Can PhonePe’s Premium Pricing Justify Scale Over Profitability in India’s Fintech Battle?

Synopsis: PhonePe’s proposed $13-15 billion IPO valuation has reignited the scale-versus-profitability debate in India’s fintech sector. Despite being EBITDA negative, it commands a sharp premium over Paytm. The listing could redefine valuation benchmarks, intensify competition in financial services distribution, and influence investor preference across digital payments leaders.

India’s fintech space is gearing up for a defining moment as PhonePe prepares for a high-profile public listing. Backed by Walmart and armed with a dominant UPI market share, the company is seeking a valuation that significantly exceeds that of listed rival Paytm. 

The proposed pricing has sparked debate over whether scale, user reach, and distribution strength can outweigh current profitability concerns. As regulatory risks and competitive pressures rise, the IPO could reshape valuation narratives across India’s digital payments ecosystem.

Scale, Valuation, and Competitive Positioning

PhonePe is all set to test the waters with a proposed valuation of $13-15 billion, which could make it one of the most-watched fintech IPOs in India. With Walmart as its backer, PhonePe is looking to divest a 10% stake, which would translate to a fundraise of approximately $1.5 billion, a huge premium to its listed peers.

PhonePe’s valuation of $13-15 billion would give the company a 60-90% premium over One 97 Communications Ltd (Paytm), which is EBITDA negative, while Paytm has turned EBITDA positive. This makes the two companies’ performance trajectories diametrically opposite.

From a competitive positioning perspective, PhonePe’s scale is hard to deny. With over 45% UPI market share as a TPAP, 618 million cumulative users, and 45 million merchants, PhonePe has an unparalleled distribution reach, especially with 65% of its users belonging to Tier-2 and smaller cities. This gives the company a huge advantage to cross-sell financial services with a relatively low customer acquisition cost.

Profitability Pressures and Regulatory Overhang

PhonePe is aggressively expanding its financial services offerings, such as loans, mutual funds, and insurance. Distribution revenue has increased from 4% in FY24 to 13% in 1HFY26, which is a direct threat to Paytm, where almost one-third of its revenue comes from this higher-margin business. Although Paytm’s distribution revenue is still twice that of PhonePe, the difference has narrowed significantly from almost 10x in FY24, making it an increasingly competitive space.

But some of PhonePe’s revenue streams are also sensitive to regulation. About 19% of 1HFY26 revenue is from categories that are either discontinued or no longer allowed, such as real money gaming and some credit card rent payment transactions. Further, UPI incentives contribute about 6% to revenue, which is higher than Paytm’s 2%, making PhonePe vulnerable to regulatory changes.

A possible 30% market cap imposed by the National Payments Corporation of India (NPCI) by December 2026 may also limit PhonePe’s further growth. With high share-based compensation costs, EBITDA remains in the red, making it difficult to justify its current premium valuation.

In other words, PhonePe’s IPO is going to prove whether investors are more interested in scale and market leadership than in profitability at the current moment. If PhonePe is able to back up its premium with growth and monetisation, it could set a new valuation standard for fintech companies. Otherwise, it could emphasise the importance of earnings visibility, which could be beneficial for Paytm.

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