PhonePe Runs India’s Biggest Payments Highway—But the Shops Are Empty

As PhonePe moves toward one of India’s most closely watched fintech IPOs, its own draft prospectus tells a far more complicated story than the headline numbers suggest.

On the surface, PhonePe looks unassailable. With over 65 crore users, it sits at the heart of India’s UPI ecosystem. But a close reading of its IPO Draft Red Herring Prospectus (DRHP) reveals mounting regulatory pressure, stalled monetization efforts, and repeated struggles to convert scale into sustainable profit.

This assessment comes from independent analyst Jayant Mundhra, who has closely analyzed PhonePe’s DRHP disclosures. His conclusion is blunt: beneath the scale lies a company running multiple high-stakes experiments—many of which are colliding with regulatory roadblocks, structural limitations, and execution failures.

What looks like momentum, Mundhra argues, may actually be stress.

What PhonePe Chose Not to Highlight

One of the most telling red flags in the DRHP is not what PhonePe disclosed—but how it disclosed it.

Instead of reporting insurance as a standalone vertical, PhonePe bundled it with lending. According to Mundhra, this decision is revealing. Lending is currently the only financial vertical showing traction. Insurance, by contrast, has failed to scale.

In an IPO, companies typically spotlight their strongest growth engines. If insurance distribution were a breakout success, PhonePe would highlight it aggressively. Instead, it was buried—suggesting the business never lived up to its promise.

Ambition Meets Regulatory Reality

The NBFC License Wall

PhonePe’s biggest strategic bet is lending from its own balance sheet. To do that, it needs an NBFC license. Mundhra lays out the timeline:

• 2021: Application rejected by the RBI
• 2023: Second attempt stalled
• Present: A third, high-stakes attempt underway

Without this license, PhonePe remains trapped in a marketplace lending model—where it does the hard work of customer acquisition, while partner banks and NBFCs capture most of the profit.

The ambition is clear. The regulatory ceiling is clearer.

High-Margin Revenue Streams That Vanished Overnight

Mundhra points to two “value-added” revenue engines that once contributed meaningfully—and then disappeared.

• Rent Payments: Contributed nearly 18% of revenue before regulatory tightening around credit usage shut the engine down.
• Real Money Gaming (RMG): A ₹250 crore annual revenue business that collapsed after new regulations came into force.

These weren’t experimental sidelines. They were high-margin businesses wiped out by policy changes—highlighting how exposed PhonePe’s diversification strategy is to regulatory risk.

Structural Failures Beneath the Surface

When Scale Doesn’t Convert

Beyond regulation, Mundhra flags a deeper issue: PhonePe’s inability to convert its massive user base into adoption across new verticals.

• Pincode (ONDC): Once positioned as a commerce revolution, it failed to resonate with consumers. PhonePe quietly shut the consumer app.
• Share.Market: Built to challenge Zerodha. Result? Just 1.2 million accounts—a conversion rate of under 0.2% of PhonePe’s total users.

According to Mundhra, this is not a distribution problem. It’s a synergy problem.

If a platform cannot convert even 1% of its captive audience, it doesn’t have an ecosystem. It has a billboard users are ignoring.

The Biggest Surprise: Account Aggregator Exit

Perhaps the most striking disclosure in the DRHP is PhonePe’s exit from the Account Aggregator (AA) business.

Despite having 5 crore registered users, PhonePe shut the platform down.

The issue wasn’t consumer demand—it was institutional adoption.

Out of roughly 100 financial information providers, PhonePe onboarded only about 20. A legacy competitor, CAMS, onboarded 58.

Mundhra’s takeaway is sharp: PhonePe excels at B2C distribution but struggled with complex B2B banking relationships—an essential capability in regulated financial infrastructure.

The Risk of “Paytm-ization”

Mundhra describes what he sees as “Paytm-ization.”

PhonePe is spread across wealth, insurance, lending, commerce, gaming, and multiple apps—without mastering any single vertical. The company built a magnificent highway in the form of UPI. Everyone uses it. But no one is stopping at the shops PhonePe built alongside it.

The DRHP, rather than reinforcing the inevitability of success, exposes the fragility of a model overly dependent on regulation, partnerships, and conversion assumptions that haven’t held up.

What This Means Going Forward

This analysis is Part 1 of a three-part deep dive by Jayant Mundhra into PhonePe’s IPO filings. The upcoming sections are expected to examine financial sustainability, competitive positioning, and long-term viability as a listed company.

For investors and the broader startup ecosystem, the message is already clear:
Scale alone is no longer the story. Focus, execution, and regulatory resilience are.

PhonePe’s IPO has forced that reality into the open.

Jayant Mundhrais an ex-Bain consultant and former operator at Classplus and Dexter. He is the author of Redemption of a Son and writes extensively on India’s corporate and startup ecosystem. All observations in this analysis are based on publicly disclosed information in PhonePe’s IPO DRHP.