PhonePe raises $100 million for a $12 billion valuation

Indian digital payments company PhonePe has raised an additional $100 million in an ongoing round. A new round of funding gives it another $450m to raise despite the market slowdown. The Indian fintech giant is swelling its war chest after the recent split from parent company Flipkart.

FACTS

• Founded less than 7 years ago, Phone Pe has reached a valuation of $12 billion.

• It competes with Google Pay and Paytm which is currently valued at less than $5 billion.

• Its latest round of funding brings together Ribbit Capital, Tiger Global and TVS Capital, which injected the new $100m into the startup.

• PhonePe, backed by Walmart, has previously said it plans to raise up to $1 billion in the current funding round.

• It is the undisputed market leader in mobile payments on UPI with around 50% of all such transactions. UPI has become the most popular way for Indians to transact online and processes over 8 billion transactions per month.

• The company expects revenues of $325 million in calendar year 2022 and $504 million in 2023.

CHALLENGES

• Expanding its model into the distribution of banking products...: PhonePe is also slowly becoming a distribution engine, leveraging its vast 300 million user base to sell products such as insurance. Industry experts believe that PhonePe's end game could be to become a bank, which they believe justifies the high valuation.

• ... as well as international transfers: The fintech announced on Tuesday that it was expanding support for international UPI payments to the United Arab Emirates, Singapore, Mauritius, Nepal and Bhutan. "Users will be able to make foreign currency payments directly from their Indian bank - just as they do with international debit cards," PhonePe said in a statement. The move appears to be PhonePe's attempt to expand into the foreign exchange market, a particularly attractive area for the fintech.

MARKET PERSPECTIVE

• Launched in 2016, UPI is India's real-time payment system that allows users to transfer money directly from one bank account to another: from a customer to a business, or between individuals. UPI now has 260 million users in the country of 1.4 billion people.

• Designed as a "digital public infrastructure" under the authority of the National Payments Corporation of India (NPCI), UPI integrates more than 300 banks, which have been joined by more than sixty mobile applications such as Google Pay, Amazon Pay, but also the very popular Indian Paytm and PhonePe.

• In recent months, India has increased the number of agreements with foreign partners. Some thirty countries have already expressed their interest in UPI.

• The latest partnership was signed on 11 October 2022 with Worldline. The aim is to facilitate the acceptance of UPI and RuPay in Europe. Target markets include Belgium, the Netherlands and Switzerland. Similar collaborations have been set up in the United Kingdom, the United Arab Emirates, and also in France with the Lyra payment network. However, UPI payments are not expected to be available in France until the first quarter of 2023.

• India also aims to export its entire digital architecture, known as the "India Stack". This includes the UPI mobile payment system and a digital identification of residents, known as "Aadhaar" ("foundation" in Hindi).

• With more international partnerships, UPI could become an alternative to the Swift interbank network, which has a monopoly on banking communications.