PhonePe, the fintech giant, is creating ripples in India’s pay aggregator business by offering enticing transaction discount rates (TDRs) to small ventures.

What Happened: According to a Livemint report, PhonePe has been luring small businesses by offering low TDRs, encouraging them to switch from other payment firms. This tactic is part of PhonePe’s larger ambition to expand beyond just being a UPI transaction facilitator to a comprehensive fintech service provider.

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PhonePe began its foray into the payment aggregator scene this year, coinciding with the Reserve Bank of India (RBI) granting in-principle approvals to several firms for operation in this domain. However, four significant payment aggregators—PayU India, Razorpay, Cashfree, and Paytm—were prohibited from adding new clients, opening up opportunities for new entrants like PhonePe.

PhonePe’s aggressive strategy of acquiring small and mid-sized merchants has led to speculations about the sustainability of this approach and how PhonePe is managing to fund these discounts. However, PhonePe appears to have a bigger picture in mind, as it broadens its services to include investments and lending for merchants.

Why It Matters: Though PhonePe has not yet published its 2022-23 profit and loss statement, it revealed a revenue of ₹1,913 crore in the first nine months of 2022. This move to delve into the pay aggregator business aligns with PhonePe’s strategy to monetize its services and increase its revenue. The success of this strategy could have far-reaching implications for the payment aggregator market in India, potentially reshaping the landscape and setting new competitive standards.

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