People taking PhonePe from UPI app to super app

When was the last time you saw a private company release a tell-all annual report? But PhonePe it is no longer an ordinary company.

What was once just a UPI app has now turned into a tech giant with presence in key areas outside of payments. Which is why the disclosures in the annual report seem out of the ordinary.

Especially in the context of startups that pick numbers from their financials and share them selectively or without complete clarity. So it was a breath of fresh air to see PhonePe open, dare we say as a public company.

In fact, co-founder and CEO Sameer Nigam also admitted in the annual report that PhonePe aligns its corporate governance with that of a listed company.

With revenues of over ₹5,000 crore in FY24, PhonePe became the second Indian startup to reach this milestone after Paytm.

Over the past eight years, it has built an empire around UPI payments, but in recent years it has expanded its product portfolio, capitalizing on its huge existing user base of 500 million, to sell other financial services to diversity and to to boost their top line.

• PhonePe insurance: Launched in early 2020, PhonePe acted as an insurance aggregator to sell insurance from various insurance companies. Received IRDAI license for distribution in 2021.
• PhonePe loan: PhonePe initially entered lending with merchant loans in mid-2023. However, further expanding its horizon, the startup in May of this year also entered consumer lending to raise its top line.
• Brokerage Platform: Last year, with the launch of Share.Market, PhonePe threw its hat into the Zerodha and Groww space.
• Indus Appstore: The startup challenging Google’s app store monopoly has launched its native app store for Android devices.
• pin code: Leveraging ONDC’s growing network, PhonePe launched its e-commerce platform that connects customers with retail stores.

While the addition of newer products will help PhonePe expand further, even offsetting the impact of a potential 30% UPI market share that is likely to roll out by the end of the year, it is important to know who is at the helm of a values ​​of USD 12 billion. release.

However, unlike many other companies in the super app space, PhonePe has taken a startup-within-a-startup approach to its various products. As a result, the management structure of the company has a horizontal layer as well as vertical function heads.

As it added lines of business, the company added business heads who lead this vertical with centralized functions for administration, finance, human resources and other aspects of running a startup.

Here’s how PhonePe is structured:

The horizontal core of PhonePe

The Walmart-backed startup has a centralized horizontal team of 12 members – including the three co-founders – who oversee the overall function of the entire PhonePe Group, which comprises six subsidiaries.

Explaining how the core leadership team works, a PhonePe spokesperson told Inc42: “The horizontal functions (core leadership team) operate in a matrix manner so that each business has the focus and expertise required for these functions, in at the same time achieving horizontal benefits of governance. , inter-business learning, career growth, etc.”

What this means is that the core team, in addition to keeping things under control at the group level, ensures that each vertical product head focuses on product development without worrying about other responsibilities, including hiring , finance, legal and marketing, among others.

These added responsibilities underscore the criticality of horizontal leadership. The institutional knowledge that drives efficiency at scale resides in these key centralized leadership positions.

“The trust and stability at the top has resulted in multiple benefits for PhonePe as the company has expanded and generated new business,” the annual report points out.

People in horizontal leadership have an average tenure of 6.7 years (excluding founders, of course), indicating that key executives have stayed together through Flipkart’s acquisition of PhonePe, subsequent separation and relocation to India from the US.

PhonePe’s expanding product team

Now we come to the drivers of the individual products highlighted earlier in the story.

Not surprisingly, PhonePe handles the main revenue generators – consumer payments, merchant payments, billing and international payments. But the core app is also responsible for distributing insurance and digital loans.

By leveraging its extensive UPI distribution network, the startup launched and expanded its distribution business around insurance, mutual funds and EDI-based loans for merchants.

This cross-selling and upselling of products has helped the startup not only add revenue streams, but also diversify, protecting it against external changes, ensuring constant and sustainable revenue growth per year.

A person close to the company claimed that each new vertical is run as a startup in its own right, even though some of them are hosted on the PhonePe app.

PhonePe has hired different heads of product for each of them – like Vivek Lohcheb for Pincode or Ritesh Pai, who heads the international business.

Apart from the hires, the startup has also picked up some key employees from its existing management team to handle new business verticals.

Among them is Priya Narasimhan, who earlier headed revenue at PhonePe Group but today is the CBO for Indus Appstore. Similarly, Hemant Gala was the head of payments and banking financial services, but today heads the digital lending business.

Ujjwal Jain, the founder of WealthBasket – a startup acquired by PhonePe in 2022 – has been elevated as the head of Share.Market, one of the key sources of revenue for PhonePe in the coming year.

All these vertical heads report directly to Nigam, who together with CTO Chari forms the bridge between the horizontal and vertical layers. Despite having a full C-suite team, the work was done for each individual, avoiding any overlap with others.

Long before

Now coming back to PhonePe’s transparency with the annual report where it claimed to operate as a publicly traded company. It also reveals more about the company’s position.

The focus on individual verticals shows that PhonePe is aware of where it is. In fact, this situation is also a reason why the company didn’t quite pull the trigger on an IPO.

We’re talking about PhonePe’s reliance on UPI, of course, and it’s become increasingly clear that the company needs to diversify and not put all its eggs in that one basket.

It is essential to take advantage of its extensive UPI distribution, where it is the market leader. Hence, there is a lot of focus on hiring leaders for each business vertical, which will need to scale as much as the UPI payments business.

Horizontal leadership plays a key role in connecting these verticals because the purpose of a super app is to cross-sell.

But there are key challenges – the first being that each vertical must attract and acquire customers independently, rather than using PhonePe itself. For example, Share.Market can use PhonePe as a funnel, but it cannot do so by ignoring the acquisition of new users. The same goes for Pincode.

Moreover, the business of running an app store is not without its operational challenges, especially in terms of security, user safety, developer engagement, which involve a high degree of difficulty.

PhonePe needs to ensure seamless vertical integration to deliver a true super-app experience – something that even the Tata Group through Tata Neu has failed to deliver despite having deep pockets.

We can also see the logic of having several different products for each of these verticals, unlike Paytm for example. There is still debate that the super app model is not a perfect fit for public markets.

Paytm’s Vijay Shekhar Sharma has talked about this challenge in the past, so PhonePe is playing it smart by positioning itself as a multi-product company rather than a super app in the traditional sense.

The jury is still out on which approach is correct. PhonePe would have hoped that its super-app bet will fly better with retail investors than Paytm when the IPO happens.

(Editing by Nikhil Subramaniam)