PhonePe Disrupts the Game: First Payments Giant to Dive into Quick Commerce!
PhonePe, backed by Walmart, has emerged as the first payment firm to venture into the fast-growing quick commerce market. Recognizing rapid delivery as a key area for growth over the next two years, PhonePe is also gearing up for a public listing in 2026. This marks the third attempt by the company to enter the online retail space.
Following its departure from the government-supported Open Network for Digital Commerce (ONDC) last year, PhonePe’s ecommerce arm, Pincode, has shifted its focus entirely to the quick commerce model. The service has now been launched with 15-minute deliveries in 10-15% of select areas in six major cities, including Bengaluru, Mumbai, New Delhi, Pune, Hyderabad, and Varanasi. The company aims to expand this coverage to approximately 25% in these markets within the next few weeks.
Pincode has adopted a hybrid approach to deliveries, utilizing its own fleet-on-ground team in addition to partnering with local kiranas and modern retail stores. Logistics services from Swiggy, Shadowfax, and Loadshare have also been enlisted to facilitate deliveries.
Internally, PhonePe is targeting full coverage of these cities with its quick commerce service by the end of the April-June quarter. A portion of PhonePe’s fleet-on-street team has been reassigned to support Pincode, underscoring the company’s commitment to this new business venture.
“The shift towards the quick commerce model aligns with global trends, and PhonePe is adapting accordingly. While ecommerce has always been a priority for PhonePe, the decision to discontinue ONDC last year paved the way for a fresh start. The revamped strategy focuses on leveraging third-party stores for operations,” shared a source familiar with the company’s plans.
In April of last year, ET first reported that PhonePe was scaling back its presence in most ecommerce categories on ONDC, with the exception of food. Recently, the Pincode app has become virtually inaccessible in many localities. This led to the decision to fully withdraw from ONDC and focus on building a quick commerce model. The success of third-party partnerships in this new strategy remains to be seen.
Initially, PhonePe had launched Pincode on ONDC, offering a wide range of products including groceries, food delivery, medicines, fashion, and electronics. The services were first introduced in Bengaluru and later expanded to 10 cities, with an investment of Rs 90 crore in the Pincode business.
Furthermore, PhonePe is providing logistics partners with a minimum guarantee on daily order volumes, ensuring that delivery executives earn a set amount each day regardless of the number of orders they fulfill. This strategic move comes as PhonePe enters the competitive quick commerce market, where Blinkit, Zepto, and Swiggy Instamart are the leading players, alongside Flipkart Minutes and BigBasket’s BB Now.
According to a recent report from Jefferies, Flipkart is the most aggressive player in the quick commerce sector, focusing on user acquisition and service incentives. PhonePe’s entry into this dynamic market will undoubtedly shake up the competition and drive innovation in the industry.
All players in the industry rely on their own dark stores and fleet to ensure quick delivery and maintain control over inventory. Amazon, currently testing its quick commerce offering with staff, is also adopting the dark store model.
“It’s a supply chain-focused business, and delivering within 20-30 minutes without proper inventory control could pose a challenge,” noted one industry executive.
“There are definitely challenges, but Pincode is working to address them, which is why the rollout is gradual,” added another individual familiar with Pincode’s plans.
The potential market for quick commerce is estimated to be around $45 billion, with projections to reach $77 billion by 2025. This presents a significant opportunity for companies to disrupt traditional grocery and retail ecosystems, as highlighted in a report by Bernstein dated January 8.
In terms of IPO updates, PhonePe is set to internally review and discuss its IPO plans and timelines following the National Payments Corporation of India’s decision to extend the deadline for payment service providers in the Unified Payments Interface-based market to comply with a 30% volume cap.
PhonePe, a leader in the UPI payments market, has been working towards going public by 2026, as stated by its founder Sameer Nigam. However, Nigam expressed concerns last year about the 30% market cap rule on UPI transaction volumes being a hindrance. The deadline has now been extended by two years to 2026.
“So, the deadline for the IPO has been extended rather than dropped. They are still eager to go public, but there will be a discussion in the coming weeks to provide clarity given the recent policy changes,” stated one of the individuals mentioned earlier. Last year, PhonePe had set a goal to launch its IPO by the middle of next year.
In addition to its core payment business, PhonePe also operates in insurance broking and wealth management.
PhonePe managed to reduce its net loss by 29% in the last financial year, dropping from Rs 2,795 crore in FY23 to Rs 1,996 crore. This improvement was supported by a 74% increase in operating revenue, rising to Rs 5,064 crore in FY24 from Rs 2,914 crore the previous year.”
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