Engagement & Retention project | PhonePe | Pranal Sontakke

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About PhonePe

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PhonePe is a comprehensive digital payment and financial services platform in India. It offers UPI payments, recharges, bill payments, and money transfers. Users can also invest in mutual funds, buy insurance, and make online purchases. The platform supports multiple payment methods, including UPI, wallets, and cards. Additionally, PhonePe provides business solutions like payment gateways and POS devices, and has launched initiatives like PhonePe Pulse for data insights, Share.Market for stock broking, and Indus Appstore for app downloads.

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As of 2024, PhonePe is valued at approximately $12 billion. This valuation follows significant funding rounds, including a $350 million investment led by General Atlantic and additional funding from other investors like Tiger Global and Ribbit Capital​ (PhonePe)​​ (mint)​.

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PhonePe holds a dominant position in India's digital payments market, capturing a significant share of transactions. Specifically, it is the leader in the Bharat Bill Pay System (BBPS), processing over 45% of the transactions on that platform.

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In terms of user base, PhonePe serves over 440 million registered users and has digitized around 35 million offline merchants across various regions in India​ (PhonePe). This extensive reach underscores its substantial role in facilitating digital financial transactions for both consumers and businesses throughout the country.

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PhonePe's Core Value Proposition

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PhonePe's core value proposition lies in providing a comprehensive, user-friendly, and secure digital payments and financial services platform. Here are the key elements of its value proposition:

• Convenience and Ease of Use: PhonePe offers a seamless and intuitive interface for users to make digital payments, transfer money, and pay bills through its UPI-based platform. The app supports a wide range of financial transactions, including mobile recharges, utility bill payments, and online shopping​ ​.
• Wide Acceptance and Reach: PhonePe is accepted at over 35 million offline merchants across India, covering 99% of the country's pin codes. This extensive merchant network makes it easy for users to make payments virtually anywhere​​.
• Comprehensive Financial Services: Beyond payments, PhonePe has expanded into various financial services, including mutual fund investments, insurance, stock broking, and lending. This diversification allows users to manage their financial needs within a single platform.
• Security and Trust: PhonePe emphasizes robust security measures to protect user data and transactions. Its reputation for reliability has earned it recognition as the Most Trusted Brand for Digital Payments by the Brand Trust Report 2022​.
• Innovation and Inclusivity: PhonePe continuously innovates to enhance user experience and financial inclusion. Initiatives like PhonePe Pulse provide data insights, and the company's efforts align with India's digital financial inclusion goals, aiming to bring financial services to the next 450 million Indians.
• Support for Businesses: PhonePe offers solutions for businesses, such as payment gateways, POS devices, and business loans, facilitating digital transactions and financial management for merchants​.

How does PhonePe's users experience the Core Value Prop?

Natural Frequency of PhonePe's core product?​

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PhonePe's sub products and their natural frequency

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Engagement Framework Analysis

Casual users engage with PhonePe for basic transactions occasionally.

Core users engage more frequently and with a broader range of transactions.

Power users engage very frequently, with high transaction amounts across various categories.

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Engagement Framework Selection

The Engagement Framework has been selected as per the data points generated from user research and trusted sources:

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Breadth

Importance for Casual Users:

• Casual users prefer apps that offer a wide range of simple and essential services like bill payments, mobile recharges, and basic shopping.
• According to a study by Nielsen, 68% of casual users prefer payment apps that offer a variety of utility bill payment options alongside basic peer-to-peer transactions.
• For example, PhonePe's inclusion of broader utility bill payment options has attracted casual users who seek convenience in managing everyday payments through a single platform.

Importance for Core Users:

• Core users typically engage across multiple categories such as shopping, travel bookings, entertainment, and more.
• Data from PhonePe indicates that core users frequently utilize the app for shopping transactions across various e-commerce platforms, demonstrating the importance of a broad engagement spectrum.
• Similarly, PhonePe's core users benefit from a wide array of rewards and utility bill payments, enhancing their overall engagement with the app.

Importance for Power Users:

• Power users engage extensively across diverse categories, including high-value transactions such as travel bookings and investment-related payments.
• Research by RedSeer Consulting highlights that power users of payment apps prioritize platforms that integrate seamlessly with various service providers, offering a wide range of services from travel booking to stock trading.
• PhonePe's integration with Flipkart for shopping transactions cater to the diverse needs of power users, underscoring the importance of broad engagement capabilities.

While offering a wide breadth of services can attract initial attention, sustaining differentiation in the market requires deeper engagement metrics such as user retention, and transaction frequency. Increasing the usage of sub-products will also help in increasing the frequency of product usage.

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Depth:

Importance for Casual Users:

• Casual users appreciate apps that offer simplicity and security in their transactions, with minimal financial commitment per transaction.
• PhonePe's emphasis on secure and low-cost transactions has driven its popularity among casual users, who value ease of use and safety.
• Data from market research indicates that casual users prefer payment apps that ensure quick and hassle-free transactions, enhancing their depth of engagement despite lower transaction amounts.

Importance for Core Users:

• Core users value apps that support higher transaction volumes and larger financial commitments across various categories.
• PhonePe's capability to handle higher-value transactions securely has bolstered its appeal among core users, facilitating frequent transactions for diverse needs.
• Similarly, PhonePe's focus on offering exclusive rewards and benefits for high-value credit card payments enhances the depth of engagement among its core user base.

Importance for Power Users:

• Power users seek platforms that can handle substantial transaction amounts securely and efficiently.
• Research by McKinsey highlights that power users prioritize payment apps that offer robust security features and support high-value transactions seamlessly.
• PhonePe's integration with banking partners and secure transaction infrastructure meets the expectations of power users, facilitating extensive financial transactions across various domains.

Many users of PhonePe engage in frequent but smaller transactions, such as bill payments, mobile recharges, and everyday shopping. For these users, the frequency and convenience of transactions are more important than the monetary value per transaction.

Frequency:

Importance for Casual Users:

• Casual users engage sporadically but appreciate apps that are easy to use for occasional transactions like bill payments and recharges.
• Data from Statista shows that casual users tend to use payment apps like PhonePe for monthly utility bill payments, emphasizing the importance of convenience and simplicity in driving frequency.

Importance for Core Users:

• Core users transact frequently across multiple categories, relying on PhonePe that support seamless and efficient transactions.
• PhonePe's user behavior data indicates that core users conduct transactions regularly for shopping, bill payments, and travel bookings, underscoring the importance of consistent engagement and reliability.

Importance for Power Users:

• Power users engage extensively and frequently across various high-value transaction categories, necessitating robust and scalable payment solutions.
• PhonePe's data analytics reveals that power users leverage the app for frequent loan and investment payments, highlighting the critical role of high-frequency engagement in driving app usage and loyalty.

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Conclusion:

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Frequency directly correlates with how often users interact with the app. Higher frequency indicates active and engaged users who rely on the platform for their financial transactions regularly. PhonePe benefits from frequent engagement as it strengthens user retention and reduces churn rates. Hence, Frequency will be our primary metric.

Who is PhonePe's active user?

• An active user of PhonePe is someone who is doing multiple (2-3) transactions in a day.
• PhonePe's active users will utilize PhonePe for a diverse range of transactions beyond basic payments. This may include utility bill payments, mobile recharges, online shopping, booking services (such as travel or entertainment), and more.
• User interacting with and benefiting from PhonePe's promotional offers, cashback rewards, discounts, and loyalty programs is another sign of active user behavior.

Natural frequency of active user:

• 3-5 transactions per week

Different types of business/personal users on PhonePe:

• Individual users: They engage frequently with the app, conducting transactions across multiple categories such as shopping, bill payments, travel bookings, and more.
• Business Users: Include merchants, small businesses, and entrepreneurs who use PhonePe's business solutions for accepting payments, managing invoices, and accessing business finance tools.
• Investment and Wealth Management Users: Users interested in investment and wealth management services offered through PhonePe's platform. They utilize PhonePe for services such as mutual fund investments, gold purchases, insurance, and other wealth management tools.

For this engagement strategy, I'd like to focus on the transacting individuals because this would impact them the most.

Here are some stats on PhonePe from their website:

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​Let's look at the ICP's in more detail:

Users for PhonePe can be segmented as below:

• Persona Based
• Usage Based Casual/Core/Power
• Revenue Based
• RFM

Persona Based

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Frequency Based Casual/Core/Power

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Revenue Based

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Casual Users Campaign:

Target Segmentation Details

• In Sleep User: Users who have used PhonePe in the past but have low activity over the last few months. They may have tried the app for basic transactions but did not develop a habit of using it regularly.
• Hibernating User: Users who have not used PhonePe for an extended period. They may have downloaded the app, completed the onboarding process, and made a few transactions but then stopped using it.

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Campaign 1: In Sleep User

Why it will work:

• Push Notifications are effective in grabbing attention quickly, especially when users have not interacted with the app in a while.
• Cashback offers are a strong incentive to encourage users to perform a transaction, making them remember the ease and benefits of using PhonePe.
• Targeting evening hours ensures that the notification is seen when users are likely to have free time to complete a transaction.

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Campaign 2: Hibernating User

Why it will work:

• Emails can provide detailed information and a compelling call-to-action, reminding users of the benefits they are missing.
• Offering a higher cashback for a minimum transaction value encourages users to make substantial transactions, re-establishing the habit of using the app.
• Sending these emails in the morning increases the chance that users will see and consider the offer throughout the day.

Core Users Campaigns

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Target Segmentation Details

• Potential Loyalist: Users who frequently use PhonePe for specific transactions but haven't explored or used all the features available. They show high potential to become loyal users if incentivized correctly.
• Loyalists: Users who regularly use multiple features of PhonePe and have a high engagement level. They value the app but may need additional incentives to use value-added services.

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Campaign 1: Potential Loyalist

Why it will work:

• WhatsApp messages are more personal and likely to be read, increasing the chance of engagement.
• Promoting a 10% discount on shopping can entice users to explore additional services, enhancing their overall experience with the app.
• Targeting afternoon hours aligns with typical online shopping times, increasing the likelihood of immediate action.
  

Campaign 2: Loyalists

Why it will work:

• Push Notifications ensure that the message reaches users instantly, keeping PhonePe top-of-mind.
• Highlighting investment options with bonuses leverages their trust and familiarity with the app, encouraging them to use higher-value services.
• Timing the notifications in the evening ensures users are more relaxed and willing to consider financial investments.
  

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Power Users Campaigns

Target Segment Details

• Champions: Users who use PhonePe extensively for a wide range of transactions, including high-value and frequent transactions. They are highly engaged and derive significant value from the app.

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Campaign 1: Champions

Why it will work:

• Emails can deliver detailed content about premium support and loyalty rewards, appealing to users who value comprehensive service and recognition.
• Offering ₹500 cashback on high-value transactions aligns with their transaction behavior, incentivizing them to continue using the app for significant payments.
• Morning timing ensures that the offer is considered during the day, potentially influencing planned high-value transactions.

Campaign 2: Champions

Why it will work:

• Messenger provides a direct and personal communication channel, making the user feel valued and special.
• Personalized offers resonate well with power users, as they expect tailored services and benefits.
• Timing the messages in the evening aligns with the period when users might be planning their finances, making them more receptive to engaging with the offer.

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Retention Rate

I would focus on the industry wide metrics as their is limited availability of data to better understand retention for PhonePe.

Here is data on retention for fintech apps. Given that PhonePe has biggest market share, we can safely assume below retention rates are closer to its actual retention rates.

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User category for fintech apps. We have noticed similar demographics for PhonePe. Gen Z and Millennials use fintech apps much more heavily than Gen X and Baby Boomers.

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Flattening of Retention Curve

For fintech payment apps in India, the retention curve typically flattens after about 3 to 6 months of user activity. Here are some key points to consider:

1. Initial Drop-off: In the first few days to weeks, there is usually a significant drop-off as users try the app and decide whether it meets their needs.
2. Engagement Phase: Users who continue to use the app beyond the initial phase enter a period of increasing engagement. This can last from 1 to 3 months, during which users explore and start regularly using various features of the app.
3. Stabilization: After the initial engagement phase, the retention curve begins to flatten. This generally happens between 3 to 6 months. At this point, users have either integrated the app into their daily or monthly routines or have stopped using it.
4. Long-term Retention: Users who continue to use the app beyond the 6-month mark are likely to remain long-term users. The curve flattens significantly, indicating a stable user base.

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Data from Similar Apps:

• Reports and studies from similar fintech apps like Google Pay, Paytm, and CRED in India suggest that consistent usage patterns and effective engagement strategies are key to maintaining a flat retention curve post the 6-month period.
  

Industry Insight:

• According to industry insights and market analyses, the majority of churn occurs within the first three months. Those who remain active beyond this period are more likely to become habitual users, thus contributing to a flatter retention curve.

1. Which ICP's drive best retention?
   

Core Users:

• Why: Core users, who utilize multiple features of the app regularly, are typically more engaged and find consistent value in the app. They are likely to explore different services like bill payments, shopping, and travel bookings, which keeps them coming back to the app frequently. Their moderate engagement with various features ensures they remain active over time.
• Engagement: These users often have a routine established around the app's functionalities, making them less likely to churn.
  

Power Users:

• Why: Power users, who extensively use all features and make high-value transactions, have the highest retention. They are deeply integrated into the app ecosystem, using it for investments, insurance, trading, and more. The diverse and high-frequency usage patterns among power users drive consistent engagement and loyalty.
• Engagement: Their reliance on the app for multiple high-value tasks ensures a strong dependency, contributing to very high retention rates.

2. Which Channel drives best retention and why?
   

Push Notifications:

• Why: Push notifications are effective because they provide timely and direct communication with the user. They can remind users of pending bills, offer personalized deals, and encourage them to use different features. The immediacy and visibility of push notifications make them a powerful tool for driving engagement.
• Effectiveness: Push notifications can be highly personalized based on user behavior and preferences, making them relevant and engaging.
  

WhatsApp:

• Why: WhatsApp messages are more personal and likely to be read, providing a direct line of communication. The familiarity and high open rate of WhatsApp messages make them effective for engaging users with tailored content and offers.
• Effectiveness: The interactive nature of WhatsApp allows for quick responses and actions, fostering better engagement and retention.

3. Which Features & Sub-features drives best retention?

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Features

Bill Payments and Recharges

• Why: These are recurring needs for most users. By facilitating quick and easy payments for utilities, mobile recharges, and more, PhonePe ensures regular user interaction with the app.
• Retention: The necessity of these transactions creates a habitual use pattern.

Money Transfers (P2P and Bank Transfers):

• • Why: The core functionality of sending and receiving money is a frequent need for users. The convenience and speed of PhonePe's transfer services keep users engaged.
  • Retention: Users who rely on PhonePe for their daily or monthly transfers are more likely to stay active.
    

Sub-features

Investment Options (Mutual Funds, Gold)

• Why: Providing users with the ability to invest in mutual funds and digital gold within the app adds significant value, especially for power users. These financial services require ongoing monitoring and transactions, promoting regular use of the app.
• Retention: Users invested in these financial products tend to check their portfolios regularly, ensuring continuous engagement.

​Insurance Services

• Why: Offering insurance services keeps users engaged, especially during renewal periods or when they need to make claims. This service adds a layer of financial security that is attractive to users.
• Retention: Users who manage their insurance through PhonePe are likely to stay for the convenience of centralized financial management.
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In conclusion, core and power users drive the best retention for PhonePe due to their engagement with multiple and high-value features. Push notifications and WhatsApp are the most effective channels for retention due to their immediacy and personalization capabilities. Essential services such as bill payments, money transfers, and value-added financial products like investments and insurance are the features that drive the best retention, offering convenience and significant value to the users.

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Thank you!