SoftBank Looks To Cut Losses: Targets Subsidiary FreeCharge After Snapdeal

After setting the stage for Snapdeal’s proposed sale to Flipkart, SoftBank is at it again. This time, the target is FreeCharge, the digital payment subsidiary of Snapdeal. Reportedly, Softbank has now proposed to sell FreeCharge, as a separate entity, for as low as $150 Mn to $200 Mn. This is a 50% markdown compared to the the $450 Mn that Snapdeal infused in the company in April 2015 during its acquisition.

For now, Alibaba-backed Paytm is said to be the frontrunner for acquiring FreeCharge.

As stated by an ETtech source, “A lot has changed with both Snapdeal and Freecharge in the last quarter. Paytm is interested in Freecharge but only if the math is reworked. It also wants exclusive rights along with the deal to become the sole payments platform for Flipkart and Snapdeal.”

As per other ET sources, Flipkart owned digital payments and UPI-enabled platform PhonePe is also looking for further funding from investors like Paypal.

Earlier, in December 2016, reports surfaced that Paypal had placed a bid to acquire 25% stake in FreeCharge, at $200 Mn valuation. However, FreeCharge refuted these reports and denied any such possibility.

To date, SoftBank has invested over $2 Bn in capital in Indian markets across consumer Internet startups. The Snapdeal-Flipkart buyout is an attempt to consolidate its position in the market. If the deal goes through, it will mean a 20% stake for SoftBank, for $1.5 Bn, while buying out $500 Mn to $1 Bn worth of Tiger Global’s holdings in Flipkart.

As the boardroom spat with other Snapdeal investors, Nexus and Kalaari continues, the FreeCharge deal also seems to be an attempt to sue past through it.

Long Story Short

FreeCharge was founded in 2010 by Kunal Shah and Sandeep Tandon. The company was backed by marquee investors such as Valiant Capital Management, Tybourne Capital Management, and Sequoia Capital. Snapdeal acquired Freecharge in April 2015, for nearly $450 Mn, for accelerating growth in the wake of rising digital payments in India.

In March 2016, FreeCharge introduced a ‘Chat and Pay’ service that would enable social payments.

In May 2016, it was reported that Snapdeal was looking to raise about $300 Mn for Freecharge and many Chinese firms and sovereign funds were showing investment interest to gain outsized returns. In December 2016, it was reported that investor SoftBank was in talks to invest up to $150 Mn-$200 Mn in Freecharge, along with other investors and this transaction would value the company at around $900 Mn to $1 Bn.

In December 2016, Snapdeal’s parent company, Jasper Infotech also infused $57.2 Mn (INR 390 Cr) in FreeCharge. In March 2017, Snapdeal committed to invest $20 Mn in FreeCharge.

It also recently appointed Jason Kothari as the Chief Executive Officer (CEO). This appointment comes within a month of FreeCharge’s earlier CEO Govind Rajan quitting the company. CEO Govind Rajan had replaced Kunal Shah as the CEO in May 2016.

What The FreeCharge Acquisition Means For Paytm

Over past few years, Paytm has continuously brooded over gaining the maximum market share in Indian digital payments space. As far as leadership, finance and growth is concerned, Paytm is growing from strength to strength.

Paytm recently expanded operations to Canada. It is owned and operated by One97 Communication and led by Vijay Shekhar Sharma, who recently made it to the Forbes billionaire list. In March 2017, Inc42 reported about Alibaba leading a massive $200 Mn round in Paytm’s recently formed ecommerce unit. In February 2017, Paytm had launched a consumer shopping app, Paytm Mall for its users inspired by China’s TMall. Paytm Mall reportedly has over 1.4 Lakh sellers spread over 1,000 cities, 68 Mn products across categories like fashion, electronics, consumer durables and home furnishings among others at their convenience at the moment, as claimed by the company.

Following that, Reliance Capital sold around 1% stake in payments firm Paytm for $41.2 Mn (INR 275 Cr) to China’s Alibaba Group. At the same time, as per a Deal Street Asia report, SVB (Saama Capital) and SAP Ventures also sold their combined stake, about 3.3%, in Paytm to Alibaba Group and Ant Financials.

Paytm currently claims to have a userbase of 200 Mn. In December 2016, Paytm wallet was moved to the newly formed entity Paytm Payments Bank Ltd., the license for which was received in April 2015. In August 2016, it had raised an undisclosed amount in a funding round led by  Mountain Capital. This move, raised the valuation of the company to $4.8 Bn and also included a secondary sale of shares of up to $50 Mn being executed to help Sharma finance his part of the investment in the payments bank – Paytm Payment Bank.

After, the demonetisation drive, when Paytm rose to the top, among the other players only FreeCharge and MobiKwik showed potential to gain pace in the ongoing battle.

Earlier, Freecharge also claimed that the average wallet balance on its platform had increased 12 times, since demonetisation.

Paytm’s acquisition of FreeCharge will add to its arsenal in the growing ecommerce and payments war to take on Flipkart – which has been consolidating in the ecommerce and digital payments space. ,,

It is also to be noted that instant messaging app WhatsApp is expected to launch a peer-to-peer payment system in India, within next six months. The interface is likely to be powered with the Unified Payments Interface (UPI) too. Most recently, Sweden-based Truecaller, which counts India as its largest market, also introduced a new UPI-based mobile payment service ‘Truecaller Pay’ through a tie-in with ICICI Bank.

With the November 6 demonetisation drive, as well as government backed support for fintech platforms, digital payments in India is seeing exponential growth, with hitherto unrelated players such as WhatsApp(which has more than 1.2 Bn users globally)  also entering the arena. On the other hand, foreign players like Amazon and Alibaba are also turning up the heat in the ecommerce battle. Between global players and market consolidation and the race to reach number one first, the FreeCharge sale is one worth watching out for – in terms of impact and achievement.