Investors are optimistic about PhonePe for a number of reasons. First, it has emerged as the dominant payments app on India’s paramount United Payments Interface (UPI) payments rail, with a 50% share of that enormous market. There are about 7 billion UPI transactions per month.
Although the National Payments Corporation of India (NPCI), the regulatory body that oversees UPI, planned to impose a monthly cap of 30% of transaction volume on third-party payment providers by December 31, 2022, it extended the deadline until December 31, 2024. Since the enforcement mechanism remains unclear – how can NPCI force companies to reduce their UPI market share without denying services to the end customer? – we would not be surprised if the rule is ultimately quietly shelved.
Secondly, PhonePe is well positioned to capitalize on UPI’s nascent cross-border 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.
Third, though it is not yet in EBITDA territory (2025 is the latest estimate), PhonePe’s revenue is nonetheless steadily climbing. In the first nine months of 2022, the company earned US$234.3 million, compared to US$201.6 million in the fiscal year ended March 2022. Additionally, the e-payments firm’s total payments volume has reached more than US$1 trillion (about 50% higher than just a year ago) and it has also exceeded more than 4 billion monthly transactions.
Finally, earlier this month, 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 small businesses and SMEs in the country.