UPI is free for all, then how did Google Pay, PhonePe earn over Rs 5000 crore without selling a single product? Know their business model

UPI (Unified Payments Interface) has significantly simplified financial transactions in India, offering a convenient, fast and secure way to send and receive money. It has reduced reliance on cash and traditional banking methods, leading to a more digital and inclusive financial ecosystem. What is unique about UPI is that it makes digital transactions seamless and completely free for users. Yet, fintech giants Google Pay and PhonePe have collectively earned over Rs 5,065 crore by last year—without selling any physical product. How did they achieve such impressive revenue? The secret lies in their unique business models rooted in trust, scale and innovation.

The Secret Behind Their Business Model

In a detailed LinkedIn post, Mrunal Jhaveri, founding partner at Ice VC, broke down how these platforms generate revenue despite UPI being free for users.

1. Voice-enabled Speakers at Kirana Stores

A significant portion of their income comes from small retailers. For example, PhonePe offers voice-operated speaker services that announce payments like “Rs 50 received on PhonePe.” These devices are rented to shopkeepers at Rs 100 per month. With over 3 million stores using this service, the companies earn Rs 30 crore monthly—or Rs 360 crore annually. These speakers not only enhance customer trust but also benefit shopkeepers by facilitating real-time transaction confirmation.

2. Scratch Cards – A Smart Ad Strategy

Another key revenue driver is the use of scratch cards offering small cashbacks or coupons (e.g., Rs 12 rewards). While these may appear to be mere customer perks, they’re actually clever ad tools. Brands pay Google Pay and PhonePe to promote themselves through these cards, boosting brand visibility and user engagement. This strategy turns the platforms into highly efficient advertising channels with guaranteed returns.

3. SaaS Tools and Financial Services

Beyond payments, these platforms have leveraged UPI’s trust to build a Software-as-a-Service (SaaS) ecosystem for small businesses. Services like GST filing assistance, invoice generators, and micro-loans have become new revenue streams. What started as a simple payments gateway has evolved into a comprehensive financial services platform.

Interestingly, their customer acquisition cost (CAC) is nearly zero, making the model even more efficient and profitable.