Flipkart partially spins off PhonePe in $700-m fundraising round

Even as it becomes a separate entity, payments player PhonePe is raising a chunky $700 million in primary equity capital led by Walmart at a post-money valuation of $5.5 billion. Post the restructuring, Flipkart will retain a majority 87% in PhonePe while Walmart will own a direct 10%, via its controlling stake in Flipkart. The remaining 3% in PhonePe will be held by other existing shareholders, including Tiger Global.

As founder and CEO, PhonePe, Sameer Nigam has pointed out, the capital is a war chest that can help the fintech chalk out a 3-4 year strategy. Nigam said on a leading business television channel that by virtue of being a separate entity PhonePe could incentivise employees, for instance via ESOPs, needed to attract and retain good talent.

Moreover, a separate board would allow for independence in decision-making. Nigam said a good part of the money would be used to penetrate rural India, across states, in the next two years where digital payments were gaining rapid acceptance.

Funds would also be invested in innovation and new platforms as also to grow and strengthen newly-launched products — mutual funds, wealth, insurance and gold — in a bid to grow the user base.

Nigam has set the firm a stiff target of doubling the registered users to 500 million by December 2022 from over 250 million today in a market where it competes with deep-pocketed players like Paytm, Amazon Pay, Google Pay and now WhatApp Pay. However, there’s enormous potential; analysts at consulting firm RedSeer estimate India’s digital payments industry will grow at a CAGR of 27%, touching Rs 7,092 lakh crore by FY25 from the current Rs 2,153 lakh crore. Mobile payments will drive around 3.5% of the total digital payments by FY25 from the current 1%. The user base of the segment is expected to increase by nearly five times to 800 million during the period.

PhonePe processed 835 million UPI transactions in October, for a market-leading share of over 40% and a record 925 million transactions in all. In all more than two billion UPI transactions were recorded in October for a total value of Rs 3.86 lakh crore. The Fintech recently picked up a small stake, about 0.4%, in NPCI. Following the changes in the rules, the fintech will need to bring down its market share of UPI transactions to 30% over two years. The capital will allow PhonePe to take a bigger bet in the digital payments space with a foray into lending, according to Arnav Gupta, analyst at Forrester Research, rather than being restricted to digital payments in the B2C segment.”This will empower PhonePe to take bigger risks,” Gupta said, pointing out that the funds would come in handy while acquiring licenses and rolling out the business.

Founded in 2015 by Sameer Nigam, Rahul Chari and Burzin Engineer, and acquired by Flipkart in 2016,the firm is eyeing profitability by 2022, and aims to file for an IPO by 2023, Nigam had said in an interview with local media earlier this year.

“Cost of acquiring users and the need for capital is lower now than what we spent in 2018 and 2019,” the CEO had said. “This was the right time to partially spin-off PhonePe so it can access dedicated capital to fund its long-term ambitions over the next three to four years,” Flipkart said in a statement.