Walmart-backed PhonePe is one of India’s most prominent fintech startups, perhaps the best known after Paytm. With the backing of the retail chain juggernaut, which owns 85% of the company, PhonePe does not seem to face the same kind of pressure for an exit as startups dependent on venture capitalists. That means PhonePe can afford to wait until its financials are in good shape before going public. And in the 2024 fiscal year, PhonePe made important progress in that direction: Its losses were trimmed 28% to 20 billion rupees while revenue from operations surged 74% to 50.6 billion rupees.
2024 may ultimately be remembered as the year when Paytm’s regulatory travails got real. Ever since the Reserve Bank of India (RBI) effectively forced the shutdown of the company’s payments bank earlier this year, Paytm has been endeavoring to convince investors it has a viable way forward. In some ways, the company is paying the price for an earlier stage of undisciplined growth that strayed from its core payments business and burned cash without delivering significant business breakthroughs.
Nearly six months have passed since the publication of media reports speculating on a forthcoming IPO by Indian B2B payments fintech Pine Labs at a valuation of US$6 billion. One reason for what seems to be relatively slow progress on the company’s plans to go public is that it first needs to complete a change in its domicile from Singapore to India. Increasingly, Indian startups are shifting their domiciles from other nations to India because it is highly unlikely for companies with valuations below US$20 billion to get meaningful coverage from analysts in developed markets, which may dampen institutional investor demand. PhonePe and Groww have already shifted their domiciles to India, while Meesho, Razorpay, Zepto and Udaan have begun the process.
India’s United Payments Interface (UPI) has become the country’s premier digital payments rail and is continuing to build ever greater scale. According to PwC, total UPI transaction volume is expected to grow from 131 billion in the 2023-24 fiscal year to 439 billion by 2028–29. UPI now accounts for over 80% of India’s overall retail digital payments and is expected to surpass 90% by 2028-29. Given UPI's success, India has sought to expand its footprint internationally.
Walmart-backed PhonePe is one of India’s most successful fintech startups, yet nearly a decade on from its founding, the company still has no clear plans for an initial public offering (IPO). One reason for the delay may be that a giant multinational retail chain owns most of the company (85%), and is not as eager for an exit as the venture capitalists who typically back Indian startups. In June, Walmart’s executive vice president for corporate affairs, Dan Bartlett, said at the company’s annual shareholder meeting that a PhonePe IPO “is something we're looking at over the next couple of years."
India’s United Payments Interface (UPI) payments rail has achieved massive success in its domestic market that will be difficult for any future competitor to surpass. According to a new report by PwC, total UPI transaction volume is expected to grow form 131 billion in the 2023-24 fiscal year to 439 billion by 2028–29. UPI now accounts for over 80% of India’s overall retail digital payments in India and is expected to surpass 90% by 2028-29. Given UPI's success, India has sought to expand its footprint internationally and in the past few years it has become available in a number of countries from the United Arab Emirates and Bhutan to the UK and France. Yet questions remain about whether UPI can serve as a foundational platform for digital payments outside of India.
On May 8, Paytm’s share price hit a nadir of 317.45 Indian rupees (US$3.80). While since then the company’s stock has risen top about 369 rupees, Paytm continues to face a slew of challenges. The Indian fintech giant’s stock has fallen about 49% in value over the past year and 76% since its November 2021 IPO.
India’s $357.5 billion payments sector has proven challenging for the U.S. tech’s giants. Only Google has established a strong foothold, while Facebook, WhatsApp and Amazon have been unable to grow their market share substantively, despite their respect strengths in social media, messaging and e-commerce.
It would be inaccurate to call retail payments on India’s paramount United Payments Interface (UPI) rail a full-fledged duopoly, but Google Pay and Walmart-backed PhonePe do dominate this market with a combined 86% market share. PhonePe currently has a 48.3% share of UPI retail payments, while Google Pay has 37.6%. Paytm has a share of about 9%. No other company even has a full 1% share of the UPI market.
India’s United Payments Interface (UPI) payments rail is the most successful initiative of its kind. Domestically, UPI has achieved a dominance that no other payments rail is likely to surpass. According to a report by PwC, it is projected that daily UPI transactions will reach 1 billion by FY 2026-27, representing approximately 90% of India's non-cash transactions. 2024 started with UPI transactions processed in January reaching a record high of INR 18.41 trillion. Given UPI's success, India has sought to expand its footprint internationally and in the past few years it has become available in a number of countries from the United Arab Emirates and Bhutan to the UK and France. Yet questions remain about whether UPI can serve as a foundational platform for digital payments outside of India.
It increasingly appears that India’s fintech unicorn Paytm has a way forward from the regulatory pressure it is facing, but the company will have to part ways with its payments bank and restructure accordingly. To that end, India's Financial Intelligence Unit (FIU) on March 1 imposed a penalty of 54.9 million rupees (US$662,565) on Paytm Payments Bank for violations in reporting illegal money routed through its accounts. Given that Paytm overall has a market capitalization of almost US$3.3 billion, the fine itself is manageable, but the loss of its payments bank will require that the company rejig its operations to remain competitive.
Both Razorpay and Paytm are Indian fintech unicorns that have at different times struggled with mercurial regulators, but that’s about where the similarities end. Razorpay has focused only on the B2B segment, while Paytm has tried to gain a foothold in both retail and non-retail payments. While both companies have relied heavily on venture capital investment, Razorpay has very little, if any exposure, to China in this regard, while Ant Group’s stake in Paytm is coming under increasing scrutiny. With Paytm’s payments bank in mortal danger and Razorpay preparing to move its domicile from the U.S. to India while planning an IPO, the two fintech unicorns are both at inflection points. However, just one of them is ascendant.
The Reserve Bank of India’s (RBI) harsh crackdown on Paytm has shaken up the subcontinent’s fintech sector. If Paytm were to lose its payments bank due to the RBI’s directives, not only would the future of India’s largest fintech look more uncertain, there also could be unpredictable knock-on effects that reverberated throughout the industry. While the RBI’s move initially appeared to be abrupt, recent media reports suggest that the regulator had issued multiple warnings to the company over dealings between its payments bank and its payments app over the past two years that were not heeded.
Long a cornerstone of the business of Indian fintech giant Paytm, the company’s payments bank may have entered its twilight. While the Reserve Bank of India (RBI) has previously barred the payments bank from onboarding new customers, this new directive issued on January 31 is more comprehensive and foreboding. It appears the payments bank will no longer be operational after February 29, with just a few exceptions. India's central bank said it took the action due to "persistent non-compliances and continued material supervisory concerns in the bank” – which it did not specify.