Exclusive: PhonePe closes $700 Mn round with participation of Tencent and Tiger

Digital payments major PhonePe has been dominating the market share in the Unified Payment Interface (UPI) ecosystem at pole position. A $350 million fundraise from new and existing investors should help maintain that dominance. 

Round Announced Last Year 

This is the first fundraise for the Bengaluru-based company in 2021 and is part of a $700 million round which it announced in December last year.

Flipkart parent firm Walmart has led the fresh tranche with $283.5 million while Tencent has put in $50 million, PhonePe’s regulatory filings in Singapore show. Tiger Global has also joined this tranche with $16.5 million. 

Tencent and Tiger make an entry

An investment by Tencent and Tiger in PhonePe has never been reported before. The two investors along with Facebook, Google, KKR and General Atlantic were in talks to back the payments firm at a valuation of $10 billion in early 2019. 

With this, the company has raised $700 million from these three investors across two tranches in the past eight months. PhonePe had raised $350 million from the trio in a similar ratio in December 2020.

Walmart now owns 10.30% whereas Tencent commands 1.80% in PhonePe. Flipkart is the largest stakeholder in the company with 87.30%.

According to Fintrackr’s estimates, PhonePe has been valued in the range of $5.5-5.7 billion, making it the second-largest valued consumer-facing fintech firm after Paytm which was valued at $16 billion during its last private funding round.

Founded by Flipkart’s former executives Sameer Nigam, Rahul Chari and Burzin Engineer, PhonePe has maintained a leadership position in the UPI ecosystem by processing the largest number of transactions (by volume) since December. 

Last month [July], PhonePe had recorded 1492.09 million transactions as compared to its close rival Google Pay’s 1119.16 million transactions. Currently, it has a 45% market share in the UPI ecosystem, far ahead of Google Pay which has close to 34% share.

After the fresh investment tranche, PhonePe’s Singapore-based holding entity has raked in over $1.6 billion in total funding. Flipkart alone has invested $930 million in the Niham-led firm since its acquisition in 2016. Tencent and Tiger have put in $100 and $33 million respectively.

Growth, at a high price 

While PhonePe’s growth in the UPI ecosystem has been phenomenal, experts point out that making money from the core payments business is and will be tough. Apparent from its financial performance in FY20. Despite a two-fold jump in operating revenue [Rs 371.8 crore], the company had a loss of Rs 1,771 crore. On a unit level, it lost Rs Rs 5.93 to earn a single rupee of operating revenue in FY20.

To push revenue, PhonePe has been pushing its super app platform Switch, along with listing of third-party mutual funds, insurance, digital gold and other financial products. It had recently got board approval to launch Asset Management Business (AMC) vertical and is likely to seek SEBI’s nod soon.