- PhonePe has emerged as the surprise benefit for Walmart from its largest-ever acquisition.
- The board recently authorized the PhonePe Pvt. Ltd. unit to become a new entity and explore raising $1 billion.
Last Year, Walmart paid huge amount of money to get control of India’s e-commerce leader Flipkart Online Pvt. Ltd. and in the deal got a little-known digital payment subsidiary PhonePe. Now with increasing internet and smartphone user base, PhonePe has emerged as the surprise benefit for Walmart from its largest-ever acquisition.
The board recently authorized the PhonePe Pvt. Ltd. unit to become a new entity and explore raising $1 billion from outside ventures and investors at a valuation of $10 billion, according to people close to the organization. The funding is expected to be closed by the next couple of months, although the talks are not yet finalized and terms are yet to be decided.
The unit would then become independent with a distinct investor base, although Walmart-owned Flipkart would remain a shareholder. Walmart and Flipkart didn’t respond to emails seeking comment.
Edward Yruma, an analyst from KeyBanc Capital Markets, wrote in a recent research note, PhonePe is an “underappreciated asset. He estimated the business may be worth $14 billion to $15 billion, separate from Flipkart’s e-commerce operation.
Started At Right Time
PhonePe — which means “on the phone” in Hindi and is pronounced “phone pay” — has grown into one of India’s leading digital payments companies. Its volume and value of transactions have roughly quadrupled over the past year as the country’s consumers adopt the technology to transfer money digitally to businesses and each other. PhonePe is gaining ground on Paytm, which leads the field and is backed by Warren Buffet.
The startup was founded in December 2015 by three friends who left Flipkart to get it off the ground. Within a year, Flipkart founders Binny Bansal and Sachin Bansal decided to acquire PhonePe, realizing that solving payments friction would make it easier for consumers to buy online.
The service gained momentum by offering an array of services, including mutual funds, movie tickets, and airline bookings. Earlier this year, it began using Bollywood star Aamir Khan in its advertising.
What lies ahead?
“Globally, hardly any privately held fin-tech company has reached PhonePe’s scale on both sides of the network so rapidly,” Sameer Nigam, PhonePe’s co-founder and chief executive officer, said in a statement, pointing to its 150 million-plus customers and more than 5 million merchants. “That’s why the strong investor interest.”
Walmart is still grappling with whether to bring in strategic or financial investors, according to one of the people familiar. While a strategic investor would likely be better for growth, senior Walmart executives are concerned that such backers typically want more voting rights, the person said. Walmart wants to use the lessons from PhonePe in other operations around the globe.
The market has vast potential. Digital payments in India are projected to reach $1 trillion by 2023 from about $200 billion now, said Credit Suisse Group AG. Beyond PhonePe and Paytm, Google Pay, Amazon Pay, and the soon-to-launch WhatsApp payments service will compete for customers. They’re taking advantage of India’s Unified Payment Interface, a technology backbone that includes 140 of the country’s banks and digital payments companies.
Demonetization played a crucial role and entities such as Phonepe and Paytm grabbed it. With Flipkart allowing PhonePe to become a separate entity
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