PhonePe, Share.Market & Fintech Super Apps

Just a few weeks ago, we wrote, “PhonePe Wants To Be Paytm”. Lo and behold, the fintech unicorn has gone ahead and launched a separate stock broking app called Share.Market this past week.

As we said then, many fintech apps are following Paytm’s ‘super app’ lead, which has been around for several years yet never completely accepted by everyone as the right approach. Well, it turns out Paytm might have been ahead of the curve when it launched Paytm Money in 2018.

When it comes to PhonePe, the question is will Share.Market actually turn out to be the Paytm Money equivalent. And can it actually stand up to larger players like Zerodha, Groww, INDMoney, and is it the right time given the upcoming multibillion-dollar Jio Financial Services play?

We’ll try to take a stab at that question today, but after these top stories from our newsroom:

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• Ultraviolette Ready For Primetime: With its high-performance EV bike ready to take on giants in the market, a deep dive into Ultraviolette’s six-year journey to the starting line

Keep reading to see the highlights from the fourth edition of Inc42’s The D2C Summit

PhonePe Takes On Zerodha & Co

PhonePe has ventured into stock broking with the launch of Share.Market, under its subsidiary PhonePe Wealth Broking (registered in April 2021). It will be a separate app to PhonePe, which is built around payments, insurance, ecommerce, and B2B lending.

To begin with Share.Market allows retail investors to trade and invest in stocks, mutual funds, exchange-traded funds (ETFs) and WealthBaskets.

WealthBaskets are similar to Smallcase’s curated collections, where a bouquet of stocks or investment products are recommended by SEBI-registered intermediaries that focus on particular trending themes or sectors, enabling active equity portfolio building.

The launch of the stock broking app has been in the works for more than a year. PhonePe acquired Mumbai-based WealthDesk, a marketplace for investment bundles, and OpenQ, a registered investment advisory (RIA) firm for $75 Mn in May 2022.

This has allowed the Walmart-owned fintech giant to offer the WealthBaskets product as an add-on to the stock broking experience.

In many ways, this is not a classical super app. The separate apps are necessitated by the fact that Share.Market requires a stock broking licence and having operational separation means any potential regulatory action will not affect the larger PhonePe operations.

This is also why Paytm has separated Paytm Money from the core app. Of course, for all intents and purposes, the larger PhonePe app will remain a key piece of the funnel, bringing users to Share.Market through cross-promotions.

With Share.Market, PhonePe claimed it’s looking to attract on-the-fence retail investors as well as reactivate those users who have a Demat account but are not actively trading. As per NSE data, the active investor count is roughly around 35 Mn in July 2023, while India has over 123 Mn Demat accounts as per July 2023 numbers, with 3 Mn accounts opened in the month.

That’s a new record as per the two depositories, CDSL and NSDL, which explains the bullishness of PhonePe and indeed another new player on the horizon, Jio Financial Services.

Missing The Big Piece

Jio’s investment tech product is yet to hit the markets, but PhonePe is several steps behind JFS in one regard, despite starting out earlier.

Stock broking is a one part of the investment tech stack — the real revenue potential comes from the asset management company licence, that Jio holds thanks to its JV with BlackRock.

Zerodha and Groww are two investment tech platforms that do have an AMC licence. In the case of Zerodha, the licence came in August 2023 thanks to a joint venture with smallcase. Groww acquired IndiaBull’s AMC business which was completed only in May this year despite the acquisition being in the works since 2021 when it was first announced.

Other startups in this space do not yet have an AMC licence and therefore are restricted to earning commissions as brokerages rather than a bigger chunk of the revenue from investments in mutual funds. An AMC licence is key for anyone eyeing a slice of India’s $540 Bn mutual fund industry, dominated by the likes of SBI, ICICI, and HDFC.

In August 2021, PhonePe had received approval from its board to set up an AMC or mutual fund business and soon after had approached SEBI for approval. The regulator has yet to approve PhonePe’s application for an MF licence.

AMCs typically charge a management fee based on the asset percentage, while brokerages generally charge per trade or offer flat-fee accounts. PhonePe will need to acquire the AMC licence if it wants to unlock the full revenue potential in this space.

PhonePe Vs Paytm: Super App Stakes

Stock broking is just one of the many new things that are in the PhonePe pipeline. The company has already raised over $750 Mn since the start of 2023 as part of a massive $1 Bn round.

The plan is to use the capital to enter and scale up new businesses such as insurance, wealth management and stock broking, lending (B2B and consumer), ONDC-based shopping (Pincode) and account aggregator services.

Earlier this year, PhonePe received a payments aggregator licence. And with Share.Market, there’s little doubt that PhonePe is looking to become the everything app for fintech and commerce.

Indeed the trajectory is very similar to Paytm, and the market timing is somewhat right. The super app approach has long been believed to have some potential, but the Indian market is only now reaching some maturity in 2023. The most active and habituated fintech customers have become familiar with digital-first financial services.

The super app strategy seems to have worked for Paytm, which nearly halved its losses on a YoY basis in Q1 FY24.

But this improvement has largely come on the back of lending products. PhonePe will need to back its investment tech play with highly efficient lending to match Paytm’s pace. Here, PhonePe is behind Paytm and only has a B2B lending marketplace right now.

So how does PhonePe stack up to Paytm on some key metrics?

For PhonePe, UPI payments and the potential to convert this user base into active investors is a huge competitive edge that even Paytm might not be able to boast of right now. PhonePe has a huge lead in the UPI space — the app processed nearly 4.8 Bn transactions in July 2023 compared to Paytm’s 1.2 Bn.

Paytm has 92 Mn monthly active users, while last year, PhonePe claimed to have over 150 Mn monthly active users. So besides UPI, that’s a massive user base to capitalise on.

In terms of the revenue base, Paytm touched INR 4,974 Cr in revenue for FY22, the last full year for which PhonePe’s revenue figures are available. In comparison, the Walmart-owned company reported INR 1,692 Cr for FY22.

The disparity in revenue scale begs the question: How quickly can PhonePe catch up to Paytm’s lead before the likes of Jio and others jump into the fray?

The Best Of The D2C Summit 

🌟 The Souled Store’s D2C Roots: 10 years after inception, the fashion brand continues to garner over 90% of its revenue from its native channels, said cofounder Vedang Patel

🌟 Digital-First Before Omnichannel: TMRW CEO Prashanth Aluru believes that early brands need to get the digital strategy right before even thinking about omnichannel presence

🌟 CaratLane’s Data Gems: CEO Avnish Anand on how the Tata-acquired jewellery ecommerce leverages data to make the most of the festive season rush

🌟 Myntra’s Mantras: Myntra CEO Nandita Sinha on the D2C strategy and how it’s capitalising on the demand for international brands from Tier 2 markets and beyond

🌟 Homecoming For boAt: From a brand that imported from China to bulking up the Made-In-India quotient — cofounder Aman Gupta on the big shift for boAt in the past year

Sunday Roundup: Startup Funding, Tech Stocks & More 

• Weekly Funding Down: The weekly startup funding tally fell after a brief gain earlier in August, with just $52 Mn raised across 12 deals this past week, making hardly any dent in the overall tally for 2023
• Zomato Rally: Zomato saw a big bump on the stock markets this week after SoftBank Vision Fund sold 10 Cr equity shares in the food delivery giant
• Nazara Sees New High: Nazara Technologies’ share price touched a 52-week high before settling as the company looks to raise fresh capital through an equity issue

• ONDC’s New Landmark: In what could be a threat to Zomato and Swiggy, ONDC has claimed that it now has 50,000+ restaurants on its platform

That’s all for this week. We will see you next Sunday with another weekly roundup, and till then, you can follow Inc42 on Instagram, X/Twitter and LinkedIn for the latest news as it happens.