PhonePe's fundraising process hits roadblock over valuation mismatch

Digital payments firm PhonePe, which was out in the market for a large funding round, now seems likely to take more time for this. Its proposal has not evoked much response, said sources in the know. 

The Walmart-owned firm has been in talks with several large global investors, to raise up to $1.2 billion (Rs 8,500 crore). Having grown swiftly since the acquisition of Flipkart by Walmart in 2018, it was looking at a valuation of $10 billion. 

However, factors such as lack of diversification, new e-commerce and data policies, as well as the overall investment environment, have slowed the process. Besides, investors are not ready to give them this level of valuation, a reason why these discussions are not making much progress, sources added. Among others, the payments firm was said to be in talks with Tencent, US payments firm Visa, SoftBank, Naspers and even sovereign funds such as Qatar Investment Authority and Canadian Pension Plan. 

“If they had got the ($10 billion) valuation upfront, they would have raised the funding. From the past few months, they have slowed down the process itself. The challenge was that the investors had not given them this kind of valuation because they had not diversified and were only doing payments,” said a person familiar with the fundraising plans. “Also, the overall investment environment was a dampener. The acquisition of Flipkart, as well as the new data policies and their impact on getting into the broader fintech spaces other than payments, played a role.” An e-mail sent to PhonePe did not evoke a response. 

Background

PhonePe came to Walmart as part of the US retailer’s $16-bn acquisition of e-commerce firm Flipkart in 2018. According to sources, Walmart prefers that PhonePe raises funding from outside investors to scale up operations and take on rivals such as Alibaba-backed Paytm, Google Pay and Amazon Pay,  also eyeing the payments and financial services market here.

“Walmart is not like Amazon. They would not put a massive amount of cash into PhonePe as they have to also fund Flipkart. Besides, they are spending a lot of money in the US e-commerce market,” said another person, who didn’t wish to be named.

According to Ankur Pahwa, partner at consultancy EY India, though the fintech space has made rapid strides, especially in the payments and wallets space, it has a long way to go. For instance, in segments such as lending, investing and insurance. “The need to be a one-stop app for most financial needs is certainly on the wishlist of big players in the segment and they are looking to quickly monetise on the customer base,” he said.

Progress

PhonePe has started making deeper inroads into the country’s financial services market, expected to touch $340 billion in the next few years. 

This week, for instance, it launched a new savings product (‘Liquid Fund’) on its app. 

“While there are regulatory hitches, the overall view of the sector continues to be positive, given the impact and scale that’s possible, along with the digital push from the government. We will continue to see growth and investment activity as products expand and consumers adopting faster to digital fintech products.” 

E-payments at a glance

• Digital payments’ firm has been in talks to raise over $1 bn

• Was expecting a valuation of $10 bn 

• Investors are not ready to offer this 

• They feel PhonePe is not adequately diversified 

• Was in talks with Tencent, SoftBank, Naspers and Visa