India's PhonePe spins out from Flipkart, raises $700m

Walmart, which acquired a majority stake in Flipkart in 2018 at a valuation of $24 billion, led the funding round. The other investors were not disclosed, but they are all existing investors in Flipkart. The e-commerce giant’s backers include Tencent Holdings, Tiger Global Management, and Microsoft. Flipkart remains the majority shareholder.

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

TechCrunch reported that last year PhonePe was looking to raise about $1 billion last year at a valuation of up to $10 billion. The target valuation was revised downwards to $3 billion earlier this year.

The company established in 2015 by Nigam, formerly a senior vice president for engineering at Flipkart, and several colleagues from the e-commerce marketplace. Flipkart acquired the company a year later. AVCJ Research’s records show that Flipkart made three investments totaling approximately $133 million between 2017 and 2020.

PhonePe is an app built on the united payment interface (UPI), a four-year-old Indian government-owned gateway that facilitates interbank transactions for no cost. In 2017, it became the first UPI-based app to surpass 10 million downloads. Last year, it crossed the two billion transactions threshold. COVID-19 has given the business a further boost as consumers turn to contactless payments and offline merchants embrace digitalization.

Sonika Chandra, vice president for business development and strategic partnerships at PhonePe, recently told Exchange4media that user numbers had increased by 50% during the COVID-19 period and transaction volume came to 925 million transactions in October alone. As a result, PhonePe overtook Google Pay – it was already ahead of Paytm – to become the leading UPI app. Total payment volume for 2020 had exceeded $277 billion by the end of October.

The app is accepted by 13 million merchants across 500 cities in India, while 80% of its 250 million-strong userbase is located outside of tier-one cities. One in five Indians is a PhonePe user. The goal is to reach 500 million users by the end of 2022, while growing the merchant network to 25 million.

PhonePe also offers sells financial services products such as insurance and mutual funds directly to consumers. However, arguably its key additional feature is a “switch platform” that enables users to make purchases from other apps without leaving PhonePe – similar to the mini-program system offered in China by Tencent-owned WeChat. More than 260 apps are currently available on the switch platform.

The spinout comes six months after Flipkart itself raised additional funding. Walmart led a $1.2 billion round with participation by existing investors. It valued the business at $24.9 billion, up from $24 billion when Walmart acquired its majority stake.

Founded in 2007, Flipkart facilitates the sale of more than 815 million products across 80 categories with over 100 million customers registered on the app. In addition to the main Flipkart platform, it owns fashion portals Myntra and Jabong as well as PhonePe. Flipkart said that the various platforms saw a 30% growth in transactions per customer and an increase of 45% in active monthly customers for the 2020 financial year.

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• Topics
• South Asia
• Expansion
• Financials
• Technology
• India
• Flipkart
• Tencent
• Tiger Global Management
• Growth capital
• TMT