Paytm ahead in merchant payments, PhonePe leads consumer play: Bernstein report

Digital payments major PhonePe is lagging behind its Noida-headquartered peer Paytm in its monetisation journey, but in terms of business margins, both payment majors are comparable, said a Bernstein report on PhonePe, released on February 3.

PhonePe’s Rs 4,000 crore revenue in the first half of FY26 is similar to Paytm’s despite its limited diversification into lending and other non-payments business, the report noted.

The Bernstein report further highlighted that with the government stopping real-money gaming apps and the Reserve Bank of India stopping rent payments via credit cards, PhonePe has already had a 15% impact on its revenue, which could show up further in the coming quarters.


However, the company has shown improvement in diversification of revenue, with the share of non-payment revenue at 18% compared to 7% in FY23.

Additionally, Paytm, with its higher degree of control over costs, has managed to achieve net profits, whereas PhonePe continues to be in the red.

In the first half of FY26, with a total revenue of Rs 3,918 crore, PhonePe reported a net loss of Rs 1,444 crore, compared to Paytm’s total revenue of Rs 3,981 crore and a net profit of Rs 143 crore.

What stacks up differently is Paytm has controlled its employee expenses at Rs 1,305 crore compared to PhonePe’s 2,869 crore, which is one of the major cost items for the payment firms.

As per Bernsteins’ calculations, the adjusted payment margin for both Paytm and PhonePe stood at around 10.1 for H1 2026. The adjustments have been done by taking out PhonePe’s large P2P (peer-to-peer) payment volumes.

In the merchant payment business, both the fintech players have the same registered merchant base, but Paytm has edged past in terms of its device base at 13.7 million. The higher share of devices indicates a higher share of revenue from merchants, which has helped Paytm in its business.

Paytm’s consumer business has struggled and that is where PhonePe has emerged as a clear winner. Bernstein noted PhonePe is not only among the largest consumer fintechs in India, but also one of the largest consumer apps across categories. It has 238 million monthly active users, compared to 75 million for Paytm.

Understanding this gap, Vijay Shekhar Sharma, chief executive officer of Paytm, sounded out his renewed focus on the consumer payments business in the December quarter analyst call. ET reported on January 30 on how Paytm is focusing on building new products to woo consumers back to the app.

Focusing on the PhonePe business, Bernstein also noted that the company got 33% of its revenue from merchants in FY25, compared to 26% in FY24 and 15% a year earlier. The merchant payment ecosystem is fast emerging as a strong revenue generation opportunity for payment firms.

But Bernstein’s analysis also pointed out that a significant chunk of PhonePe’s revenue is actually coming from government subsidies, a business source that can dry up anytime. For instance the government recently announced that its PIDF (Payment Infrastructure Development Fund) scheme will not be continued into 2026. The PIDF scheme was meant to incentivise payment collection device deployment in tier three locations and onward.

PhonePe’s share of revenues from government schemes for merchants stood at 16%, compared to 8% for consumers.