As PhonePe prepares for its highly anticipated initial public offering, the domestic digital payments sector is witnessing a strategic divide between raw transaction volume and merchant-led monetisation. While PhonePe currently commands a massive 51 per cent share of the Unified Payments Interface market compared to Paytm’s 6 per cent, recent insights from leading brokerage Investec suggest that the battle for the bottom line is being won on the merchant side of the counter.
Another global brokerage, Bernstein, highlighted that the net revenue pool for the payments ecosystem currently stands at approximately ₹150 billion and is projected to expand at a 20 per cent annual rate to reach ₹385 billion by the 2030 fiscal year.
According to Bernstein, the core of this profitability lies in merchant payments, which represent 75 per cent of the total industry revenue pool. This is an area where Paytm, already a listed company, currently maintains a notable lead. Bernstein estimates Paytm’s net payment margin at approximately 9 bps, a figure that includes its substantial revenue from an installed base of over 13 million payment devices like soundboxes.
In contrast, PhonePe’s margin is estimated at 4 bps, largely because its immense scale is heavily tilted towards peer-to-peer consumer transfers.
Paytm reported a higher total revenue of ₹38.6 billion for the first half of the 2026 fiscal year, compared to PhonePe’s ₹31.6 billion. Investec analysts pointed out that Paytm’s first-mover advantage in deploying merchant devices and its established leadership in merchant loan distribution have enabled it to deliver revenue and EBITDA outcomes comparable to PhonePe, despite having a much smaller consumer footprint. While PhonePe has roughly three times the monthly active customers of Paytm, its EBITDA of ₹2.5 billion for the first half of the year remained slightly behind Paytm’s ₹2.8 billion.
Looking ahead, Bernstein has noted that the industry will see a significant rise in credit-based payments, such as credit lines and credit cards on UPI, which have the potential to lift sector-wide margins by offsetting pressures in existing payment modes. However, both companies remain exposed to regulatory risks, particularly the potential discontinuation of government incentive schemes that currently support the ecosystem’s zero merchant discount rate framework. As PhonePe moves toward its listing, Investec expects a new era of pricing discipline to emerge across the industry.
While PhonePe offers significant future optionality through its massive transacting user base, Paytm’s more diversified presence in physical point-of-sale machines and payment gateways provides it with a distinct edge in capturing the expanding digital payment margins.
Published on February 19, 2026
