Walmart’s Flipkart spins off digital payments arm PhonePe partially; valuation hits $5.5 billion

Flipkart and PhonePe agree to a partial spin-off, making PhonePe a separate entity. Flipkart will remain the majority share holder.

Flipkart, one of the most prominent e-commerce giants in India has announced the partial spin-off of PhonePe, its digital payments platform. In March of 2019, PhonePe’s board received approval (in-principle) from Flipkart to become a separate entity. Now, the Walmart-controlled company has made the move to constitute an entirely new board of directions. This move will help them access outside capital for funding PhonePe’s short-term and long-term ambitions over the coming years. This hive-off will also allow PhonePe to come up with an ESOP program for employees.

PhonePe in talks with external investors

Back in September of 2019, PhonePe’s value was set at $7 billion by Morgan Stanley as the base case scenario.  Now, it might seem like the hive came at a discount but the real valuation of PhonePe will likely be unlocked once they get external investors on board.

There are reports that speculation over PhonePe holding multiple conversations with major investors, including the likes of Tiger Global and Tencent among others. However, as of now, nothing has changed on that front.

PhonePe could challenge Paytm in the digital payments ecosystem soon

This will be a major development as PhonePe will be able to unlock its real value and emerge as a major competitor to Paytm in the Indian digital payments ecosystem. In the latest funding round, Paytm’s value came out to be $16 billion.

Flipkart

PhonePe has also recorded strong growth since its inception and acquired over 250 million registered users with 100 million active monthly users. In fact, as of October’20, PhonePe had processed over a billion transactions across cards, wallets, and UPI.

The Bengaluru-based firm has built a strong merchant base of 13 million across India. While it started out by partnering with Yes Bank, it has joined hands with ICICI Bank too for payment systems.

Flipkart to remain as PhonePe’s majority shareholder

PhonePe is raising $700 million as primary capital at $5.5 billion post-money valuation from existing Flipkart investors. Flipkart retains its place as the majority shareholder. Both Flipkart and PhonePe will retain their close collaboration, as per a joint press release by PhonePe and Flipkart.

PhonePe’s spinning off comes at a time when the online payments ecosystem in India has become more competitive than ever. Moreover, Flipkart is building financial services such as “buy now, pay later” that can help increase affordability for customers.

 

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