Industry observers said the steady inflow of capital into PhonePe points to Walmart’s larger goal of having a strong front in mobile payments in India. PhonePe received Rs 3,280 crore, or approximately $477 million, in total funding from its promoter entities in 2018, according to past filings.
In the same period PhonePe rapidly expanded its user base, albeit at the cost of Paytm and Mobikwik, through discounts, promotional offers and deeper merchant integrations. In December, the firm claimed it had 100 million users and 750,000 merchant-base who are using its service.
PhonePe is key to Walmart’s e-commerce strategy in India, say experts. As the e-commerce policy bars discounts by foreign-owned e-commerce platforms, affiliate payment apps like Flipkart’s PhonePe and Amazon Pay are being used to attract users to certain platforms.
Alternatively, a digital infrastructure is also necessary for on-boarding kirana stores for online-to-offline commerce and offering loans to sellers — two strategies that top e-commerce players are said to be working on.
"Payment apps are both a proxy and a revenue driver for the key e-commerce players in India,” said Vivek Durai, founder of Paper.vc, who closely tracks India’s start-up space.
“You have Google
and Facebook-backed offerings. Of these, the ones that offer a seamless UPI-backed payment experience have seen a huge spurt in growth, including PhonePe and Google.
But Xiaomi's impending entry may encourage more FDI into India in the payments space in 2019. PhonePe's infusion is one such infusion,” Durai added.
Because of the inherent nature of the business — where a user moves to the next service that offers better discounts on transections — companies
have to constantly spend money to attract and retain users. This has become more expensive as Google Pay and Amazon Pay, offerings by two the world’s most cash rich companies, are fighting hard to get a stronger foothold in India.
In the financial year 2017-18, PhonePe’s total expenditure stood at Rs 840 crore, of which Rs 701 crore was categorised under ‘other expenditure’. Other expenditure includes discounts, cash-back offers, and marketing expense. Employee expenses in the year was Rs 130 crore.