PhonePe will function as an independent business unit. The details of the transaction were not disclosed, but the deal is not cash transaction.
PhonePe's founders include Sameer Nigam, Rahul Chari and Burzin Engineer, all three of who earlier founded Mime360, digital media distribution firm. This is the second time the trio has sold a startup to Flipkart, as Mime360 was also acquired by Flipkart in 2011 to build its later aborted digital music distribution platform Flyte.
Founded in December, Phonepe is building a product where payments can be made by just using mobile number. This is based on Unified Payments Interface (UPI), a new process in electronic funds transfer being launched by National Payments Corporation of India.
Flipkart has made several failed attempts to enter the payments space, through wallet and payment processing gateways. It had previously launched a closed wallet in 2011, however following its shift to a marketplace model in April 2013, it was forced to restrict this wallet to products sold only by WS Retail, a company hived off by Flipkart to comply with India's FDI regulations on retail.
This was because closed wallets can only be used to purchase its own products and does not allow purchases from third party merchants, for which companies need a semi-closed wallet license from the RBI.
Flipkart had applied for license through its payment gateway business Payzippy in July 2013, however it was unsuccessful to secure a license until the e-commerce major shut Payzippy in November 2014.
The online retailer has started to build a business in this space again last year, with acquisition of Punjab-based FX Mart last year for over Rs 48.5 crore. FX Mart, which holds a license from RBI for operating a pre-paid payment instrument till August 2019, is powering the recently launched Flipkart Money for the e-tailer.
"Payments has been one of the biggest hurdles for mass adoption of online shopping in India. UPI has the potential of transforming the entire payments ecosystem in the country. The acquisition of PhonePe is in-line with Flipkart's focus on driving innovation on the payments front. I am delighted that two Flipkart veterans - Sameer and Rahul are at the helm of this initiative," said Flipkart CEO Binny Bansal.