Paytm vs PhonePe: Bernstein compares scale, monetisation, profitability

As PhonePe prepares for its highly anticipated $15 billion initial public offering (IPO), a new deep-dive report from Bernstein reveals a contrast between the fintech giant and its listed rival, Paytm (One 97 Communications). 

Media reports suggest PhonePe may seek a valuation of around $15 billion and a 10 per cent stake sale by existing shareholders that could raise about $1.5 billion. PhonePe is among India’s largest fintech platforms, offering a wide range of payments services for consumers and merchants, and is the biggest unified payments interface (UPI) third-party application provider (TPAP) with over 45 per cent market share.

Scale

Bernstein estimates PhonePe processes 4.7x Paytm’s total payment value (TPV) in H126, supported by a 3x larger monthly active consumer base. The gap is widest in consumer payments, where PhonePe is estimated to be 9x Paytm’s scale. 

 

On the merchant side, however, Paytm is ahead on distribution, with a larger installed base of payment devices and marginally higher merchant TPV, while registered merchant bases are broadly comparable. Paytm is also significantly ahead in lending, with disbursals estimated at 2.5–3x of PhonePe across consumers and merchants.  ALSO READ | Will PhonePe's IPO trigger re-rating for Paytm? Macquarie explains

Monetisation

While reported revenues in H126 are similar, Bernstein noted that after adjusting for the impact of non-recurring payment categories (such as rent and real-money gaming) and the end of the Reserve Bank of India’s (RBI’s) payments infrastructure development fund (PIDF) incentives, Paytm’s revenue is 20 per cent higher than PhonePe’s. 

Despite the 9x higher consumer TPV, PhonePe’s consumer revenues are only 60 per cent higher than Paytm’s, but Paytm’s merchant revenues is 2x of PhonePe’s, even as the gap has narrowed in recent years. This reflects stronger lending penetration and a larger share of higher margin products within the TPV. While PhonePe’s larger consumer base offers monetisation optionality, the path to monetisation is currently clearer on the merchant side.

Profitability

Bernstein said Paytm is operating around breakeven, while PhonePe remains loss-making at the profit-before-tax (PBT) level. The difference is driven largely by PhonePe’s employee stock option plans (ESOP) expense (40 per cent of revenue in H126), even as the two firms’ fixed cost bases are otherwise comparable.

Key swing factor: Consumer credit

Bernstein flagged transactional consumer credit (e.g., Buy Now, Pay Later (BNPL)) as the biggest medium-term differentiator. PhonePe has optionality due to a larger consumer base, while Paytm has an advantage from prior experience scaling its BNPL product (PostPaid). 

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