In 2016, when the Modi government implemented the ban on 5000 rupee notes, numerous individuals in India faced significant hardships. Many Indians, unaware of the true value of the money they possessed, turned to digital payments as a solution. This predicament presented an opportunity for Phone Pay, a company that initially operated from a small room. Over time, with the increasing adoption of digital payments by millions of people, Phone Pay has managed to earn hundreds of crores. The question arises: what is the core business of this company that has led to such a high valuation? As of 2022, Phone Pay boasts 44 crore customers, which includes their financial data. Surprisingly, Phone Pay's success caught the attention of Walmart, an American company, who acquired it. The logic behind this acquisition and the strategies employed by Phone Pay to surpass giants like Google Paytm in the digital payment segment are worth exploring. Phonepe is a well-known name among smartphone users, as it has revolutionized the way we handle various transactions, from utility bills to groceries and insurance. Let us delve into the origins of Phone Pay and how it all began. In 2015, Sameer, Nigham, Rahul Chari, and Buji Engineer, who were previously employed at Flipkart, decided to resign and establish their own company in India. We are all familiar with how Phone Pay operates.
In 2016, the Government of India introduced a new UPI system, which allowed for simplified payments and transactions through the app by linking our bank accounts. At that time, not many people were aware of this development. However, one company recognized the potential of UPI and invested over 16 thousand crore rupees to develop an innovative payment platform called PhonePe. This company foresaw the rapid growth of UPI transactions in India.
It is interesting to note how big companies perceive opportunities. When an employee leaves a company to start their own venture, the board members of the original company pay attention because they recognize the potential for competition. This was the case with Flipkart, whose founders saw the potential in Satyam's business model and acquired it, merging it into Flipkart. This strategic move allowed Flipkart to strengthen its position in the market.
I mention this to highlight the fact that Satyam, the founder of Flipkart, also acquired PhonePe, which was developed by an employee who had previously worked at Amazon. If Amazon had acquired PhonePe, there would have been no competition in India today. However, Flipkart was later acquired by Walmart. This demonstrates the complex dynamics of competition and acquisitions in the business world.
It is worth noting that the process of acquiring a company, regardless of its size, is not easy. Successful small companies are bought because their potential is recognized, and the acquiring company sees value in integrating their operations.
Only the founders hold ownership in a company, but when it fails, all those who have invested in it become stakeholders. Shareholders focus on the company's growth, while investors prioritize profits. Both large and small companies, including startups, are eager to acquire these companies by offering higher rates to investors than the companies' valuations. This is beneficial because investors can sell their shares once the company becomes profitable. If a startup demonstrates potential for future success, big companies will offer significantly higher rates than initially determined. However, not all deals follow this pattern, as some transactions are conducted freely, such as those on phone payment platforms. Phone payment services offer free transactions to attract customers, but their original business model revolves around earning commissions from various transactions, such as mobile recharges, gas and electricity bill payments, and partnerships with companies like Paytm.
The company offers nearly 400 business courses. Additionally, the phone payment company has introduced a payment device known as a calculator for the pass machine. This device includes an additional payment option, allowing customers to easily make payments. Therefore, small shop owners engaged in retail business should consider purchasing this device. The company generates income through its insurance business, which is a separate venture from the phone payment service. While many of us use phone payment for our insurance premiums, what we may not realize is that in addition to making payments, we are also unknowingly providing our financial data to the company. Consequently, the company gains insights into consumer purchasing habits and interests, utilizing this data to further expand their business in the future.
Recently, if you recharge your mobile using phone payment, you may have noticed a processing fee deduction of one to two rupees. As we previously discussed, major companies often focus on customer acquisition in the initial stages, gradually transitioning to their core business. Currently, there are five major players in the Indian transaction business: Phonepe, Google Pay, Paytm, Bharti, and Amazon. However, Phonepe holds a 50% market share, which equates to approximately 40 crore people. Therefore, dear audience, consider the significant number of people, around 40 crore, who use Phonepe for their daily mobile recharges and payments. Imagine the substantial revenue this company generates from just one mobile recharge, and the overall processing fees earned in India thus far.
Check if you comprehend this query. During the COVID-19 pandemic in 2020, there were rumors that the virus could spread through currency notes. This news gained significant attention, causing many individuals who were already fearful to switch to digital payments, regardless of its veracity. Over time, people became accustomed to this new method of payment. Presently, in India, transactions worth more than 84 lakh crores are conducted solely through PhonePe, a startup company. On the other hand, Google Pay, launched by the renowned company Google, holds a prominent position due to its brand reputation. You might question the significance of Google Pay before PhonePe. Prior to PhonePe, Google Pay was introduced as Tez, a product of Google. This application was developed by Google itself, not by any other company. To gain customers and secure the top position, PhonePe attempted to compete with Google Pay by introducing scratch cards. Many individuals have already started using PhonePe. The key strategy of PhonePe is its simplicity, making it easily understandable for poor and middle-class families. This design choice led to Google Pay incurring losses. In comparison to Google Pay and Paytm, PhonePe is much simpler and user-friendly. Therefore, this app was specifically designed and released in the market to cater to the quick understanding of the poor and middle-class individuals residing in small villages. As we are aware, the majority of the Indian population belongs to the middle class, and there is also a significant number of poor individuals. If we can create a product that can be utilized daily by such individuals, it will undoubtedly achieve tremendous success.
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