Deals, ranked: digital payments boom creates India’s new fintech decacorn

Global investors bet on fintech start-up PhonePe’s market-leading position in the Unified Payments Interface, the government-backed initiative working toward a cashless society

The rapid adoption of digital technology and widespread internet penetration in India, driven by national initiatives, has significantly expanded the reach and impact of the country's fintech industry. 

In particular, India’s digital payments sector is thriving as the country pivots from a cash-centric to a cashless economy. In 2016, the government introduced the Unified Payments Interface (UPI) – established by the National Payments Corporation of India (NPCI) operating under the Reserve Bank of India – to rapidly digitize the economy. UPI is India's unique real-time digital payments system that has turbo-charged the country's transition away from paying with cash.

According to an IMF article late last year, while India's digital payment volume has grown at an average rate of around 50% annually over the past five years, transactions using UPI have seen a growth rate of 160%, more than three times higher. 

The successful implementation of the UPI system has led to the rapid growth of companies that have created platforms for these transactions. Walmart-owned PhonePe is India’s leading platform for UPI transactions, with a 49% market share, according to data from NPCI. The firm has emerged as the newest digital payments decacorn in the country, following a $350mn funding round in January 2023 that catapulted its valuation to $12bn.

Walmart acquired PhonePe’s parent company, Flipkart, in 2018. After PhonePe’s partial separation from Flipkart in December 2020, Walmart made its first direct investment in the firm in a deal valued at $5.5bn post-money. Since then, PhonePe’s valuation has more than doubled. PhonePe joins an exclusive club of e-commerce giants with valuations of more than $10bn, including Flipkart, BYJU’S, Nykaa, Swiggy, and Polygon Technology.

Other digital payment start-ups have also caught the eye of global investors. Here are the largest three venture capital (VC) deals in Indian digital payments firms over the past two years (2021–2023 year to date):

1. Paytm ($1.1bn): The fintech giant has an 11% market share in UPI transactions and is the third largest in the space following PhonePe and Google Pay. It raised INR 82.35bn ($1.1bn) in pre-IPO funding on November 4, 2021 for India’s largest-ever IPO two weeks later. As part of the funding round, 122 anchor investors – including top sovereign wealth funds Abu Dhabi Investment Authority and GIC; high-profile asset managers BlackRock, Goldman Sachs, Morgan Stanley, Fidelity Investments, abrdn, Vanguard Group, and Schroders; and institutional investors like CPP Investment Board – bought stakes in the firm. However, despite the successful funding round, investor concerns about Paytm’s inflated valuation and the fact that it is yet to turn a profit continue to plague the company, and its shares have tumbled by over 60% since its market debut.
    
2. Resilient Innovations ($370mn): The Delhi-headquartered fintech firm, which runs merchant payment platform BharatPe, raised $370mn in a series E funding round on August 4, 2021, led by Tiger Global Management. Other investors included Sequoia Capital, Coatue Management, Insight Partners, Ribbit Capital, and Amplo. The company was valued at $2.85bn post-money, making it India’s 19th unicorn in 2021. Founded in 2018, BharatPe aims to bring financial inclusion to Indian merchants, and  launched the country’s first UPI-compatible QR code in its inaugural year. Today, the company serves 10 million merchants across 400 cities and is a leading provider of offline transactions using UPI.
    
3. PhonePe ($350mn): The Bengaluru-headquartered company raised $350mn on January 19, 2023, led by new investors General Atlantic and Marquee Equity. Its new decacorn status makes it one of India’s highest-valued fintech firms. Since Walmart directly invested in PhonePe in December 2020, the digital payments operator has been on a deal spree. It has struck three other VC deals worth hundreds of millions of dollars each in the past two years, despite a global slowdown in tech investments in 2022. The latest funding round comes after PhonePe completed its separation from Flipkart in December, and ahead of its widely speculated IPO.

Digital payments in India to triple by 2026
India’s digital payments market is expected to more than triple from $3tn in 2022 to $10tn by 2026, driven by a burgeoning cashless society, according to a report by BCG in collaboration with PhonePe.

BCG also forecasts that merchant payments will power this growth by ramping up their use of digital payments over the next five years, growing from 20% digital penetration by value in 2022 to around 65% by 2026. This represents a sevenfold increase in digital merchant payments, from $0.3–0.4tn last year to $2.5–2.7tn by 2026. 

With RBI and NPCI leading the way in mammoth projects such as digital public infrastructure and UPI, the Indian fintech and digital payments ecosystem is on the verge of its next growth phase.

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