How India's three-way payments work: outbreak puts spring in India's digital payments?PhonePe's FY2020 operating revenue grows 2x

More and more Indians are adopting digital payments as a result of the COVID-19 outbreak. PhonePe, India's digital payments platform, has experienced rapid growth, processing 868 million transactions since November with a transaction value of Rs 1.75 trillion.

In FY2020, PhonePe's revenues doubled, surging from Rs 1,842 crore in FY2019 to Rs 3,718 crore in FY2020. This multiplier growth clearly demonstrates the rapid expansion of the company.

Around 94.21 TP3T of PhonePe's revenue comes from payment services, which reached Rs 3,502 crore in FY2020, up 2.18 times from Rs 1,608 crore in FY2019. The remaining 5.81 TP3T of revenue came from advertising sales, which reached Rs 234.1 million. In addition, the company earned Rs 555.5 million through financial instruments in FY2020.

On the expense front, PhonePe's advertising expenses accounted for a large chunk of Rs 46.141 TP3 T. However, the company managed to slash these expenses by Rs 21.61 TP3 T, from Rs 12.967 crore in FY 2019 to Rs 10.166 crore in FY 2020. In addition, PhonePe also slashed its employee payroll expenses by 9.81 TP3T, from Rs 5.32 crore in FY2019 to Rs 4.8 crore in FY2020.

In the financial year ending March 2020, PhonePe has invested Rs 2,845 million in acquisition of assets, including IT systems and software, while depreciation and amortisation costs have increased by TP3,701T from Rs 237 million in FY2019 to Rs 870 million in FY2020.

In addition, PhonePe spent Rs. 162 million for leasing and maintenance of properties in FY2020, an increase of 47.31 TP3T from the previous year.The company also outsources many of its operational activities to third parties and other companies under the Walmart Group. In FY2020, the total contractual service fees for these outsourced activities amounted to Rs 2,085 million, which is 3.8 times higher than the Rs 540 million in FY2019. In addition, ancillary payment processing fees increased by 741 TP3T to Rs. 1,501 million in FY2020 from Rs. 863 million in the previous fiscal year.

In FY2020, Phonepe's bad debt and forex losses jumped five-fold to Rs 486 crore, while compliance costs and service charges also increased 2.3-fold to Rs 245 crore. In addition, rising customer support costs added another Rs 535 crore to Phonepe's total expenses, taking total expenses to Rs 22,766 crore in FY2020, up just 2.31 TP3T from the previous year.

Undeniably, the payments company's efforts to control costs paid off as its annual loss decreased by TP3T by 71 TP3T from Rs 19,047 crore in the previous fiscal to Rs 17,171 crore in FY2020. In addition, EBITDA (earnings before interest, tax, depreciation and amortisation) improved from -766.3% in FY2019 to -395% in FY2020.

It's worth noting that PhonePe is in a price war with Alphabet's Google Pay for the lead in the UPI (Unified Payment Interface) market. This competition is a huge expense for PhonePe. A significant portion of its revenue comes from providing services to its partners, including the Flipkart Group.

In FY2020, PhonePe's net operating cash outflow surged by 321 TP3T to Rs 22,766 crore. As on 31 March 2020, the company's balance sheet showed an outstanding debt of Rs 46,013 crore.