Monetizing UPI: PhonePe’s IPO Offers a Glimpse Into Fintech’s Future Model

As India’s largest UPI platform files for a $1.5 billion IPO, we ask — can payments finally turn into profit?

The Core Problem: Can UPI-Based Businesses Be Profitable?

UPI is India’s most used digital payments platform, with over 13 billion transactions a month. But here’s the irony: it generates zero revenue per transaction due to the no-MDR (Merchant Discount Rate) policy.

This has haunted every fintech — from Paytm to Google Pay. Now, PhonePe, India’s UPI leader with 500+ million registered users, is trying to crack the code.

And its upcoming IPO could be the first real test case of whether UPI can support a profitable, scalable fintech model.

Financial Snapshot: PhonePe’s Profit Path

PhonePe's recent numbers are finally showing signs of viability:

FY	Revenue	Profitability
FY-22	₹1,640 crore	Loss of ₹2,014 crore
FY-23	₹2,914 crore	Narrowed losses
FY-24	₹5,064 crore (approx)	Turned EBITDA positive

PhonePe reportedly hit operating profitability in FY24 — a key trigger for the IPO. The platform earns primarily through:

• Merchant payments (MDR on non-UPI channels like cards & wallets)

• Commissions from insurance, mutual funds, digital gold

• Ad revenues and platform fees from their “Switch” services

• Recent lending partnerships for small-ticket credit

  
  

The Future: Where Will the Real Money Come From?

With MDR staying at zero on UPI P2P and small-value P2M, PhonePe is focusing on layered monetization across multiple verticals:

1. Credit on UPI (Live since April 2024)

• Enables banks and NBFCs to offer small-ticket instant loans at point of purchase

• PhonePe can earn a commission per disbursal and a cut on interest recovery

• Major monetization lever if widely adopted — could become the “BNPL” of UPI

2. WealthTech & Insurance Expansion

• Already has in-house PhonePe Wealth & Insurance verticals

• Acts as a distributor for SIPs, ELSS, insurance (term, health, travel)

• Earns ~₹50–₹150 per transaction in commissions

• Cross-sell potential is massive with 250M+ active monthly users

3. ONDC Integration

• PhonePe’s Pincode app integrates with ONDC (Open Network for Digital Commerce)

• Enables local merchants to be discovered inside the app

• Creates a new revenue layer through fulfillment, marketing, and transaction fees

• Long-term potential to challenge Amazon/Flipkart-like commerce models

4. UPI Lite & Feature-Phone UPI

• With RBI pushing UPI Lite and UPI 123PAY, PhonePe is tapping non-smartphone users

• Adds a new rural segment for monetization through recharges, bill pay, micro-credit

Why This IPO Matters for Indian Fintech

PhonePe’s IPO will:

• Establish a valuation benchmark for UPI-focused fintechs

• Influence investor outlook on profitability vs. scale

• Pressure rivals (Paytm, CRED, Jupiter, Slice, Navi) to accelerate monetization

• Shape regulatory attention toward UPI’s commercial sustainability

If PhonePe’s model succeeds, it sets a precedent:Fintechs can build viable businesses on UPI — but only by building beyond payments.

Final Word

UPI was never built to be profitable. But PhonePe is showing how ecosystem innovation, cross-selling, and tech-led credit can unlock new value.

Its IPO is not just about raising funds — it’s a stress test for UPI-based monetization in India.If PhonePe makes it work, the fintech sector will no longer chase just users — it will chase unit economics.