Walmart might not have assessed the potential of PhonePe, the digital payments vertical owned by Flipkart when it spent $16 billion to acquire 77% stake in the Indian e-commerce venture. Now, suddenly, Walmart is able to see the value the payments service can add to its portfolio and has decided to make PhonePe a separate entity and make it independent of Flipkart. The digital payments cum wallet will become a company directly owned by Walmart, US. The company will hold 82% in PhonePe post the demerger.
Walmart is said to have sounded out the other stakeholders in Flipkart on this move much earlier and this split may offer the opportunity to Walmart to buy out some investors with small amounts of shares. PhonePe competes primarily with Paytm, but there are other players fast catching up. These include Amazon Pay, Google Pay and WhatsApp Pay. Paytm is backed by SoftBank of Japan and Ant Financial (Alibaba) of China.
The brighter side of this decision to split PhonePe from Flipkart is that the two separate entities, Flipkart and PhonePe together command a much higher valuation. Walmart would like it to be $10 billion though the last time it was valued, the figure was put at $7 billion by Morgan Stanley. Once the split is complete and the valuation is redone, Walmart may go in for a $1 billion fundraising on the PhonePe account. The bonanza for the US giant is that the collective value of the two startups, Flipkart and PhonePe, could reach as much as $27 to $30 billion, according to an expert.
The shareholding in Flipkart stands at 82% with Walmart, 10% with Tencent and Tiger Global, and around 3.5% with Binny Bansal, one of the co-promoters of the online retail venture. The remaining is distributed with investors like Microsoft, Iconiq Capital, Temasek and UBS.
As mentioned, there are other players in the field giving stiff competition to PhonePe. WhatsApp Pay is yet to take off in a big way and is currently being tested by Facebook. Google is trying to promote its Google Pay digital payment app quite strongly among the Indian customers, while Amazon Pay has the benefit of a large customer base, a benefit PhonePe also enjoys.