Daybreak - Phonepe is taking the IPO leap. But can it avoid Paytm’s fate?

Episode Date: October 2, 2025

Phonepe is stepping into the public markets with a $15 billion IPO. For Walmart, which has pumped billions into the payments firm, this is both a chance to cash in and a test of its India strategy.Unlike Paytm’s disastrous, hype-heavy listing in 2021, Phonepe is going in with steadier financials, fewer regulatory scrapes, and the scale to back its story. Yet, the timing isn’t without risk: subsidies are shrinking, UPI share caps are on the horizon, and investor appetite has cooled since 2021. Host Rachel Varghese explores what's in store.Tune in.Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.

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With that, back to your episode. Last week, Walmart-backed phone pay filed for an IPO with Seby. It wants to raise a total of $1.5 billion against a valuation of $15 billion, and it's taking the confidential route, which means it doesn't have to share its draft prospectus with the public yet. In India, the last fintech giant to be listed was pay-tm, This was back in 2021, and most of us remember the scale of its phenomenal flop. At the time, it was India's biggest IPO.

Petym raised roughly $2.4 billion at a valuation north of $20 billion. The hype was real and the company's hopes were high. Then came the crash. The stock plummeted by nearly 30% on its debut. The reason, investors weren't exactly convinced by the loss-making company's unclear path to profitability and its over-the-top valuation. But over the last four years, the fintech market in India has matured. In fact, even PATEM has been doing much better.

Just this month, it rallied at a record high of 30%. Companies like Grow and Pine Labs are lining up for IPOs as well. But here's the thing. A mature market also means a comparatively sober investor appetite. FinTech funding has dipped overall. Tracks and data shows a 26% drop in the first half of 2025, compared to late last year. Early stage funding and scalable companies with innovation-driven models,

though, are still attracting interest. So, phone pay's conservative financials and clear proof of narrowing losses over the years means it might be a more attractive bet for very investors. You see, FinTech's biggest hurdle towards growth, especially in India right now, is regulations. And Phone Pay has had zero run-ins with the law so far, which means it has a much better standing than Ptm, which has had its fendium, which has had its fendium. share of RBI visits. Phonepay meanwhile recently got the green light to act as a payment aggregator.

But the anxiety is still very real. For example, about 10% of the company's revenue in FY24 came from digital payment subsidies. These basically compensate for the zero merchant discount rate or MDR on UPI transactions. But the Indian government is slashing the subsidy by nearly 80% this year, and PhonePays' payments revenue is bound to take a short-term hit. the recent real money gaming ban also dealt a significant blow to its volumes. So regulations and fintech's notoriously thin margins remain phone pay's biggest challenges. And its parent company, Walmart, is well aware of it.

Welcome to Daybreak, a business podcast from the Ken. I'm your host, Rachel Virgis, and every day of the week, my co-host, Snicktha Sharma and I will bring you one new story that is worth understanding and worth your time. Today's Friday, the 3rd of October. Let me take you back to 2018. when Walmart became a major part of the phone pay story. This is when it acquired a majority stake in Flipkart for a reported $16 billion. Since Flipkart owned PhonePay at the time, the digital payments company was included in the transaction.

And just like that, Walmart had acquired one of the most difficult licenses to obtain in India. As Phone Pay grew, Walmart began investing in it as a separate entity. In 2020, it led a funding round of $700 million for Phone Pay officially acquired. firing it as a whole different company and separating it entirely from Flipkart. And that wasn't even the largest bill that phone pay racked up for Walmart, which we'll get to in a minute. Now, despite the staggering investment in phone pay, in its 2024 annual report, Walmart lists its fintech ventures as risky investments.

It's mainly due to the regulatory risk involved in operating in different countries. And in India especially, you know how it is. Regulations can change from state to state. Walmart knows that failure to comply with legal and regulatory requirements could cost it well basically everything. It could be heavily fined, it could lose licenses to operate, risk a lawsuit and its reputation, and ruin its overall relationships in India altogether. So, through phone pay and through its position in India, Walmart is putting a lot of its skin in the game. Walmart's involvement in phone pay and the recognition of this risk makes phone pay doubly accountable.

Like we mentioned earlier, phone pay has had no issues with RBI so far, even though it controls nearly 50% of the market share. The depth of its integration with UPI also makes it stand out as a more stable and measured company, billing to bet on only the likeliest of outcomes, and with the capital backing to do so. Now, remember the hefty bill phone pay ran up for Walmart? There's more to it. In 2022, Walmart paid the majority of the $1 billion tax bill that was needed for Phone Pay to move its headquarters from Singapore to India. This move was part of

the plan to make Phone Pay profitable and was also a precursor to the IPO we are seeing today. Shortly after, in 2023, Walmart increased its stake in the company from 76% to almost 90%. And now, two years since then, phone pay is finally ready to list. The plan is to debut next year, which makes the IPO a pretty good potential exit strategy for Walmart. me tell you a bit more about this IPO. Money Control reported that Walmart, Tiger Global and Microsoft are three major shareholders likely to sell shares in this listing. Together, they might dilute around 10% of their stake, but the exact split isn't public

yet. As a major owner, how Walmart decides to go about diluting its share could dictate the way retail investors react to this listing. If it sells too much too soon, it could send the wrong signal about phone base value. If it sells too little, investors might worry about foreign dominance at the cap table. However, even as phone pay nears its IPO, the issue of regulatory hurdles still remain. More on this in the next segment. Now, phone pay is entering the market with promising optics.

Its FY25 financials show operating revenue up by nearly 40% year-on-year to about 7,000 grow rupees. Net losses have narrowed also to around 1,700-crow rupees from almost 2,000 crore rupees in FY24. That means it can credibly tell investors we're still growing without bleeding too much cash. And that for public investors who have possibly grown very of endless losses

is obviously a positive signal. Reuters reports that the platform boasts of over 600 million registered users supports 40 million merchants and handles more than 310 million online transactions every single day. All of this is incredibly impressive. Another great sign is that they've backed that crucial regulatory green light I mentioned earlier.

Phone pay has received final authorization from RBI to function as an online payment aggregator. Now, if you don't know what that means, here's a breakdown. Until recently, phone pay could only act as a middleman. The money from a customer's payment flowed through its partner banks. But with RBI's payment aggregator license, phone pay can now directly onboard merchants and settle payments itself, giving it more control, better margins and a stronger business model ahead of his IPO. To put that in perspective, in 2024, phone pay actually handled a much larger volume of UPI transactions,

15% more GMV or gross merchandise value in fact, compared to PATM. But Paytm still managed to take home about 60% of the government's UPI incentive payouts. Why? Well, that's because PETM is more focused on merchant payments rather than just consumer to consumer transfers. Incentives mostly reward transactions that drive commerce, so merchant payments bring in more money per transaction than peer-to-pure transfers. So its new RBI win means phone pay can get more of this merchant share. And the timing couldn't be better. Back in November 2020, the NPCI or the National Payments Corporation of India proposed a cap to avoid monopolization.

No digital payments firm could process more than 30% of all UPI transactions. That rule is is finally set to take effect next year. Today, phone pay handles almost 50% of all UPI payments. So even if it's forced to bring that share down, focusing on signing up merchants now means that it can lock in more high value clients for the future. Still, the pressure is on. Before the proposal comes into effect in 2006,

phone pay will have to diversify its revenue streams. It's already begun this procedure by branching out into stockbroking, insurance and an app store. all with varying levels of success. Whether it can build steadily on this plan without taking major hits from regulations remains to be seen. But as of now,

there seems to be trust in phone base capability to have a successful IPO. Because it does have a lot going for it. A sizable market share, regulatory wins and a parent with deep pockets. Daybreak is produced from the newsroom of the Ken India's first subscriber-focused business news platform. What you're listening to is just a small sample,

of our subscriber-only offerings. A full subscription offers daily long-form feature stories, newsletters and a whole bunch of premium podcasts. To subscribe, head to the ken.com and click on the red subscribe button on the top of the Ken website. Today's episode was hosted and produced by my colleague Rachel Vargis and edited by Rajiv Sien.