Flipkart’s PhonePe Spun Off, Attracts US$700M Funding from Walmart

As the competition heats up in India’s payments space, Flipkart announces partial spin-off of PhonePe. Flipkart’s majority shareholder Walmart will also be investing for a minority stake in PhonePe.

Indian ecommerce marketplace Flipkart Group has partially spun off its digital payments division PhonePe, the eretail company announced in a statement yesterday.

The company further announced that PhonePe has raised US$700 from U.S.-based multinational retail giant and existing investor Walmart. Walmart is Flipkart’s biggest shareholder, and had invested $16 million for a 77% stake in the company in 2018.

The funding round values the newly spun off payments company at $5.5 billion post-money. This would give Walmart ownership of around 13% of the company. It also makes it the second-most valuable Indian payments company after One97 Communications’ Paytm.

Flipkart will continue to be a majority stakeholder in PhonePe, noting in the statement that “the two businesses will retain their close collaboration.”

The move is directed towards enabling PhonePe to access long-term capital opportunities from external investors, constitute its own Board of Directors focused on the company’s growth, and institute ESOP program for PhonePe employees.

“Flipkart and PhonePe are already among the more prominent Indian digital platforms with over 250M users each,” Founder and CEO of PhonePe, Sameer Nigam said in the statement. “This partial spin-off gives PhonePe access to dedicated long-term capital to pursue our vision of providing financial inclusion to a billion Indians.”

PhonePe is battling it out for a share of the UPI payments market

PhonePe is a Unified Payments Interface (UPI) app. UPI is an Indian payments infrastructure that enables interbank transactions via mobile apps.

The 2015-founded payments company currently has over 250 million registered users, and over 100 million monthly active users (MAUs), the statement noted.

To put these numbers in context, its closest Indian competitor Paytm had 350 million users and 140 million MAUs as of 2019. Google Pay is also a contender in the UPI payments landscape in India. Launched in India in 2018, it has 67 million MAUs as of 2020.

And yet, of these three, Google Pay dominates the market. As of May 2020, Google Pay held 38.4% of market share as compared to PhonePe’s 19.8% and Paytm’s 15.1%.

However, in November this year, PhonePe overtook Google Pay to become India’s leading UPI solution by transaction volume. It beat Google Pay by just 15 million transactions, a close margin considering the heated competition in this sector.

WhatsApp and Amazon have also thrown their lots into the UPI payments sector in India, but are still low down on the leaderboard. Amazon is Flipkart’s biggest challenger in the ecommerce space.

“This move will help PhonePe maximize its potential as it moves to the next phase of its development, and it will also maximize value creation for Flipkart and our shareholders,” Flipkart Group CEO Kalyan Krishnamurthy said in the statement.

Header image courtesy of PhonePe

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