How PhonePe has a very different wealth management services strategy from Paytm
Payments firm PhonePe has launched a tax-saving product for consumers on its app but is taking the time-tested, slow-and-steady route to win the wealth management game. Will going slow help PhonePe scale?
Thursday March 28, 2019,
7 min Read
After making headlines last December for registering its wealth management division, PhonePe on Thursday launched its tax-saving product for consumers on its app.
Launched in partnership with two asset management companies (AMCs) - ICICI Prudential and Aditya Birla Sun Life - the platform will offer equity linked savings schemes (ELSS) to help people save taxes under Section 80C of the Income Tax Act. Section 80C allows individuals to reduce their taxable income by up to Rs 150,000 by claiming deductions on certain investments and expenditure.
PhonePe says that users can save up to Rs 46,800 in taxes by investing on the platform. This saving is calculated for a customer in the highest tax bracket (30 percent) and includes 4 percent cess as applicable for FY 2018-19 and FY 2019-20.
With this launch, Flipkart-owned PhonePe is taking the battle with arch rival Paytm to the financial services and wealth management arena.
Earlier this month, Paytm Money, the wealth management division of Paytm, also announced specially curated investment packs comprising four ELSS mutual funds, starting at a minimum investment amount of Rs 2,000.
The “tax-saving” option is the second product in PhonePe’s wealth management arsenal; the first was Digital Gold, which the payment major launched in December 2017.
On the new addition, Hemant Gala, Head Payments, Banking and Financial Services, says,
“During the first 18 months of PhonePe, we were focused on ‘sending money’ where we added use cases around reminders and making payments to mobile numbers (and contact lists). The second phase was ‘spend’ where we tied up with merchants, both online and offline. Now, for the next year, we are focused on ‘manage’ and ‘grow’ functions, which will involve mutual funds and insurance.”
However, PhonePe’s approach to wealth management continues to be poles apart from that of Paytm.
Also read: PhonePe holds off lending for now, looks at hyperlocal to boost stickiness
No guns blazing
Unlike Paytm Money, PhonePe has taken a muted approach by launching financial products that fit use cases. Hemant explains,
“We are not bombing our users with everything; we will be use case-led, like the current tax-saving product. We hope to create a lot of such tailor-made solutions based on use cases, with a focus on simplicity to use, pay, and invest.”
Fuelling this ideology is PhonePe’s initial research that reveals customers don’t even understand how mutual funds work.
Hemant says there is still inertia towards investing in mutual funds, coupled with anxiety since users think it is complicated. PhonePe introduced two educational videos to help customers understand 80C and its workings to tackle this.
Sameer Nigam, Co-founder of PhonePe, is also aiming to take the scope of wealth services beyond the metros, in a bid to shift consumer mindsets. In an earlier interview with YourStory, Sameer said,
“To increase the reach of wealth management products, we will be making sure that there are relevant use cases in this category, which will also ensure retention, rather than just jumping in blindly. Scale is inevitable in this vertical.”
Paytm Money, on the other hand, entered the segment in September 2018, with much euphoria and fanfare - tying up with close to 25 AMCs; $10 million in commitment for setting up operations from its parent One97 Communications Limited; and partnerships with rating services MorningStar, CRISIL, and Value Research to ease investment decisions for its users.
Not to forget, it had close to 850,000 users registering for early access. The wealth management platform currently boasts of a million customers acquired over six months since launch, and has various funds, including equity, debt, tax saving and balance, which users can search and invest in.
PhonePe, meanwhile, continues to bet on simplicity (of the platform).
Also read: Paytm looks to increase MF investor base to 50 M; launches wealth management app
Following its DNA
This strategy of going slow is not new but for an outsider analysing, PhonePe. The startup has always introduced the first version of a product to test waters, taken feedback, and later launched the full-blown version of the feature.
One such example is PhonePe’s in-app strategy, which it launched in February 2018, with redBus as its first partner. It on-boarded its next in-app partner, Ola, after four to six months of launching the feature, and quickly ramped this number to 50 in-app partners.
Also read: PhonePe’s in-app strategy is not just about transactions, but local discovery and credit
Now, the Bengaluru-based payments company wants to do just that with wealth management, assessing feedback and traction on this first solution to better products and aggressively launch more use cases over the course of the year.
Another difference between the launch of Paytm Money and PhonePe is the payment channel. PhonePe has gone back to its roots and chosen UPI for monthly investments.
This is in line to help with seamless payments. PhonePe’s UPI backend is integrated with the BSE StAR mutual fund platform, which incorporates all AMCs.
While launching, Paytm Money supported close to 190 banks and allowed a user to link up to five bank accounts to the profile. In December, the platform eventually enabled UPI payment facility for mutual fund investments.
At present, PhonePe has a total base of 170 million+ users, and an monthly active base of 50 million users, which it is eyeing to tap for its wealth management products. It sees a billion app fires monthly and its offline push has led it to cross a total of one million offline merchants.
Paytm Money’s edge over PhonePe
While PhonePe might not want to overwhelm users, it cannot ignore the feature stack that is creating an edge for Paytm Money.
Earlier, this month, Paytm Money announced the launch of “Investment Packs”, its first advisory product that offers curated investment portfolios of mutual fund schemes based on the unique risk profile of each investor. This feature is a big competitor to PhonePe’s “use case” ideology for wealth management.
When asked about this, Terence Lucien, Head – Mutual Funds, PhonePe, says,
“In time to come we would like to introduce services and products that are closer to different aspects to life, rather than giving them in a basket. Investing is already considered complicated and awareness levels are still gathering steam.”
Another interesting feature is Paytm Money’s “pay later” stack, which it introduced in February this year. This feature allows investors to start SIPs without making a payment immediately or choosing to pay later. In January, it also released a feature that allowed users to track the performance of all their mutual fund investments on the Paytm Money app for free. This was to create more stickiness.
It also allows investors on its platform to form a “watchlist” of funds and track them regularly before investing.
Also read: Paytm's new feature to allow users to invest in SIPs, pay for it later
Paytm’s early start has helped it realise what customers want and move fast in that direction. PhonePe, meanwhile, continues to be in the exploration phase.
However, Hemant says the company isn’t bothered about competition since the industry is still nascent and that it plans to build its wealth management suite by looking internally and being obsessed with customers’ needs.
If media reports are to be believed, PhonePe has received in-principle approval from Flipkart's board to be hived off as a separate entity. The company is also looking to raise a $1 billion in fresh capital, to fight the competition.
Just last week, PhonePe received Rs 743.5 crore as part of a fresh infusion of funds from its Singapore-registered parent entity, PhonePe Pvt Ltd (formerly known as Flipkart Payments), according to the filings with the Registrar of Companies (ROC).
Earlier in March, Paytm Money also raised Rs 28.87 crore (approximately $4 million) from parent One97 Communications Pvt Ltd.
Paytm Money and PhonePe compete with Bengaluru-based brokerage firm Zerodha, which launched its direct mutual fund platform Coin in March 2017 and raked Rs 1,100 crore in assets under management after a year of launch.
The payment players include Gurgaon-based MobiKwik, which forayed into wealth management through the acquisition of online mutual fund platform Clearfunds in October last year, and is set to launch mutual funds on its platform.