PhonePe looks to go public even as Twitter calls for ‘Uninstalling’ the App.

PhonePe plans to go public by 2023 and will list itself in India or the US depending on market conditions

It’s plan includes diversification within the financial services industry beyond UPI-based payments and wallet services

Meanwhile, Twitter users have started an ‘UninstallPhonePay’ trend as a recent PhonePe ad campaign backfired.

Walmart-owned digital payments platform PhonePe is reportedly working aggressively to go public by 2023 as a separate entity in the US or India, eyeing a valuation of $7 to $10 Bn. It will finalise between India or US initial public offering (IPO), based on the market conditions. Meanwhile, a person close to the matter said that Flipkart plans to go public by 2022 in the US.

Interestingly, a Morgan Stanley report published last year had valued PhonePe at $7 Bn. It had highlighted that the company could be worth as much as $20 Bn in the bull case, especially due to the growing potential of the company beyond just payments. Reports last year also stated that PhonePe might be spun off into a separate business, with Flipkart planning to launch another payments vertical.

PhonePe

PhonePe is a digital payment company headquartered in Bangalore, India. PhonePe was founded in December 2015, by Sameer Nigam, Rahul Chari and Burzin Engineer. The PhonePe app, based on the Unified Payments Interface (UPI), went live in August 2016.

The PhonePe app is available in over 11 Indian languages. Using this, users can send and receive money, recharge mobile, DTH, data cards, make utility payments, pay at shops, invest in tax saving funds, liquid Funds, buy insurance and mutual funds and gold. In addition PhonePe also allows users to book Ola rides, pay for Redbus tickets, order food on Freshmenu, eaf, fit and avail Goibibo Flight and Hotel services through Switch platform.

PhonePe is accepted as a payment option at over 10 million offline and online merchant outlets across 400 cities in India covering food, travel, groceries, medicines, movie tickets etc. The app crossed the 100M user mark in June 2018 and also crossed 5 billion transactions in December 2019. It currently has over 200 million users. The company launched the PhonePe ATM in January 2020.The PhonePe ATM allows neighborhood Kirana stores to dispense cash in real-time to customers

PhonePe’s portfolio expansion agenda

The Bengaluru-based entity and part of the Flipkart Group is also mulling addition of more merchants / partners to extend its offline reach to boost ATM (cash withdrawal) services. It has one crore merchants (or one shop every 200 meters in a city has a PhonePe QR code) who accept payments through PhonePe.

Not all of them can use the ATM facilities (provide cash as a withdrawal option). The ATM services were first launched across Delhi and NCR and are now being expanded pan-India (10 lakh shops across 300 cities).

According to Karthik Raghupathy, Vice-President, Strategy and Business Development, PhonePe, the next wave of growth is expected from smaller towns, and keeping this in mind there is a need to expand offline services. Similarly, expanding the current range of services across its platform, is another focus area.

Apart from DTH recharge, bill payments, and Fastag top-up, among others, PhonePe also offers travel insurance bookings and buying and selling of gold and mutual funds (liquid and tax saver options) on its platform.

Raghupathy added that more options within the existing segments, such as offering general and health insurance schemes or selling equity and debt-linked mutual funds, are being explored. These could be introduced this year.

“We are also looking at the lending space. These could be peer-to-peer lending options or B2B / B2C loans or even personal loan options. We are waiting for the right time and the right product to introduce on our platform,” he told BusinessLine.

PhonePe competes with Paytm across most categories and has 7.6-crore active user base with 55 crore transactions carried out every month. The company also launched the ‘Switch’ platform in 2018, where users can place orders across apps such as Ola, Treebo, Myntra, Goibibo and redBus. Nearly 69 per cent of its transactions come from non-Tier-I cities.

The company’s annualised total payment value run rate stands at $170 billion. Revenue streams include transaction fees (and distribution charges) on products sold across the platform and advertisement revenues. The Switch platform is also being monetised.

No major disruption in transactions is expected because of the coronavirus outbreak (in travel insurance or other related segments such as flight and bus bookings).

Partnership with banks

PhonePeis also eyeing new partnerships with banks for UPI transactions. At present, it has a tie up with ICICI Bank and YES Bank. The fintech company had faced an outage for nearly 24 hours after a moratorium was placed on YES Bank on March 5.

The company worked with ICICI Bank and NPCI and its services were up and running by Friday (March 6) afternoon.

“Our partnership with ICICI Bank was expected to go live from April. But with the moratorium on YES Bank, we went ahead with it on March 6 onwards. Now, we are exploring partnerships with other banks,” he added.

PhonePe’s IPO Plans

According to a Business Standard report citing sources PhonePe has been looking to diversify its portfolio after the government’s zero MDR (merchant discount rate) rule which leaves very little revenue potential in UPI alone, and this remains a key aspect of the company’s plan to go public. “The company is partnering and providing value-added services to kiranas and onboarding merchants,” a source was quoted as saying.

Further, in the last four months, company has added six products in insurance and wealth management. The company said it became the fastest-growing insure-tech distributor in India, and mutual funds (MFs) have seen investment from more than 5,000 cities.

Phonepe founder and CEO Sameer Nigam told the publication, “Since January, we have been launching a wide range of financial services products in all these categories and will continue to innovate, scale-up, and positively disrupt these sectors.”

The report also noted that Walmart’s leadership team has asked PhonePe and Flipkart about building the ‘path to profitability’, and it has set a target of 2022 for the same. In its last released financial results, in FY2019, it had reported a loss of INR 1904.72 Cr. In terms of revenue, the company raked in INR 245.8 Cr in FY19, a 401% growth compared to INR 49 Cr in the previous year. Its expenses grew 156% on a Y-o-Y basis reaching INR 2153.2 Cr in FY19. The FY20 earnings are yet to be released.

Customers Anxious To Uninstall PhonePe

Even as PhonePe plans its path to profitability and to go public, consumer sentiment is something the company needs to be taken into account too. The digital payments platform recently released its latest ad campaign featuring Bollywood actors Aamir Khan and Alia Bhatt in the hope to attract more customers, but the campaign ended up back firing.

On the weekend, #UninstallPhonePay (Uninstall PhonePe) has been trending on Twitter due to the involvement of the two actors, with separate controversies fuelling the trend. While negative sentiment against nepotism in Bollywood and Bhatt seem to have risen after the death of 34-year-old actor Sushant Singh Rajput, Khan’s recent visit to Turkey and meeting with the Turkish first lady Emine Erdogan has caused concerns.

Users have also started downrating the app on Google Play Store as well, where it has an average rating currently of 4.4 stars. It remains to be seen whether this has any impact on the usage and adoption of PhonePe.

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