How PhonePe Makes Money: UPI, Loans, Merchants & More

For the everyday Indian, PhonePe is just a free UPI app. One rarely pays anything extra to PhonePe for splitting a dinner bill with friends, phone recharges, or even paying the neighbourhood kirana store. But this is an entirely simplistic view, and one that misses the many nuances of running a modern-day fintech super app.

Having raised about $2.89 Bn since 2015, PhonePe has leveraged the capital to grow its user base and build a business model which seems innocuous enough at first glance, but where the sum is greater than the parts.

Despite that, the biggest red flag for PhonePe is its profitability, particularly as the company prepares for an IPO in the near future. But to examine how long it might take PhonePe to break this rut, one can take a look at how its close rival Paytm did it.

In the run-up to Paytm’s public listing in 2021, Paytm CEO Vijay Shekhar Sharma also pointed out that the fintech business model — one built around UPI as a top-of-the-funnel product or entry point — was not well understood by public market investors. In the five years since then, the market has had the experience of not only studying Paytm’s own topsy-turvy run but also MobiKwik and others in adjacent spaces such as Pine Labs and Groww.

All this means that the market today is more mature, but the central tension in the fintech space is that UPI by itself has weak monetisation levers.

Given this, how exactly is PhonePe making money, and what are the buttons it needs to push to get to profits just like Paytm did?

The Consumer Payments Core

Every QR scan or money transfer may be free for the user, but it strengthens PhonePe’s network, creating monetisation opportunities across bill payments, merchant services, lending, insurance and advertising.

PhonePe offers free UPI transactions for individual users, including both peer-to-peer (P2P) and peer-to-merchant (P2M) payments. However, merchants may incur interchange fees ranging from 0.5% to 1.1%, depending on the service category.

P2P transactions and P2M transactions are the fundamental revenue bases on which PhonePe has taken its revenue to over ₹7,000 Cr in FY25.

In the first half of FY26, the company reported operating revenue of ₹3,918.5 Cr. If the company maintains this run rate, FY26 revenue could grow by around 15%-20% on an estimated basis.

As per disclosures, 86% of this revenue or ₹3,238 Cr, came from the payments business which also includes commissions from billers that have partnered with PhonePe.

The other side of the payments business, as hinted at above, is merchant services. Kiranas, large stores, paan shops, and registered retail businesses that display PhonePe’s QR codes or soundboxes pay a subscription fee to PhonePe for the use of these payment services.

Take a simple mobile recharge or electricity bill payment, where it acts as a marketplace, connecting consumers with telco or electricity providers through partners such as Bharat Connect. In return, it earns a small processing fee, platform fee or a share of the convenience fee.

The payments engine is enormous because the volume is enormous. PhonePe processed close to 10 Bn UPI transactions in a single month, roughly 47% of all UPI transactions in India. While most of them might be low-value in terms of revenue accretion, the total is close to half a billion dollars.

Delving Into The Merchant Payments Stack 

Merchant services is PhonePe’s fastest-growing payments business. Revenue for this vertical increased from ₹429.8 Cr in FY23 to ₹1,038.5 Cr in H1 FY26. Annualised, if we go by estimates, it is on track to reach around ₹2,077 Cr in FY26 or nearly 5X the FY23 levels

As we indicated above, PhonePe’s QR code displays, SmartSpeaker soundboxes, and multiple PoS machines that accept cards and UPI are among the key selling points for merchants who pay subscription or rental fees for these devices.

These form the bulk of PhonePe’s retail penetration and are the chief driver of consistent subscription-based revenue, and in this space, the company competes with the likes of Paytm, Google Pay, BharatPe, Amazon Pay, BHIM, Pine Labs, CRED, legacy PoS providers and bank-led options.

The company has over 92 Lakh net deployed payment devices across its merchant network, as of September 30, 2025, including Smartspeakers and EDC machines. This merchant base is further tapped by PhonePe for other financial services, as we will see.

The other half of the merchants’ services business comprises online merchants, where PhonePe leverages its regulatory licences to operate as a payment gateway, payment aggregator, and cross-border payments provider to attract them. This is the vertical where it competes with Pine Labs, Razorpay, and other players in the fintech space.

While PhonePe may dominate consumer UPI, merchant monetisation is a different fight. Razorpay has deeper relationships in payment gateways and aggregation, Pine Labs has long-standing partnerships with large retailers and organised chains, and Paytm has built a device-and-subscription stack with over 1.5 Cr subscribed merchants. With some of these players stepping up their enterprise and merchant push, PhonePe faces a far tougher battle in merchant payments  than its consumer payments franchise.

What’s clear is that PhonePe’s edge is the distribution base it has built with its 700 Mn+ consumers and being a close second to Paytm when it comes to merchants.

“I believe that in the AI world, where the barrier to entry has been further reduced, distribution and data will continue to be the largest,” PhonePe cofounder and chief product and technology officer Rahul Chari said at The AI Summit by Inc42 in May this year.

So the question boils down to leveraging this distribution advantage for monetisation through other levers.

Capitalising On The User Base

If payments bring users to PhonePe, its lending and insurance businesses are where the economics begin to change. The strategy is simple: acquire users through payments, then monetise them through higher-margin financial products. But this is also PhonePe’s toughest battlefield.

Every UPI user acquired through payments becomes a potential borrower or insurance customer for PhonePe, and indeed its competitors such as Paytm, Google Pay, CRED, BharatPe, Navi and others.

As a lending platform, PhonePe does not lend from its books and does not assume the lending risk. The actual disbursal happens through banks and NBFCs, with PhonePe earning commissions for loan origination and distribution.

The same is the case for insurance since PhonePe does not own an insurer licence but a broking licence.

As of September 2025, PhonePe had facilitated ₹14,270 Cr in loans through 56 lending partners and sold 1.85 Cr insurance policies across 29 insurers.

Revenue from financial services surged from just ₹28 Cr in FY23 to ₹452.8 Cr in H1 FY26. The share of operating revenue has also expanded from less than 1% in FY23 to 11.55% as of December 2025 (H1 FY26), making it PhonePe’s fastest-growing business.

As stated above, competition is thick and heavy in the digital lending space, and PhonePe’s revenue upside is lower than that of companies with NBFC licences. PhonePe, Paytm, Google Pay and similar lending platforms don’t have NBFC licences, while the likes of MobiKwik, BharatPe, CRED, KreditBee and Moneyview do.

This limits PhonePe’s ability to maximise revenue from the lending business and depends on building a broad customer base to deliver high-quality borrowers to the banks and NBFCs it partners with.

Similarly, in insurance, it faces specialists such as Policybazaar, InsuranceDekho, ACKO, and Digit, among legacy players that also have distribution businesses and several channel partnerships. Insurance broking has a high volume, but competition is heavy and thick.

PhonePe’s challenge is turning the implicit payments trust into a financial services trust and continuing to add pieces to these businesses in the long run. For instance, an NBFC licence would be the most logical extension of the PhonePe model. Revenue from financial services may ultimately determine how profitable PhonePe becomes.

Investment Tech And App Stores: Long-Term Bets

If the financial services vertical is PhonePe’s next growth engine, its newer platforms are long-term bets that require significant investment and patient growth.

The company entered wealth management in 2021 and launched Share.Market for discount broking and mutual fund investments in 2023, and followed by the Indus Appstore in 2024, which it acquired from Affle in 2022.

Between FY22 and FY24, PhonePe invested nearly ₹800 Cr into these businesses, so the company would be looking to extract more returns on this investment in the next year, particularly with Share.Market.

Competing against Groww, Zerodha, Angel One and other discount broking platforms, Share.Market manages ₹5,838 Cr in mutual fund assets and has 12.6 lakh demat accounts, according to PhonePe’s disclosures.

The Indus Appstore is an even longer-term bet. It is still too nascent to be a meaningful revenue centre for PhonePe, and competing with Google Play will require years of investment in OEM partnerships, developer adoption and user habit formation.

Through brokerage, distribution fees, developer services and advertising revenue for Share.Market and Indus Appstore, respectively, PhonePe earned ₹59.9 Cr in H1 FY26, just 1.53% of operating revenue.

In investment and wealthtech, PhonePe faces competition from Groww, Zerodha, Angel One, CRED, Lemonn, Upstox, and bank-backed brokers, where investor trust, engagement, and assets under management matter more than distribution.

But the challenge is that an individual who trusts PhonePe for UPI payments does not automatically choose it for investments. Until that behaviour changes at scale, these businesses remain strategic bets for cross-selling rather than meaningful earnings engines.

The Fintech Super App Race 

PhonePe’s business model is similar to those of other companies that it directly competes with, primarily Google Pay, Paytm, Amazon Pay, Navi, Super.Money, BharatPe and others. Each of these players aims to build a super app empire centred on one central habit: daily UPI payments.

UPI continues to remain a low-cost, low-friction and high-frequency acquisition engine, but the critical aspect for all of these players, including PhonePe, is maximising the revenue per user beyond UPI. This means both individuals and merchants.

Payments is a habit, and while habits build trust, cross-selling requires triggering users at the right moments. A lot hinges on product mechanics and how nudges are sent to users.

Pretty much everyone in the fintech super app space knows that zero MDR continues to limit direct monetisation. That may eventually be taken off the board, as many industry leaders have asked — most recently, MobiKwik’s Upasana Taku.

If MDR is introduced in some form, it could improve the economics of UPI-led payments for market share leaders such as PhonePe. But it would not settle the profitability question entirely.

The company would still need to prove that its massive payments base can be converted into higher-margin revenue across merchant products, lending, insurance, wealth and other platform businesses.

Until then, PhonePe and other fintech super apps have little choice but to keep building the scaffolding that moves users from free UPI transactions to more profitable lines of business. Given the consultations and potential pushback such a policy shift would involve, MDR is unlikely to be a near-term answer on its own.

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