"Not Even Playing UPI Vanity Race": How Paytm Scaled To 4x The Size Of PhonePe

"Not Even Playing UPI Vanity Race"

Source - Paytm

Walmart-owned PhonePe, which competes with Paytm in the UPI space, has recently been busy claiming the highest market share when it comes to UPI transactions. However, several social media users find it to be a vanity metric, as Paytm, which pioneered India’s QR and digital payments revolution, is way ahead of PhonePe when it comes to revenue.

Paytm reported a 42% year-on-year growth in its revenue to ₹2,062 crore. This number is significant on many counts. It translates to an annualized revenue run rate of $1 billion, a first for any Indian payments company.

In the January-September period of 2022, PhonePe recorded revenue of ₹1,913 crore, according to media reports. PhonePe’s 9-month revenue is still less than what Paytm made in one quarter.

Paytm management revealed during the company’s earnings call that the company’s scale in merchant business is particularly higher than other players. “We looked at UPI. This was a war of UPI between different companies. Some chose peer-to-peer, some chose peer-to-merchant. We chose merchants,” said Paytm, which sees even further revenue opportunities on the merchant acquisition side.

PhonePe’s market share comparison with Paytm misses many parameters. PhonePe's focus on P2P transactions only helps the company with transaction volumes without any meaningful revenue and profitability attached to it. On the other hand, Paytm's focus on P2M (peer-to-merchant) transactions is helping it generate revenue through government incentives, selling devices and subscriptions to merchants, and upselling financial services like business loans. Paytm estimates that it will receive ₹130 crore of UPI incentives from the government in the January-March quarter, covering the first three quarters of the fiscal.

Paytm has created a wider range of revenue streams across payments, commerce, and financial services compared to any of its competitors. This gives the company a unique ability to generate income and profits across various segments while incurring lower customer acquisition costs in comparison to its competitors. Paytm Payments Bank, which owns Paytm UPI, is also India’s largest UPI merchant acquiring bank with a 40% market share. It is also the biggest UPI beneficiary bank and a leading remitter bank.

Paytm boasts 6.1 million merchants paying subscriptions for payment devices like Soundbox, which is more than all of its competitors combined. As Paytm strengthens its leadership in offline payments, it in turn increases the funnel for its merchant loan distribution business.

While PhonePe may claim a larger market share in UPI payments, Paytm's revenue generation capabilities and focus on P2M transactions make it a more profitable and sustainable player in the digital payments space. Paytm's scalable business model, which has UPI at its core, has helped it establish a strong presence in both online and offline channels.