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Flipkart bets on fintech

Flipkart bets on fintech

By Md. Taraq Junaid

On Wednesday, India’s biggest e-tailer Flipkart announced that it plans to invest the money raised from the fresh round of funding in its non-primary businesses such as PhonePe. As a result of the rapid growth in the financial technology (fintech) industry.  

A new venture

Flipkart, on Monday, confirmed that it has closed the biggest funding deal in the history of Indian internet startup era by raising a total of INR 9000 crore ($1.4 billion) from blue-chip companies – Tencent, E-bay and Microsoft. Tencent, a leading provider of internet value-added services in China, led the funding round by investing $700 million dollars followed by U.S based e-tailer, E-bay and software giant – Microsoft which contributed $500 million and $200 million respectively.

Last year, in the aftermath of the demonetization fiasco, the fintech industry became an overnight sensation. Domestic e-payment companies like Paytm, Freecharge and Mobikwik registered massive growth and made huge profits. Now, with the latest round of funding, Flipkart aims to penetrate the growing fintech market by investing in its e-wallet – PhonePe, which was launched in 2015.

“A large part of the money raised from the latest deals struck with Tencent, Microsoft and eBay, will be invested in new businesses, especially PhonePe and fintech,” Flipkart co-founder and CEO, Binny Bansal said.

“There was a huge opportunity on the payments side because a large chunk of business comes from people sending money to each other online,” Bansal said in another interview with ET. “Opportunities are definitely there on the payment side becoming a business on its own. Even if you look at the business today, a large part of the business comes from people sending money to each other on phone pay, UPI platform,” he added.

Diversification and growth strategy

Flipkart has been going through a rough patch lately with valuation markdowns, high-profile exits and mounting losses. Morgan Stanley, marked down the value of its holdings in Flipkart four times in the last nine months. Other investors namely Vanguard, T. Rowe Price, Valic, Fidelity and Vanguard Mutual Funds have also marked down their holdings in the e-commerce giant. As a result, the valuation of Flipkart has dropped drastically forcing it to raise funds in down rounds.

In an attempt to revamp its revenue generation strategy, Flipkart plans to focus on other categories and products that have significant growth potential. Until now, the majority of Flipkart sales have been dominated by mobile phones. Although exclusive launches offer a competitive advantage, the margins on these products are very small owing to stiff competition. There are signs of Flipkart venturing into the categories of fashion, groceries and large appliances as they show signs of potential growth.

A global player

Also, to establish a global presence, Flipkart will acquire the Indian operations of E-bay as a part of its latest funding deal. E-bay will receive $200 million in Flipkart shares in exchange for the acquisition. Through this deal, Indian sellers will be able to sell their products globally through the platform. This will help increase the user-base, margins and also help Flipkart establish a global presence.

While multiple acquisitions over the years and merger talks with Snapdeal buzzing the market, Flipkart has come a long way since its inception. Despite facing intense competition from the international tech giant – Amazon, Flipkart has managed to maintain its ground in this competitive market. 

Featured Image Source: Russell Cheyne/Reuters

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