After Flipkart showed green signal to hive off PhonePe and thereby allowing the solo fundraise from now onwards, PhonePe, the Bengaluru-based company is in talks to raise $1 billion from investors like Tencent and Tiger Global.
Flipkart had acquired PhonePe three years back. The result of the talks would depend on the valuation at which these investors are willing to invest money on PhonePe. However, PhonePe expects an investment of at least $7-8 billion and is not willing to take the deal forward at a lower level.
Valuation- deal breaker or deal maker
A valuation can make the deal or break the deal. The giant investors like Tencent and Tiger Global can really help PhonePe to beat its biggest competitor, Paytm. If once backed by these two investors, it would be the largest investment for PhonePe which was started the former Flipkart executives Sameer Nigam and Rahul Chari.
For Walmart, which would remain an important shareholder in the case of new investors coming on-board, PhonePe’s valuation will be important since it bought a 77% stake in Flipkart for $16 billion, at a valuation of $22 billion.
This is not the first time that PhonePe initiated independent funding. Back in 2017, PhonePe held talks with PayPal for investment. But back then, the valuation emerged as the cause for the deal breaker and there was no investment. However, this time, the talks seem more realistic. The final and official word would take at least two to three months.
While PhonePe has access to the rest of the capital pool committed by the parent company, Flipkart, PhonePe is in an urgent need of new funds to meet its expansion expenses which began past a few months.
Competition in the Digital Payment Industry
PhonePe has a good number of rivals, which are heavily capitalized such as SoftBank and Alibaba backed Paytm, Google Pay which is already in a fight to acquire the local market. The entry of WhatsApp Pay could further tighten the situation for PhonePe and its competitors as WhatsApp Pay could be the game changer.
As PhonePe plans to extend its offline payments network expansion and enter new business-like wealth management and lending, it will be crucial that it has sufficient capital to spend on existing and new businesses. Currently, PhonePe is accepted over 3 million offline retailers and about 100 top online merchants in India.
According to NITI Aayog’s report, India’s digital payments industry is estimated to grow to $1 Tn by 2023. It also claims that the value of digital payments will increase from the current 10% to 25% by 2023.
It is a tough competition for PhonePe as there are already heavy capitalized digital payments software ruling the market. However, PhonePe is also gearing up to accept the challenge. The entry of PhonPe as a separate entity has made the competition grow a little more intense. Currently, the market is dominated by Google Pay, Paytm, PhonePe and the future entry would be WhatsApp Pay which is on its way to enter the market and could be the real game changer and the biggest threat to the existing rulers.