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PhonePe mulls own mutual fund business application

PhonePe mulls own mutual fund business application

03 Sep 2021

PhonePe, a payments platform backed by Flipkart and Walmart, is thinking of applying for an Asset Management Company (AMC) licence, which will allow it to sell its mutual funds, cofounder and CEO Sameer Nigam told ET.

Nigam did not disclose the timeline for the application but said PhonePe had a good chance of getting there at some point in time.

This is part of PhonePe’s plans to build a wider financial services business beyond its payments business, which clocked over 3.94 billion transactions in the April-June quarter of this year.

The move also comes after online brokerage Zerodha’s cofounder Nithin Kamath
tweeted on Wednesday that he had received an in-principle approval from the capital markets regulator for setting up AMCs.

Flipkart cofounder Sachin Bansal’s Navi, which has launched its AMC, has applied to the Securities and Exchange Board of India (Sebi) to launch as many as 10 new mutual funds, all of which are set to be passively managed. These funds mirror the performance of an underlying index and do not typically need a fund manager.

Bengaluru-based PhonePe wants to sell financial services products to consumers in tier 3 and tier 4 towns where a majority of its users are based.

Having its own mutual fund licence can help it design cost-effective products suited for these consumers. Last week, PhonePe got an insurance brokerage licence as well as an in-principle Account Aggregator licence.

“We may apply for a mutual funds licence. I think we will be able to get there at some point. I fancy a chance of getting there,” Nigam said.

PhonePe already sells mutual funds of other companies on its platform, besides insurance.

“We just launched with SIPs using e-mandates on the Unified Payments Interface (UPI). We have seen an explosion of new SIPs, though small-ticket size. We are seeing early product match,” he said on the adoption of financial services products among PhonePe users.

PhonePe has been selling insurance online with a limited insurance ‘corporate agent’ licence, which restricted it to partner with only three insurance companies per category. With the latest brokerage license, it can distribute insurance products from all insurance companies.

Zerodha, the country’s largest retail broker by registered users, is also planning to launch new products for its urban users.

Recently, Sebi gave approval to Bajaj Finserv and discount broker Samco to launch MFs.

UPI Market Share Dilemma

Nigam told ET that he was not worried about cutting back market share on UPI, for which the government-set deadline is January 2023.

PhonePe has emerged as the largest UPI app with over 45% monthly market share, beating rivals like Google Pay, Paytm and Amazon Pay.

The National Payments Corporation of India (NPCI), which manages the UPI railroad, has come out with new rules capping the permissible market share of UPI apps at 30%. While the rule is already applicable for new players like WhatsApp Pay, the guidelines will kick in from 2023 for existing players like PhonePe to “moderate” their market share to below 30%.

“We are informed of the cap, obviously. We have told the regulators we don’t give any cashback on UPI for the past 2.5 years. We are not artificially growing transactions. We have a large but diffused user base and that’s growing every month,” Nigam said. “If I am playing by all the rules of interoperability, there is scant little I can do to reduce market share. I would like to believe that this is now user preference starting to play out based on success rate (of transactions) and acceptance.”

While PhonePe is in the lead now, both Google Pay and PhonePe control over 85% market share on UPI.

In an interview with ET on Thursday, NPCI managing director and CEO Dilip Asbe said the 30% cap was introduced keeping in mind the concentration risk approach.

“We still believe the existing players such as Paytm, Amazon Pay and WhatsApp shall increase their market share in due course so that we don’t need to interfere or take any action to reduce or curtail the growth of UPI,” Asbe told ET.