PhonePe IPO: Eyes On 2023 But Will It Become A Reality?

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The entire digital payments industry in India has been going through a bit of a rough patch since the very beginning of 2020. Starting from the transaction fee of payment firms for UPI and RuPay being slashed to the current COVID-19 crisis, it hasn’t been easy at all. Despite, PhoPe is quite optimistic about its big plan for 2023.

Sameer Nigam, Co-Founder – PhonePe, in an interview, quite optimistically mentioned that he is strongly hoping to turn profitable within the year 2022 and file for an IPO in 2023. Let’s dig deep into it.

Because of the current situation, much like all major fintech companies, now Flipkart’s digital payments arm PhonePe is also looking forward to alternative ways to cover their lost revenue. This is where, according to Sameer Nigam, PhonePe is betting big on its O2O aka Offline-to-Online strategy which seems to be working for them.

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He mentioned that back in 2018, PhonePe first took a bet on this O2O (Offline-to-Online) strategy to familiarise consumers with their offerings via offline stores. Now, amid this COVID-19 situation, once again they are doing the same to inform their users which shops are open and delivering along with working with the delivery fleet of Swiggy Genie. 

In saying that, he also reported that because of the COVID-19 situation overall transactions on the PhonePe platform has dipped by 35% because most kiranas are closed and daily offline payments have fallen.

Apart from this, he also mentioned PhonePe has launched a new chat service known as Switch to help small business owners to communicate with their customers with ease. The company generates a small revenue from this platform when their merchant partners generate business through it.

Now, coming to the other problems such as the zero transaction fee for UPI and RuPay they have been facing, Nigam said that it is a very big handicap for the entire fintech industry. He also spoke about the PhonePe recent service outage because of the Yes Bank moratorium wherein he mentioned the company was lucky to have already planned an integration with the ICICI Bank beforehand.

When asked about getting raking in fresh investment, he said that PhonePe in a good position when it comes to the availability of capital as Walmart has been phenomenally supportive throughout. However, he said that if they go international in the future, they would open up to the consideration of an external partner.

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He also disclosed that their cost of acquiring users have reduced a lot from what they had to spend in the year 2018 and 2019 so they feel they are in a better position.

PhonePe is hoping to acquire 275 million users this year alone along with getting another 200 million users in the coming two years.

Lastly, Nigam said that PhonePe, despite all the roadblocks they have been facing so far, is hoping to become profitable in two short years by 2022. This they want to do this by taking an organic approach and not by acquiring other platforms to aggregate more market share.

The company reported its highest-ever annual revenue of Rs 245.8 crore in FY 2019, with a massive 401.3% year-over-year growth. The total valuation of PhonePe, according to a report by Morgan Stanley, hovers $7 billion.

In spite of all the excitement and confidence Sameer have, it is highly questionable that PhonePe will go forward with the IPO plan in the next 2-3 years. Given the history and claims made by current unicorns in India, it’s quite dubious that a company largely rely on UPI payments alone, would have a very convincing business plan for investors in the next 2 years. It’s important to note that UPI transactions type accounts for 99% of total PhonePe transactions that take place every month.

Besides, in the past, a lot many Indian startups made similar statements but didn’t go through with it. This includes PhonePe’s parent company Flipkart as well which later went on to get acquired by Walmart. Also, it should be kept in mind that their arch-rival Paytm also is aiming for an IPO by the year 2022. However not much has yet been made known about it in details.

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