revenue but do not yet register as a distinct reportable segment at scale, and Pincode, the company’s most visible attempt at a fourth pillar, was wound down in December 2025 before it reached one. For a company preparing to list, that concentration is itself a data point: PhonePe’s growth story for public investors rests on two engines, payments and financial-services distribution, not the diversified “super app” narrative sometimes used to describe it.

The risks

Three risks stand out because PhonePe itself discloses them rather than because they are speculative.

First, payment processing charges paid to banks and card networks have been rising faster than revenue: they climbed from 11.29% of total expenses in FY23 to 17.97% in FY25, according to MediaNama’s reading of the updated DRHP. If PhonePe cannot pass a further rise on to merchants, without pushing them toward a rival, its margins compress mechanically, since it already earns nothing on the UPI volume that dominates its transaction count.

Second, regulatory concentration risk is explicit and dated. The National Payments Corporation of India has proposed capping any single third-party UPI app at 30% of national transaction volume; PhonePe alone held about 46% as of August 2025, per its own DRHP figures reported by MediaNama. The cap’s enforcement has already been deferred once, to 31 December 2026, but if it takes effect as written, PhonePe would need to actively slow its own growth or shed volume to competitors to comply, an unusual position for a market leader to be in.

Third, PhonePe is structurally dependent on a small number of partner banks, currently Yes Bank, Axis Bank and ICICI Bank, to sponsor its access to the UPI and banking network, per the DRHP risk factors. The 2020 Yes Bank moratorium already showed what happens when one of those partners fails; India’s new Digital Personal Data Protection Act adds a further, dated exposure, with penalties of up to ₹250 crore per breach for a company that holds payment and financial data on hundreds of millions of users, according to MediaNama’s coverage of the filing.

The takeaway

PhonePe’s history argues that being first is worth more than being free. It could not charge for the UPI transactions that built its user base, so it built two businesses beside that free rail, merchant devices and financial-product distribution, that could actually be priced, and grew both faster than the payments business itself. The transferable lesson is not “give the core product away,” which is a strategy plenty of companies have tried and failed at; it is that giving away a product only works if you have already identified, and started building, the adjacent business that will monetise the attention the free product earns you. PhonePe had that answer by the time UPI itself scaled. Many free-product strategies never do.

Frequently asked questions

Is PhonePe profitable?

On a statutory basis, no: PhonePe reported a consolidated net loss of ₹1,727 crore for FY25 (year ended 31 March 2025), narrower than the ₹1,996 crore loss in FY24, according to Entrackr’s report on the filing. On an adjusted basis that excludes non-cash employee stock compensation, PhonePe reported a profit after tax of ₹630 crore for FY25, up from ₹197 crore in FY24.

How does PhonePe make money if UPI transactions are free?

UPI itself carries no merchant discount rate in India, so PhonePe earns nothing directly from a consumer sending money over UPI. Its revenue instead comes from merchant-side payment services such as card machines, platform fees and advertising (88.5% of FY25 operating revenue), and increasingly from commissions on loans and insurance policies it distributes but does not underwrite.

What is PhonePe’s UPI market share and who is its main rival?

PhonePe held about 46% of UPI transaction volume as of August 2025, according to its DRHP figures reported by MediaNama, and a close 45.74% per Entrackr’s separate reporting the same month. Google Pay is its principal rival; the two together held 79% of UPI volume by May 2026, the first time their combined share fell below 80% since NPCI began publishing app-level data, per Outlook Business.

Who owns PhonePe and is it still linked to Flipkart?

PhonePe and Flipkart completed a full corporate separation in December 2022, when PhonePe also moved its domicile from Singapore to India. Walmart, which owns Flipkart, remained PhonePe’s majority shareholder throughout, reportedly holding around 71.8% ahead of the IPO; the two are sister companies under Walmart rather than one owning the other.

Is PhonePe going public, and when?

PhonePe filed a draft IPO prospectus in September 2025 and an updated version in January 2026, structured entirely as an offer for sale by existing shareholders with no fresh capital raised. SEBI’s approval was reported in January 2026, but MediaNama reported in March 2026 that the listing had been paused amid unsettled markets and geopolitical tensions, with no confirmed date since.

Sources

Figures are as of September 2026. Currency converted at $1 ≈ ₹96.0 as of 18 September 2026 (Trading Economics).

Found an error? Write to us and we’ll correct it in the open, dated, on the piece.

Exit mobile version