Explained: UPI payments are free, so how do Google Pay and PhonePe make money?
The Unified Payments Interface (UPI) has made digital payments incredibly easy and fast in India. Money can be transferred in seconds using a mobile phone, and users are not charged any fees. This raises the question: how do companies like Google Pay and PhonePe make money when they don't sell any goods or charge fees on UPI transactions?
The answer lies in their business model, which extends far beyond just payments. These companies have transformed UPI from a simple payment tool into a complete digital ecosystem. This ecosystem includes merchants, brands, and financial services.
Significant Revenue from Merchants
A major source of revenue comes from small shopkeepers and grocery stores. PhonePe has turned the voice-operated speakers installed in shops into a revenue model. When a customer makes a payment, the speaker announces the payment confirmation. This builds trust for the shopkeeper and ensures transparency at the cash counter. These speakers are provided to shops for a monthly rental of approximately ₹100. This service has reached over 3 million shops across the country, generating hundreds of crores of rupees in annual revenue for the company.
Scratch Cards and Cashback as Revenue Streams
Another important revenue stream is the scratch card and cashback system. The small rewards users receive are actually part of brand promotions. Various companies pay to showcase their advertisements and offers through these scratch cards. This benefits the user with cashback, the brand with visibility, and the platform with advertising revenue.
Software and Financial Services
In addition, Google Pay and PhonePe have leveraged the trust built on UPI to offer software and financial services. They provide tools for creating invoices, GST-related services, accounting software, and microloans for small businesses. These services generate significant revenue for the companies through SaaS fees and commissions on loans.
The Formula for High Profits at Low Cost
Most importantly, these platforms don't need to spend much on acquiring new users. UPI has already reached millions of people, resulting in virtually zero customer acquisition costs. This is why Google Pay and PhonePe continue to be profitable despite offering free UPI payments.
Disclaimer: This content has been sourced and edited from Amar Ujala. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.
