How did PhonePe achieve a US$12 billion valuation?

Written by Kapronasia || January 31 2023

Walmart-backed PhonePe, one of the biggest players in India’s payments market, is now one of the subcontinent’s most valuable private fintech firms with a valuation of US$12 billion following a mammoth US$350 million capital injection. PhonePe’s valuation more than doubled from US$5.5 billion at the end of its previous funding round in December 2020.

Kudos to PhonePe: Despite being nowhere near profitability, and not even earning that much revenue – US$450 million or so – it managed to raise a large chunk of change from a big PE firm during a fintech funding winter. And not only that: PhonePe says that it expects to close another big funding round in February that could see the company bring in another US$650 million.

Forgive us if we are a bit skeptical about PhonePe’s valuation, if cautiously optimistic about its long-term prospects. Here’s the thing: The company’s claim to fame is a 46% market share of India’s paramount UPI payments rail on which it reportedly has 400 million users. Payments are typically low-margin, but they could provide PhonePe with a foundation on which it could build other higher-margin services.

Of course, PhonePe has to sell its long-term potential to investors, and it can’t do that relying on retail payments. So now it’s talking about building infrastructure like data centers, as well expanding into insurance, wealth management and lending.

The question is if it can get the proper licenses, which is often an obstacle for ambitious fintechs in India. Last time we checked, Paytm was still waiting on a small finance bank license.

Should PhonePe be able to successfully expand into higher margin segments, that would help pave the way for an IPO in the next few years. PhonePe was only founded in 2015 and can afford to wait until market conditions are riper – taking into consideration how Paytm’s market debut performed poorly.

Last June, Indian media, citing investment banking sources, reported that PhonePe is considering an IPO on the Indian Stock Exchange at a valuation of US$8 billion to US$10 billion to expand its fintech services and support its core UPI operations. As a first step in that process, PhonePe relocated its registered holding entity from Singapore to India to bolster its credentials as a homegrown company and thus assumedly make the listing process on the Indian Stock Exchange smoother.

PhonePe aims to go public after it reaches profitability, which could be as soon as 2023, the sources said. That would be quite an achievement given that the company lost US$248 million in FY22.