PhonePe, the fintech giant backed byWalmart, is preparing for a major initial public offering, aiming for a valuation of up to $10.5 billion (around ₹97,000 crore). This would be lower than the $12 billion valuation at which PhonePe last raised $100 million from private equity investors in 2023.
The IPO will be entirely an offer for sale (OFS), with existing investors including WM Digital, Microsoft Global Finance, and Tiger Global planning to sell shares. PhonePe itself will not receive any proceeds from the IPO, the core objectives of which are to list the company on the stock exchanges and to facilitate the OFS.
For investors, though, the main question is how PhonePe actually compares with Paytm, its closest rival. Let’s dive in.
PhonePe’s user base grows 48% while Paytm’s shrinks
Over the past few years, PhonePe and Paytm have taken sharply different paths in terms of user growth. PhonePe has demonstrated consistent and aggressive expansion in monthly active customers (MAC), from 161 million in FY23 to 238 million by H1FY26.
Paytm's user base, on the other hand, contracted from 90 million to 75 million over the same period, following a series of disruptions such as RBI restrictions on Paytm Payments Bank, user migration, merchant attrition, and the erosion of its wallet advantage.
PhonePe emerged as the biggest beneficiary of this disruption. Since it was already the market leader in UPI transaction volumes, many users migrating away from Paytm viewed PhonePe as the most reliable alternative. PhonePe was thus able to capitalize on Paytm’s setbacks while simultaneously strengthening its own distribution network.
This divergence is visible in PhonePe’s UPI market share. It remains the undisputed market leader, maintaining an average UPI market share of around 49% through 2024 and mid-2025. Paytm’s share, which hovered around 10.4% in FY24, collapsed to just 5.6% in FY25 before recovering slightly to 5.9% by September 2025.
PhonePe faces a regulatory headwind
However, regulations could reshape this dynamic going forward. The National Payments Corp. of India has proposed a 30% volume cap on UPI transactions for third-party app providers.
With a 49% market share, PhonePe effectively faces a regulatory growth ceiling and may eventually be forced to slow user onboarding if the rule materializes. Paytm, by contrast, operates well below the threshold. With market share still under 10%, it has significant regulatory headroom to grow without facing immediate restrictions.
Soundboxes vs UPI: the battle for merchant real estate
In merchant acquisition, both platforms have achieved nearly identical scale. As of 1HFY26, PhonePe and Paytm each reported 47 million registered merchants on their platforms. However, Paytm holds an operational advantage in physical payment infrastructure.
This is particularly visible in the deployment of payment devices such as smart speakers and card machines. In 1HFY26, Paytm had 13.7 million active payment devices deployed across merchants, significantly ahead of PhonePe's 9.2 million devices.
Beyond payments, both companies are increasingly positioning themselves as financial ‘super apps’. PhonePe launched Share.Market, a discount broking platform designed to compete with Zerodha and Groww. The company also maintains a strong presence in motor and health insurance distribution.
Paytm, meanwhile, operates Paytm Money, which already has a substantial base of mutual fund and equity investors. The company has also shifted toward a ‘distributor-only’ insurance model, allowing it to expand the business without carrying significant balance-sheet risk.
How Paytm extracts more value per rupee
Despite PhonePe's dominance in transaction volumes, Paytm generates significantly more value per transaction. The key reason lies in the composition of their transactions. PhonePe's gross merchandise value (GMV) of ₹82.2 trillion (as of 1HFY26) is heavily inflated by person-to-person (P2P) UPI transfers, which typically generate little or no transaction fees.
Once P2P transactions are excluded, PhonePe’s commercial GMV drops sharply to ₹21.2 trillion, which is still higher than Paytm's ₹11.1 trillion. However, Paytm’s ₹11.1 trillion GMV is composed largely of merchant and commercial transactions that actually generate revenue. This difference in transaction mix naturally leads to a higher revenue yield for Paytm.
As PhonePe processes billions of free P2P transfers, its blended gross payment take rate stands at just 3.9 basis points (bps). Paytm's gross take rate, in comparison, is 21 bps. However, once P2P transactions are excluded, PhonePe’s take rate increases sharply to 15.2 bps.
While premium instruments generate higher gross revenue, they also cost the platform more to process. Paytm paid 10.9 bps in payment processing charges, compared with PhonePe's 1.3 bps and 5.1 bps (excluding P2P). These higher costs reflect Paytm’s transaction mix, which includes a greater share of wallet, credit card, and other premium payment instruments.
In the end, despite the differences in gross take rates and processing costs, both companies have similar profitability at the payment level. Both Paytm and PhonePe (excluding P2P) reported an identical net payments margin (gross minus processing charges) of 10.1 bps in 1HFY26.
PhonePe closes the revenue gap
Historically, Paytm has been the larger company by revenue. It generated ₹9,978 crore in FY24, compared with PhonePe’s ₹5,060 crore. However, with revenue of ₹7,120 crore in FY25, PhonePe surpassed Paytm's ₹6,900 crore.
Their revenue mixes, however, remain very different. PhonePe remains heavily dependent on payments. In 1HFY26, payment processing accounted for 82% ( ₹3,231.7 crore) of its revenue of ₹3,918.5 crore. Lending services contributed only 12% ( ₹452.6 crore) of revenue.
Paytm’s revenue is more diversified. In 1HFY26, payments contributed 59% ( ₹2,333 crore) of its revenue. Its lending business has become a major growth engine, accounting for 29% ( ₹1,171 crore) of revenue.
The 73% salary burden: Why PhonePe still bleeds cash
The divergence becomes even sharper in profitability. Paytm reported a net profit of ₹143.5 crore in 1HFY26, up from ₹90 crore a year earlier. PhonePe meanwhile is still in the red, with a loss of ₹1,444.4 crore in 1HFY26, compared to ₹1,203.2 crore a year earlier.
This gap largely stems from differences in operating cost structures. In 1HFY26, Paytm’s expenses amounted to 66% of revenue, showing relatively efficient cost management. PhonePe’s expenses exceeded its revenue, with total costs accounting for 109% of income. The biggest reason for this is employee compensation.
PhonePe spent 73% ( ₹2,869.1 crore) of its revenue on employee benefits in 1HFY26. Paytm’s spending on employees was lower at 33% ( ₹1,305.6 crore) of revenue. Operationally, PhonePe’s profitability trajectory has been volatile. Its Ebitda margin improved to -5% in 1HFY26, from -17% in FY24 and -77% in FY23. However, this improvement proved temporary. Profitability later deteriorated again, with the Ebitda margin widening back to -22%.
Paytm, by contrast, has shown a steady improvement in operational metrics. Its Ebitda margin stabilized at a positive 5%, marking a major turnaround from the -38% margin recorded during the same six-month period last year.
The road ahead
PhonePe is now focusing on expanding its reach beyond large urban markets. The company plans to deepen penetration in tier-2 and smaller cities, while also targeting the 200-300 million feature-phone users in India.
To achieve this, it plans to deploy ‘GSPay’, a technology stack acquired from Gupshup that enables UPI payments on feature phones. The company is also exploring new use cases, including transit payments and credit on UPI. PhonePe also aims to expand its lending distribution by onboarding more financial partners.
In addition, it plans to move up the value chain by building capabilities across loan origination, repayments, and collections. By leveraging its vast transaction data and user insights, the company plans to offer targeted credit products to underserved and new-to-credit segments. It also plan to use its massive user base to scale its broking platform, Share.Market.
For more such analysis, read Profit Pulse.
Valuation discount
At an expected ₹97,000 crore valuation, PhonePe would trade around 12 times price-to-sales based on FY26 annualised revenue, higher than Paytm’s 8 times. Whether Paytm’s valuation rises or PhonePe’s compresses after listing remains to be seen.
To sum up, PhonePe dominates in user scale and distribution, but Paytm has built a more diversified and profitable fintech model. As PhonePe prepares for its IPO, the key question for investors will be whether PhonePe and Paytm can monetise their vast user bases and build sustainable, profitable businesses.
Madhvendra has over seven years of experience in equity markets and writes detailed research articles on listed Indian companies, sectoral trends, and macroeconomic developments.
The writer does not hold the stocks discussed in this article.
The purpose of this article is only to share interesting charts, data points, and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educational purposes only.