US retail giant Walmart plans to spin off its Flipkart payments arm PhonePe as a separate entity, in a signal of the growing intensity of competition in India’s digital payments space.
The demerger will coincide with PhonePe’s ongoing target of raising around $1 billion through primary and secondary shares, according to the Economic Times. PhonePe, valued at $7 billion by Morgan Stanley in September this year, is looking at a valuation of as much as $10 billion for the current fundraising round.
The move is likely to intensify the battle among Alibaba and Softbank-backed Paytm, Google Pay, Amazon Pay, and WhatsApp Pay, all intent on grabbing a bigger slice of India’s $200 billion digital payments sector.
Expansion of the sector is expected to be extremely rapid, according to a report from Google and Boston Consulting Group, which forecast its value reaching $500 billion by next year, up from just $50 billion in 2016.
India’s central bank calculates the country now has around 100 million active digital payment users a month and says it expects that figure to grow to 300 million in three years. Official data reveals there were 31.3 billion digital payment transactions in India in 2018–19.
The huge growth in digital transactions is fuelled by the rapid penetration of smartphones among the population, and Indian consumers choosing to use them for payment. India’s 450 million smartphone users is expected to double by 2020 and account for nearly a third of the world’s smartphone users, according to a report from the Data Security Council of India, the Review reports.
All this adds up to huge potential revenue streams for brands offering digital payment services.
PhonePe (pronounced ‘pay’) was founded in 2015 by three former Flipkart executives and within a year it was snapped up by online retailer, Flipkart. PhonePe offers peer-to-peer transfers, utility and bill payments, insurance, gold purchases and insurance. More recently it has focused on peer-to-merchant transactions, the Review reports, with a focus on smaller retailers.
Walmart bought 77% of Flipkart in 2018 for $16 billion, so absorbed PhonePe. Walmart now owns 82% of Flipkart, and will have an 81% stake in PhonePe after the demerger, reports the Economic Times.
Walmart appears to be following a similar route to Alibaba, the Nikkei Asian Review reports, which made a separate entity of Alipay in 2011 when it created Ant Financial.
Sourced from the Economic Times, BCG, Nikkei Asian Review