PhonePe to become a separate entity as Flipkart board approves hive off plan

MUMBAI | BENGALURU: Digital payments company PhonePe has received in-principle approval from Flipkart's board to be hived off as a separate entity, two people aware of the matter told ET. This will set the stage for the Bengaluru-based PhonePe to create an independent board and raise fresh funding from external investors. It’s not clear how much Walmart-owned Flipkart will divest of its 100% shareholding in PhonePe but the payments firm is looking to raise up to $1 billion in external capital, people close to the matter said.

Flipkart’s existing investors such as China’s tech giant Tencent and the online retailer’s cofounder Binny Bansal are keen to back the payments firm, which leverages the Unified Payments Interface (UPI) system for settlements, said the people cited above.

Battle for Digital Payments to Intensify
Other bulge-bracket private equity funds have also shown interest in the company.


“PhonePe has held talks to raise $1 billion and has been scouting the market for a while now,” said one of the persons. “But now with the Flipkart board giving it a nod to become independent, the actual process of fund-raise will start. They are fighting a player like Paytm, which has the backing of SoftBank, therefore they need huge sums of capital to compete.” The board approval for the plan came a few weeks ago, the person said.

The firm was founded by ex-Flipkart executives Sameer Nigam, Rahul Chari and Burzin Engineer and was acquired by Flipkart in 2016.

PhonePe was an integral part of Walmart’s Flipkart purchase and had been cited during the acquisition announcement last year. It is, however, not clear now if Walmart will want to take the payments product to its home market, as initially planned.

Turning it into a separate entity will make the rapidly expanding digital payments ecosystem in the country more competitive. The battle among Paytm, PhonePe — both homegrown startups--and Google Pay is likely to get more intense. PhonePe announced last week it will spend Rs 500 crore on promoting the product over the next year.

A PhonePe spokesperson said, “These are just speculations and as a company policy we do not comment on any speculations.” Flipkart did not comment on the development.

The move will help create a share pool for founders and employees, something it’s been looking to establish, said another person familiar with the matter.

As for Walmart, it could be trying to extract some value out of the PhonePe sale since the business is not at the core of its broad ecommerce play in India. PhonePe gives the retail giant a monetising opportunity after its $16 billion investment in Flipkart, experts said.

“For Flipkart, the problem is how to penetrate to the next 200-300 million users and create affordability through payment solutions,” said a person directly aware of the plans. “What it looks like is that Walmart wants to build this business in-house.”

ET reported last week that PhonePe raised Rs 743 crore from its Singapore registered parent entity PhonePe Payments, formerly known as Flipkart Payments. This was one of the last tranches that the company received out of the total $500 million committed by Flipkart for PhonePe at the time of the acquisition. Scaling up Phone-Pe and competing against global giants in the payment space such as Google and PayPal is not in Walmart's long-term strategy, said an investor. Over time, Flipkart will fully divest its stake in PhonePe, the person said.