INSUBCONTINENT EXCLUSIVE:
Walmart wants to use the lessons from PhonePe in other operations around the globe.When Walmart Inc
little-noticed digital payments subsidiary as part of the deal
Now the business is emerging as one of the country's top startups, a surprise benefit for Walmart from its largest-ever
unit to become a new entity and explore raising $1 billion from outside investors at a valuation of as much as $10 billion, according to
people familiar with the matter, asking not to be named because the discussions are private
The funding may close in the next couple of months, although the talks are not finalized and terms could still change, they said
The unit would then become independent with a distinct investor base, although Walmart-owned Flipkart would remain a shareholder
Walmart and Flipkart didn't respond to emails seeking comment.PhonePe -- which means "on the phone" in Hindi and is pronounced "phone pay"
-- has grown into one of country's leading digital payments companies
Its volume and value of transactions have roughly quadrupled over the past year as the country's consumers adopt the technology to
transfer money digitally to businesses and each other
PhonePe is gaining ground on Paytm, which leads the field and is backed by Warren Buffett.PhonePe is an "underappreciated asset," Edward
Yruma, an analyst from KeyBanc Capital Markets, wrote in a recent research note
He estimated the business may be worth $14 billion to $15 billion, separate from Flipkart's e-commerce operation.The startup was founded
in December 2015 by three friends who left Flipkart to get it off the ground
Within a year, Flipkart founders Binny Bansal and Sachin Bansal decided to acquire PhonePe, realizing that solving payments friction would
make it easier for consumers to buy online
Less than a year later, the government made the unprecedented move to ban large banknotes to curb corruption and boost digital transactions
With this "demonetization," Paytm, PhonePe and other fledgling services flourished.Cheap smartphones and cut-rate wireless data plans have
brought millions of Indians online in the years since, boosting the whole industry
billion a year earlier, according to the company.The service gained momentum by offering an array of services, including mutual funds, movie
tickets and airline bookings
Earlier this year, it began using Bollywood star Aamir Khan in its advertising."Globally, hardly any privately held fintech company has
reached PhonePe's scale on both sides of the network so rapidly," Sameer Nigam, PhonePe's co-founder and chief executive officer, said
in a statement, pointing to its 15 crore plus customers and more than 50 lakh merchants
"That's why the strong investor interest."Walmart debated for months whether to keep funding the payments business internally or whether
to separate the operation so it could raise outside funds
After plowing nearly $300 million into PhonePe, the US retailer opted for the latter course
Alibaba Group Holding made a similar decision when it split off its Alipay business, helping growth by allowing it to work with a broader
range of merchants.Walmart is still grappling with whether to bring in strategic or financial investors, according to one of the people
While a strategic investor would likely be better for growth, senior Walmart executives are concerned that such backers typically want more
voting rights, the person said
Walmart wants to use the lessons from PhonePe in other operations around the globe.Also unresolved are the future roles for Flipkart's
Tiger Global Management and Tencent Holdings each hold board seats and equity stakes of about 5 per cent, while Walmart holds about 80 per
The board will have to navigate the companies' varied interests before any deal can be finalized.The new funding is aimed at helping
The company plans to delve deep into the country's heartland, where rivals have yet to expand, with the goal of reaching profitability,
one person said.The market has vast potential
Digital payments in India are projected to reach $1 trillion by 2023 from about $200 billion now, said Credit Suisse Group AG
Beyond PhonePe and Paytm, Google Pay, Amazon Pay and the soon-to-launch WhatsApp payments service will compete for customers
They're taking advantage of India's Unified Payment Interface, a technology backbone that includes 140 of the country's banks and
digital payments companies."The market is getting bigger and fintech startups are becoming innovative," said Kunal Pande, partner, advisory
"The accelerated growth in many fintech areas is attracting investor interest."Get Breaking news, live coverage, and Latest News from India
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