PhonePe Loses Merchant Market Share as Active Merchant Base Continues to Decline

Despite leading India’s consumer UPI payments market, Walmart-backed PhonePe is witnessing a decline in its merchant payments market share, while growth in its active merchant base has also stalled, according to disclosures in its updated draft red herring prospectus (UDRHP).

PhonePe’s monthly active merchants stood at 11.11 million at the end of the first half (H1) of FY26 (September 30, 2025), compared with 11.27 million in the same period a year earlier. The numbers reflect a year on year decline of about 1.4 percent and a sequential moderation from March levels, suggesting that growth in active merchant engagement has stalled even as the company’s registered merchant base expanded to 44.87 million.

As per the company’s UDRHP, PhonePe’s monthly active merchant base has further declined  from earlier levels. The company reported 11.43 million and 11.45 million monthly active merchants at the end of FY23 and FY24, respectively. This declined to 11.31 million by the end of FY25, indicating a slowdown in active merchant engagement.

PhonePe defines Monthly Active Merchants as the number of unique registered merchants to whom at least one successful payment transaction was made in the last month of the reporting period. The moderation in active merchants indicates that additions to the overall merchant base may not be translating into proportionate transaction activity.

At the same time, data indicates that Paytm has been growing faster than PhonePe in merchant transactions, gaining relative market share in the segment. 

According to the company’s earnings release, Paytm’s merchant gross merchandise value rose from ₹8.7 trillion (₹8.7 lakh crore) in the first half of FY25 to ₹11.1 trillion (₹11.1 lakh crore) in the first half of FY26, marking a 28 percent year on year increase. In comparison, PhonePe’s merchant GMV grew from ₹7.0 trillion (₹7 lakh crore) in H1 FY25 to ₹8.5 trillion (₹8.5 lakh crore) in H1 FY26, reflecting about 21 percent growth, slower than Paytm.

As a result, Paytm’s share of merchant GMV remained stable at about 26 percent between H1 FY25 and H1 FY26, while PhonePe’s share declined from around 21 percent to about 20 percent over the same period, based on industry estimates from National Payments Corporation of India (NPCI) and company disclosures. The shift suggests Paytm has been strengthening its position in merchant payments even as the broader merchant payments market continues to expand.

According to NPCI data, industry-wide merchant transactions continued to expand during the period, with total merchant GMV rising from ₹33.8 trillion (₹ 33.8 lakh crore) in the first half of FY25 to ₹42.2 trillion ((₹ 42.2 lakh crore) in the first half of FY26, reflecting about 25 percent year-on-year growth. 

To be sure, brokerage firm Bernstein recently noted that merchant payments account for nearly three fourths of the industry’s net revenue pool and identified Paytm as a monetisation leader within this merchant led framework.  It estimates Paytm’s net payment margin at around 9 basis points, including device revenues, more than double that of PhonePe.

Further, as the industry narrative moves from market share to revenue efficiency, merchant payments are widely seen as the primary driver of value creation in India’s mobile payments ecosystem. Unlike peer to peer (P2P) UPI transactions, which offer limited take rates, merchant acquiring allows platforms to earn through device subscriptions, payment processing fees, gateway charges and credit distribution.

Paytm’s December quarter stated that merchant device subscriptions rose to 1.44 crore, with 27 lakh additions year on year, expanding its recurring subscription base. Device deployment has become a key driver of predictable income while deepening merchant engagement.

BofA Global Research has also highlighted that Paytm continues to extend leadership in medium to high monetisation segments such as merchant payments and lending, supported by a diversified revenue mix. Payments accounted for only 55 percent of Paytm’s total revenues in the first half of FY26 compared with 87 percent for PhonePe, reflecting a stronger contribution from financial services distribution.

As growth in active merchants moderates for PhonePe, Paytm’s expanding device footprint, stronger merchant transaction share and diversified revenue mix is positioning it strongly in a market that is moving from scale driven growth to sustainable earnings expansion.