From payments to products: How PhonePe is expanding its role in India’s fintech stack

Historically, financial institutions were evaluated by the amount of money they held in deposits and assets. In recent years, however, digital payment platforms have shifted attention toward the volume of money they process.

According to its updated draft red herring prospectus (UDRHP), PhonePe processed Rs 147 trillion in transactions in FY25, despite not holding user deposits.

Banks and the Foundation of Financial Infrastructure

For decades, banks have formed the backbone of India’s financial system. Institutions such as the State Bank of India have built large customer bases, over 500 million in SBI’s case, through branch networks, regulatory compliance, deposit mobilization, and capital management.

Banks hold customer deposits and provide the capital reserves that support lending and economic activity. Trust in the banking system has historically been built through physical infrastructure such as branches and ATMs, as well as regulatory oversight.

Thanks to the foundation the banks built over time, PhonePe was able to build a fintech infrastructure over it.

As of September 2025, PhonePe has over 650 million registered users, which it achieved by unlocking the kinetic energy of the money banks hold.

The Symbiosis: Stock vs. Flow

This is a story of structural evolution. Banks primarily manage what can be described as “money stock.” They are account-based institutions that hold customer deposits.

For example, the State Bank of India holds approximately Rs 61 trillion in deposits, representing accumulated savings within the banking system.

PhonePe operates at the “money flow” layer of the system. As a payments-focused platform, it does not hold consumer deposits. However, it processed 132 billion transactions in FY25, facilitating the movement of funds between bank accounts.

Without the banks, PhonePe has no money to move. But without PhonePe, that money sits idle. By creating a frictionless layer of movement, PhonePe took static capital and turned it into daily economic momentum.

The Shift to a Habit-Native Ecosystem

Many users engage with the PhonePe app regularly as part of their day-to-day transactions.

PhonePe reported 156 million Daily Active Users (DAU) during the six-month period ended September 30, 2025. This level of usage indicates frequent engagement and positions the platform as a commonly used payments application rather than an infrequently accessed financial utility. 

PhonePe innovated by recognizing that people just want to buy groceries, pay the auto driver, and split a dinner bill seamlessly and securely. By obsessing over these micro-moments, PhonePe concentrated roughly 45% of all UPI transaction volume onto a single platform.

Enabling the Retail Economy

This high-frequency movement translates directly into macroeconomic impact, particularly at the grassroots level.

Consider PhonePe’s 11.3 million active merchants, who process Rs 15 trillion in a year. This means it sees their cash flow daily, in real-time.

By tracking this digital footprint, PhonePe can distribute credit to merchants right when they need it - acting as a high-speed broker for the banks whose balance sheets actually hold the risk. That real-time visibility is exactly why lucrative products like lending and insurance will inevitably follow distribution.

The Real Endgame: Monetizing the Movement

Access to high-frequency transaction data may enable PhonePe to expand beyond payments into the distribution of financial products. Insights derived from spending patterns could help identify potential demand for products such as working capital loans, two-wheeler insurance, or investment services.

By analyzing the velocity and direction of money, PhonePe positions itself as the perfect, frictionless storefront for cross-selling high-margin products. PhonePe owns the map of exactly how, when, and where money is spent. And in the next era of Indian fintech, the entity that understands the spending is the one that captures the profit.