Cracking Pincode, PhonePe’s Second Innings In Quick Commerce

If groceries can reach your doorstep in 10 minutes, why can’t drugs? PhonePe harped on this argument when it piloted Pincode into the quick commerce space last month with the promise of round-the-clock delivery. It took off with medicines but soon picked up delivering a host of other items too. 

If PhonePe is the first fintech company to hit the quick commerce turf, then Pincode is the first among its quick commerce peers to deliver not just over-the-counter (OTC) drugs, but also prescription medicines. The company has signed up a host of doctors through a third-party arrangement for free consultations. This enables consumers to place orders without a prescription, and Pincode a competitive edge over its quick commerce rivals.

But what drove a fintech company that leads the UPI payments space with a 47.25% share of the market to the uncharted territory of the $6 Bn Indian quick commerce space dominated by giants like Zepto, Blinkit, Swiggy Instamart, and Flipkart Minutes?

“Our biggest reason for the venture was the huge network of merchants we have built on the UPI landscape,” a PhonePe insider said.

Pincode was first launched in 2023 on the ONDC platform, but it dissociated from the platform late last year, only to be relaunched with complete reliance on the network of its parent company. 

According to the company’s website, as of March 2025, PhonePe had 600 Mn registered users and a digital payments acceptance network of over 40 Mn merchants. It processed over 330 Mn transactions every day, with an annualised total payment value (TPV) of over INR 150 Lakh Cr. “Expanding to the speed delivery segment ostensibly made sense,” a PhonePe official said on condition of anonymity.  

From ONDC Pilot To A Standalone Play

After building its payments business and scaling financial services in stock broking, insurance, and lending, Walmart-backed PhonePe took a stab at hyperlocal delivery in 2023.

The Pincode concept was initially woven around the government-backed Open Network for Digital Commerce (ONDC), onboarding retail stores so users could buy directly from them. Users could access groceries, food, apparel, gadgets, and more through the buyer app.

At launch, Lalit Singh, Pincode general manager and PhonePe’s director of product management, told Inc42 that ONDC presented a bigger opportunity than UPI and digital payments for PhonePe.

After investing INR 90 Cr in two tranches between 2023 and 2024 into Pincode Shopping Solutions, PhonePe spun Pincode off the ONDC network to develop its own marketplace infrastructure.

“PhonePe moved away from the ONDC network as it began developing its own marketplace. Earlier in 2024, Pincode exited several categories like fashion, grocery and electronics from the network,” a PhonePe insider had told Inc42 after the move. 

Pincode had to start its operations from scratch, launching its services in Bengaluru. It is now aiming for Agra, Pune, Hyderabad, and Varanasi by the end of June 2025. Insiders said the platform is likely to expand its operations in 20-30 cities by the middle of next year. The startup is also likely to add more categories of products on its platform. 

Inside Pincode’s Merchant-First Delivery Model

Pincode does not follow the typical dark store model used by its peers for deliveries within a 2 KM radius. Instead, it is partnering with neighbourhood retail stores, onboarding them directly onto its platform. Merchants upload their available stock-keeping units (SKUs) to a central catalogue provided by Pincode, with the company’s on-ground team assisting them until they are trained to manage it independently.

Customers cannot choose the retailer, but they are free to add multiple products to their cart that need to be sourced from different stores. If an order requires sourcing from multiple outlets that are far from each other, two delivery agents are assigned. To understand the delivery model, we placed orders from three different stores in Bengaluru last week. While a single agent delivered items from two stores, another person delivered the third store’s item.

 

Most of Pincode’s delivery executives are directly employed, while a smaller share is managed by third-party logistics partners like Shadowfax, Loadshare, and Swiggy. Unlike many quick commerce rivals, Pincode provides a minimum guaranteed pay, ensuring riders earn a baseline income regardless of order volumes.”

PhonePe is leveraging its UPI payments app to cross-sell Pincode, giving the quick commerce platform access to PhonePe’s 600 Mn-strong user base.

The hyperlocal platform has waived onboarding fees for merchants and generates revenue by charging a 9% commission on each order’s value.

Pincode is actively expanding its network of partner stores, leveraging PhonePe’s existing merchant relationships and the trust built over the years.

The startup signs up retailers based on three aspects: First, the merchant won’t cancel orders; second, the shelf inventory is updated on both ends; and third, it ensures timely packing of the order.

Pincode claims that it is the retailer that sets the price of the product. When we placed the order last week, we learnt that some of the items were listed at a cheaper rate than what they would cost offline.

“We onboard multiple stores in a locality, and show the best prices offered by any of the stores to the consumer. The cart discount over and above that is offered by Pincode,” a spokesperson for the company said in response to a questionnaire from Inc42. 

Can An Asset-Light Model Win Quick Commerce?

The absence of dark stores in the business model is the biggest differentiator between Pincode and its peers. The asset-light model will help the fledgling venture hover on a financially stronger platform. 

On a wider speed delivery spectrum, by relying on retail outlets to manage SKUs, Pincode avoids the task of building a supply chain directly with FMCG companies. This not only simplifies the operations, but also avoids the significant procurement costs that its rivals bear. 

The absence of a dedicated supply chain, however, limits Pincode’s control over end-to-end user experience. The platform cannot add specific items based on search results and, instead, stays restricted to what the stores have. If a faulty product is delivered, the customer contacts Pincode for resolution, even though it has limited involvement in the issue beyond offering a refund.

Until last fiscal year, Blinkit, Zepto, and Swiggy Instamart were present in 44, 35, and 54 cities, respectively, commanding market shares of 46%, 29%, and 24%.

Pincode represents the cohort of new entrants such as Flipkart Minutes, BigBasket and Amazon’s Tez (currently in testing mode) in a market which is expected to reach $40 Bn by 2030 on the back of a growing demand for speed and convenience. Pincode needs to work diligently to attract users and differentiate itself by delivering a seamless and reliable user experience. 

With only 5 Mn downloads in the last two years, Pincode has to rely heavily on PhonPe’s war chest to expand its operations and continue offering discounts to attract customers. 

What could be slamming the brakes on the wobbly quick commerce venture? It’s the losses.

While the company is yet to release its financials for FY25, the fintech giant had suffered a loss of INR 107 Cr in the first year of operations while earning only INR 3 Cr. These numbers came up at a time when the platform was working on the ONDC network.

With ongoing infrastructure development and expansion into other areas, expenses are expected to rise significantly in FY25 and beyond as the platform continues to scale.

After raising more than $1 Bn in 2023 and the payments business reaching INR 4,910 Cr in FY24, PhonePe looks at a market listing in the near future. Scaling the business for Pincode with the major challenges left unresolved could lead to a bumpy ride for the payments giant on D-Street.

[Edited By Kumar Chatterjee]