PhonePe in talks to raise $700 million at $12 billion valuation

Digital payments firm seeking investors' support to scale up operations and compete with rivals

Digital payments firm PhonePe is in talks with its parent Walmart, General Atlantic, and other existing investors to raise about $700 million, sources said.

The round is expected to more than double the firm’s valuation to around $12 billion and make it India’s most-valued financial technology firm ahead of Razorpay, which is valued at $7.5 billion.

“PhonePe has been in talks with investors for a while to raise the funding round and is seeking valuation to about $12 billion,” said a person familiar with the matter.

PhonePe was last valued at about $5.5 billion in December 2020 after raising $700 million in primary capital from existing Flipkart investors including Tiger Global, and Walmart, the world’s largest retailer.

Industry sources said the new funding round is not related to PhonePe’s initial public offering (IPO) plans, which are at least three years away. The funding is expected to help PhonePe scale up its operations and help it compete with Google Pay, Paytm, and Amazon Pay in the Indian fintech space, which is expected to touch $350 billion in enterprise value by 2026, according to a report by Bain and Company.

The firm recently moved its domicile to India, after it moved its businesses, including insurance and wealth broking, and subsidiaries of PhonePe Singapore to PhonePe India. 

PhonePe didn’t respond when asked to comment on its funding plans.

Industry sources said if the firm pulls off the fund round it would set a precedent at a time when India is experiencing a funding winter.

Indian start-ups raised $3 billion in the third quarter of calendar year 2022, which was 57 per cent lower than the previous quarter, according to a report by market intelligence firm Tracxn. This was also 80 per cent lower than the peak funding of $14.9 billion received in the year-ago period.

PhonePe’s rival Paytm has seen its valuation drop over 60 per cent since it got listed last November.

PhonePe recently said its revenue grew 138 per cent to Rs 1,646 crore, while its losses (without ESOP costs) narrowed by 15 per cent year-on-year to Rs 671 crore in FY22. The increase in revenue was primarily driven by robust growth across all its lines of business. The company’s contribution margin grew to 88 per cent from 84 per cent the previous year on account of improved cost optimisation, process automation, and a favourable product mix.