As part of the Walmart-Flipkart deal, PhonePe became the former's first financial acquisition. Co-Founder Rahul Chari speaks on what it means to be a part of Walmart.
After a year of speculation, and anticipation, the mother of all deals for the Indian startup ecosystem has finally been sealed. American multinational Walmart acquired as much as 77 percent stake in Flipkart for $16 billion, giving the former a strong foothold in the vibrant Indian ecommerce space, and teeth to take on Amazon in the online retail segment.
What sold the deal for Walmart was not just Flipkart’s market dominance, but its ecosystem play which encompasses all aspects, from logistics to payments. This was clear from the Walmart-Flipkart Investor presentation, which highlighted the contributions of Flipkart’s largest subsidiaries, Myntra and PhonePe.
For the Indian fintech sector, the interesting part of the deal was that PhonePe became the first financial platform to be acquired by Walmart. The multinational already has its own payment operations - Walmart Pay.
In an interview with YourStory, Rahul Chari, PhonePe's Co-founder and Chief Technology Officer speaks on what made the Bengaluru-based payment system a lucrative offering, and what may be in store for Flipkart's group companies after the acquisition.
YS: How crucial was PhonePe in the Flipkart-Walmart deal?
Rahul Chari: I think Walmart highlighted multiple times in its announcements and conversations that when they look at the Flipkart group, they don’t just see the ecommerce side of things, but rather the entire ecosystem play.
The whole ecosystem play being logistics through eKart, fashion and lifestyle through Myntra, and payments with PhonePe.
What worked in PhonePe’s favour was its platform approach. Walmart liked how we were completely interoperable, not just with UPI but rather even on a PPI level, by getting other wallets on to our platform.
(Note: Over the past few months, mobile wallet players like Freecharge and Jio Money have come onboard PhonePe's platform, helping it to take its payment container approach forward.)
There were also some parallels drawn between PhonePe and some players in China. So, it is difficult to say the value of one when the entire deal was being assessed as a package.
Digital payments are crucial for any digital player to be a successful business in any country. From that perspective, I believe PhonePe played an important role in completing the process.
YS: With a significant investment coming in for the entire group, how much more will be earmarked for PhonePe?
RC: Frankly, as of now, the amount earmarked has not changed with this round, but we are sure it will change for each of the business units. We expect a significant increase in the investments in each of Flipkart’s group companies, for faster growth of these business units. But we yet don’t know the exact amounts.
Since we have just come out of the 'closing of funds' phase, discussions with the group companies haven’t yet happened. Obviously, there is always a lag, but we will see them happening soon.
Further, as part of the Flipkart Group, we do not ascribe independent valuations, and have never approached things in that manner.
YS: There are talks about certain internal structuring after this deal. Will there be structural changes in PhonePe? Who will PhonePe's founders report to?
RC: To be honest, I do not expect any change within PhonePe. It is business as usual for us. Sameer and me will continue to head PhonePe, and we will report to Binny (Bansal) who is the Group CEO of Flipkart.
YS: On a strategic front, how do we see PhonePe helping Walmart with its payment strategy?
RC: Well, Walmart is learning a lot about payments through PhonePe, and they are excited about the approach and growth we have shown. We are talking, and they have been open to learning more and more about payments.
However, it's still early days, and discussions haven’t started on how PhonePe can be leveraged for Walmart.
YS: What are the opportunities you see where you fit in the ecosystem?
RC: The team here at PhonePe is definitely more excited because we see Walmart as a strategic partner along with an investor. Apart from bringing funding, it also brings in the drive to spread even more mindshare, innovation and R&D trial etc.
Further, long-term strategic partners tend to become friendly, and start investing in radical ideas, while growing businesses. I would be excited to see whether there are opportunities in the offline space where we can accelerate our offline vision.
Walmart has a strong focus to bring digitisation for kirana and offline stores, which are a part of its cash and carry network. In that, I would be excited to see if there are synergies being explored with PhonePe for digital payments and solutions in the digital space.
YS: Will you help Walmart in its international projects?
RC: I think the way the PhonePe platform has been built, it can very easily cross borders and go international if there are other payment rails we can integrate with. No question about that.
But right now, our focus is on India, and to take market leadership in the next two to three years. International will be a distraction for PhonePe for the moment. We need to be focussed in India, and there are a lot of India-specific problems still to be solved.
We are looking at more value-added services which will increase the stickiness and transactions on our platform. Further, as part of the Flipkart Group, what we are building for PhonePe, we will build the same for even Flipkart to reach that user base as well. That is a part of our strategy anyways.
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