How PhonePe Built A Loan Distribution Business of Over Rs 14,000 Cr Ahead of Much-Awaited IPO?

IPO-bound PhonePe, India's largest digital payments platform, aims to focus on merchant loan distribution offerings along with lending partners to enable credit for merchants' business growth and working capital needs, alongside other solutions that help streamline and grow their day-to-day operations.

On merchant loans distribution, PhonePe scaled disbursals over the last three fiscal years, increasing from Rs 11 crore in fiscal year 2023 to Rs 1718 crore in fiscal year 2024 and to Rs 4507 crore in fiscal year 2025. Disbursals rose to Rs 3820 crore for the six-month period ended September 30 2025, as compared to Rs 1838 crore for the six-month period ended September 30, 2024.

These disbursals led Merchant Lending revenue to increase from Rs 19.9 lakh in Fiscal Year 2023 to Rs 71.65 crore in Fiscal Year 2024 and to Rs 328.04 crore in Fiscal Year 2025. Merchant lending revenue reached Rs 288.09 crore for the six months period ended September 30, 2025 as compared to Rs 132.55 crore for the six months period ended September 30, 2024.

PhonePe's foray into lending distribution began with merchant loans, followed by consumer loans and then by secured lending products. These are digital offerings, designed to simplify credit access and management for all users across India. For merchants, the PhonePe platform facilitates the disbursement of collateral-free loans from their partner financial institutions directly into their bank accounts upon approval.

The Equated Daily Installment ("EDI") feature breaks down repayments into equal, daily automated mandate-based deductions, making credit more accessible and manageable for small businesses, improving their financial health, and bringing them into the ambit of formal lending. For consumers, PhonePe offers fully digital, unsecured personal loans. These products are designed with user-centric features, including competitive interest rates and flexible tenures, ensuring a transparent borrowing experience.

They have also expanded the company's portfolio to include secured lending products, such as loans against gold, loans against mutual funds, and vehicle loans, distributed on behalf of their partner financial institutions. As of September 30, 2025, PhonePe enabled total consumer and merchant loan disbursals of Rs 14270 crore. They have been able to distribute loans across 98.91% of pin codes as of September 30, 2025, going beyond Tier-1 and Tier-2 cities into the hinterlands of the country.

PhonePe's ability to operate at scale and deliver differentiated value in the lending space is rooted in the breadth and depth of the PhonePe ecosystem. The vast footprint gives the company a large reach and understanding of the Indian consumers and merchants. PhonePe believes in the ubiquity of usage, evidenced by 9027 crore. Customer transactions and 4266 crore merchant transactions in fiscal year 2025 generate a unique and rich dataset.

The company's competitive edge in the lending distribution business is anchored in a set of differentiated capabilities that help it to operate effectively at scale, says the management in the public offer document. Transactions through its expansive footprint fuel its data intelligence capabilities in offering the right products, enabling repayment and collections. The company's distribution is further enhanced by its Customer Relationship Management (CRM) platform, which powers cross-channel orchestration across the lending lifecycle—from demand generation and loan offer communication to timely reminders and repayment nudges.

This system helps optimise conversions and improve engagement across borrower journeys. On the repayments front, PhonePe offers an integrated model that includes their EDI repayment construct for merchants, enabling frictionless daily repayments through automated deductions. Additionally, the company is also able to offer a mandate-based auto-pay capability for consumers in facilitating debits from the bank account.

On the collections front, PhonePe has a widespread omni-channel collections presence to collect dues, reduce portfolio delinquencies and strengthen fraud prevention for their lending partners. By leveraging early warning signals derived from user behaviour and transaction patterns, the company's platform enables timely and targeted interventions that improve collection outcomes.

PhonePe's management believes this supports the expansion of lending products to additional geographies and underserved customer segments. The company maintains partnerships with NBFCs and other financial institutions to broaden credit access, particularly for underserved consumer and merchant segments—thereby expanding the total addressable credit market, said the management in the public offering document.

These collaborations are underpinned by the company's "low-code" integration infrastructure, which reduces partner onboarding time and accelerates go-live timelines—helping lending partners bring new products to market faster. The company is live with 56 partners across consumer lending, merchant lending and secured lending products as of September 30, 2025, ensuring loan offers to a vast consumer and merchant base.

PhonePe's financial details

PhonePe's revenue has gradually been moving away from consumer convenience fees and toward merchants. This segment's share has doubled from 15% in FY23 to 31% in the latest numbers. It makes sense, too; after all, this looks far more monetizable than "free" consumer transactions. PhonePe also has the largest volume of customer-initiated UPI transactions among its peers operating in the UPI payment sector in Fiscal Year 2025, as per NPCI.

PhonePe has reported a major financial turnaround in FY25, with revenue growing 40% to Rs 7,115 crore and adjusted profit after tax surging by 220% to Rs 630 crore. The company's path to profitability is built on a strategic pivot from a pure-play payments app to a diversified financial services platform encompassing merchant solutions, lending, insurance, and new ventures like stock broking. This shift, coupled with heavy investment in its own data infrastructure for cost control, has enabled it to turn free cash flow positive.

PhonePe has demonstrated consistent revenue growth with diversification of revenue streams. They have showcased growth at scale with revenue from operations increasing from Rs 29,142.87 million in Fiscal Year 2023 to Rs 71,148.58 million in Fiscal Year 2025, representing a compound annual growth rate ("CAGR") of 56.25%.

PhonePe generated revenue from operations of Rs 71,148.58 million in Fiscal Year 2025, with a growth in revenue from operations of 40.50% over Fiscal Year 2024 and an adjusted EBITDA of Rs 14,771.92 million in Fiscal Year 2025. For the six months period ended September 30, 2025, PhonePe generated revenue from operations of Rs 39,184.69 million and adjusted EBITDA of Rs 2,539.09 million. PhonePe had bank balances and investments of Rs 63,332.21 million as of March 31, 2025.

The revenue contribution from PhonePe's Merchant Payments business increased substantially from 14.75% in Fiscal Year 2023 to 27.99% in Fiscal Year 2025 and 30.78% in the six months period ended September 30, 2025. In addition, the contribution from its lending and insurance distribution services as a percentage of revenue from operations grew from 0.96% in Fiscal Year 2023 to 7.84% in Fiscal Year 2025 and 11.55% for the six months period ended September 30, 2025.

Focus on Improvement in Profitability and Cash Generation

This period of high growth has been approached with a focus on maintaining financial discipline. Their restated profit/ (loss) was Rs 17,274.10 million in fiscal year 2025 and improved by Rs 10,686.59 million between fiscal year 2023 and fiscal year 2025. Their profit/(loss) margin improved from 90.68% for Fiscal Year 2023 to (22.64)% for Fiscal Year 2025. PhonePe achieved profitability on an adjusted EBITDA and adjusted profit basis in fiscal year 2024 and further strengthened its financial position by becoming adjusted EBIT profitable and generating free cash in fiscal year 2025.