The Bengaluru-based fintech startup is awaiting a stockbroking licence from Securities and Exchange Board of India (SEBI), said people with direct knowledge of the matter.
PhonePe intends to tap its existing customer base to leapfrog established rivals in the broking business. It will encourage customers to put a fraction of the unutilised funds in wallets into markets, said people cited above. A PhonePe spokesperson declined to comment.
In March, PhonePe processed 1.19 billion Unified Payments Interface (UPI) transactions worth Rs 2.31 lakh crore, cornering 44% of the UPI market, even as its closest competitor Google Pay with 957 million transactions had a share of 35%.
Since 2019, the company has been offering small-sized tailormade investment plans for its customers in the mutual fund space. PhonePe targeted its wallet-based user base marketing the mutual fund investments as “fixed deposit-like returns” on the wallet money. The fintech startup has also made nascent forays into India’s insurance intermediary space as well as a consumer-facing distributor for insurance firms. PhonePe also has a savings product called Liquid Fund on its app.
“PhonePe wants to become a full-fledged diversified financial services player,” said a person with direct knowledge of the matter, adding that the focus at PhonePe in the upcoming years would be growing insurance, investment and merchant services. The person added that the company has no plans to enter the lending market anytime soon.
PhonePe’s plans to enter India’s retail broking market comes at a time when it has been asked to moderate its volume on UPI to comply with National Payments Corporation of India’s (NPCI’s)
new rules for third-party applications, that requires a single entity to cap market share at 30%.
Its rival Paytm has already got an approval from SEBI for the retail stockbroking business and also launched some investment products in the space. Market participants said there are at least two more fintech companies which plan to enter stock broking.
The entry of fintech companies into broking business could stem another round of price war in the broking industry, triggered by discount brokers like Zerodha and Upstox. Paytm has already started to offer its services at half the price compared to what even the discount brokerages offer. Cash-rich PhonePe could follow a similar strategy, say experts.
The Flipkart Group firm
raised $700 million in a round led by Walmart in December of 2020.
“While India’s retail investment market still has space to grow, there are still over 20 million Indians who can be potential first-time investors. The main differentiator is the pricing—the flat fee at which trades are made,” said the chief executive of a rival brokerage, requesting anonymity. “The new entrants such as Paytm Money have modelled their customer acquisition strategy by keeping their pricing—at Rs 10—much lower than the market average of Rs 20-25.”
In the past five years, brokers like Zerodha and Upstox have captured bulk of the market share with aggressive brokerage plans like Rs 20 per transaction. This space was earlier dominated by brokerage arms of big banks like HDFC Securities, ICICI Securities and Kotak Securities. The cheaper plans have pushed investors and traders from the bank-owned firms to the discount firms.