PhonePe IPO: 10 Key Risks Investors Must Watch Before Subscribing |

Updated: February 02, 2026 16:24

Image Source : Upstox

PhonePe’s upcoming IPO, backed by Walmart, is one of India’s most anticipated fintech listings. While the company dominates UPI transactions, its Updated Draft Red Herring Prospectus highlights risks including regulatory uncertainty, dependence on UPI, lack of profitability, and shareholder exits. Investors must weigh growth potential against structural challenges.

PhonePe, India’s largest UPI payments platform, has filed its Updated Draft Red Herring Prospectus (UDRHP) with SEBI, paving the way for a public listing. The IPO, expected to raise around ₹12,000 crore, will be a pure offer-for-sale (OFS) with existing shareholders such as Walmart, Tiger Global, and Microsoft offloading stakes. Despite its scale—processing nearly 10 billion transactions worth ₹13.6 lakh crore in December 2025—the prospectus outlines several risks that investors should carefully consider.

Key highlights from the announcement include

Dependence on UPI, which contributes over 90% of PhonePe’s transaction volume, exposes the firm to regulatory changes such as NPCI’s proposed 30% market cap.
Zero merchant discount rate (MDR) on UPI transactions limits monetization opportunities, raising questions about sustainable profitability.
IPO proceeds will not go to PhonePe but to selling shareholders, meaning no fresh capital infusion for business expansion.
Regulatory uncertainties around digital payments, data privacy, and fintech compliance could impact operations.
High customer acquisition costs and reliance on incentives may pressure margins.
Competition from Paytm, Google Pay, and new entrants could erode market share.
Potential capital underspending and dependence on dividends from the Reserve Bank of India may affect fiscal projections.
Shareholder exits, including Walmart and Tiger Global, may signal caution to retail investors.
PhonePe’s diversification into insurance, wealth management, and lending remains in early stages and carries execution risks.
Global market volatility and domestic fiscal consolidation could influence investor appetite for fintech IPOs.

Industry experts note that while PhonePe’s dominance in UPI and strong brand recall make it a formidable player, its path to profitability remains uncertain. The IPO offers investors exposure to India’s booming digital payments ecosystem but requires careful evaluation of risks before subscribing.

Sources: Mint, Reuters, Economic Times, Business Standard

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