Only a third of investors are active, Share.Market aims to change that: PhonePe Co-founder Rahul Chari

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Fintech major PhonePe, which entered the stockbroking business with the launch of its app called "Share. Market", expects to capture the growing participation of retail investors, as data shows that only 30% of investors are active in the segment.

"The number of Demat accounts is increasing to 120 million, but the retail participation percentage remains at 30%, with high churn rates. Many retail investors enter the market but don't stay, and this is expected to change in the near future. This gives us a significant opportunity to participate in this market," said Rahul Chari, Co-founder and Chief Technology Officer of PhonePe.

The payments firm is also relying on a significant number of middle-class customers moving into the higher middle-class bracket with increased disposable income, which would drive active investment in the stock market.

"While the wealthy might have already been acquired by existing players, the participation of retail investors is expected to expand beyond the wealthy. The middle class is growing, and the lower-middle class is moving towards the upper-middle class category over the next decade, leading to increased participation," added Chari.

"I don't necessarily believe that our strategy is about taking market share from competitors like Zerodha or Groww. Instead, it's about catering to the expanding market in the future," he said.

On August 30th, PhonePe announced its entry into the stockbroking business with the launch of its app "Share. Market." This app enables users to trade and invest in stocks, mutual funds, and ETFs (exchange-traded funds).

In 2022, PhonePe acquired two wealth tech platforms, WealthDesk and OpenQ, valued at a total of $70 million. This acquisition was part of PhonePe's ongoing expansion into financial services beyond payments.

In 2021, PhonePe began the process of entering India's competitive stockbroking business and was awaiting a license from the Securities and Exchange Board of India (SEBI) for the same.

With the planned advanced analytics tool, Chari expects passive investors to gain confidence in trading, purchasing debt, and even engaging in Futures and Options trading.

"This marks the completion of our suite of forays into financial services. We started with payments, then moved into insurance, and now into wealth. Our expansion into various financial services is based on our experience, giving us the right to participate. However, achieving success will take time as the product fully matures," said Chari.

Chari also emphasized that the key differentiator of 'Share. Market' is its discount broking services, offering market intelligence and quantitative research-based WealthBaskets through a scalable technology platform.

According to PhonePe's filing with the Ministry of Corporate Affairs (MCA), the company's revenue in the first nine months of 2022 surged to Rs 19.12 billion. For FY22 (2021-22 or the 12 months ending in March 2022), PhonePe reported a revenue of Rs 16.46 billion. The company anticipates a revenue of Rs 26.55 billion and an EBITDA loss of Rs 4.715 billion for the 12 months ending in December 2022.

Chari mentioned that while payments will continue to contribute a significant portion of revenues, newer products like stockbroking are expected to mature.

"Payments will remain the primary revenue driver for PhonePe and will continue to hold the majority share. However, we haven't set specific targets yet for Share. Market. Our focus is on achieving product-market fit and setting realistic goals accordingly," he added.

PhonePe's entry into the stockbroking business comes amid increased scrutiny by the Securities and Exchange Board of India on online discount brokers and financial influencers promoting these businesses.

Addressing concerns around financial influencers, Sebi Chairperson Madhabi Puri Buch mentioned a consultation paper in progress during a press conference held on June 28.

Chari stated that the business is prepared for regulations, given its dealings with the Reserve Bank of India and the Insurance Regulatory and Development Authority for payments and insurance.

"We undergo over 52 audits in a year, including regulatory audits across different segments and regulators. We have a dedicated team focused on regulatory compliance. India's regulatory landscape is evolving rapidly, and we are ready to adapt to stricter regulations," he said.