Can Walmart's Indian payments unit work half a world away?

Walmart has separated its Indian payments business PhonePe from its parent FlipKart, India's largest e-marketplace, to prepare the payments business for an initial public offering — and to apply the unit's expertise and technology to Mexico and other nations.

Walmart shapes its financial services offerings to the financial environments in the countries where it operates. In Mexico, where Walmart's majority-owned subsidiary Walmex owns the Cashi payments app, the Bentonville, Arkansas-based retail giant sees an opportunity to apply PhonePe's tech and expertise.

"To accelerate the learning process, some of Cashi's engineering team are based in India and get ideas from PhonePe's development team," said Leigh Hopkins, Walmart's executive vice president of international strategy and development and regional CEO of Asia and Walmex. "Last year, we put one of PhonePe's lead executives on Walmex's board to provide input."

India is a world leader in the adoption of digital finance, thanks to the India Stack, an open application programming interface-based digital infrastructure introduced by the government in 2016 to help people access financial services, health care and other essentials. 

The India Stack includes the Unified Payments Interface (UPI), an interoperable rail enabling near-real-time transfers between bank accounts and digital wallets and face-to-face and e-commerce payments. The UPI uses India's Aadhaar biometric digital ID system, which had 1.36 billion users in January 2023, to authenticate users.

In 2018, Walmart acquired PhonePe as part of its $16 billion acquisition of FlipKart. Walmart can't own physical stores in India due to Indian regulations. Recent investors in PhonePe, which is valued at $12 billion, include venture capitalist Ribbit Capital, Walmart's U.S. fintech joint venture partner.

Walmart plans to use what it learns through PhonePe about providing financial services to underbanked consumers in other countries. "We think we'll learn a lot about digital payments and financial services, which we'll feed back into our businesses around the world," said Hopkins.

Bienvenido a Mexico

PhonePe, like Cashi, is a QR code-based mobile payments system. PhonePe has 440 million users and 4 billion monthly transactions, with its annualized total payment value growing 50% in 2022, to $950 billion. It can be used online and at 35 million merchants in person, Hopkins said.

Cashi, by contrast, can't be used outside Walmex stores, unlike other Mexican payment apps such as Mercado Pago, Baz and PayPal. 

In the fourth quarter of 2022, the number of Cashi users rose 218% year-on-year, to 5.4 million. Users fund their Cashi wallets by cash deposits at Walmex stores or through their credit or debit cards.

"As Cashi and PhonePe enable payments without consumers needing to have credit cards, they provide e-commerce access to India and Mexico's large, underserved consumer segments," said Francesco Burelli, a partner at Hamburg, Germany-based Arkwright Consulting. "The two apps have different strategies, with Cashi leveraging incentives and loyalty and PhonePe offering increased use cases. Cashi's value for Walmart is consumer data that feeds its advertising business and provides insights for the growth of its Mexican retail franchise." 

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Mexico lags behind India in bancarization, as 42% of Mexicans are fully unbanked, with no traditional or non-bank financial account, said Andreas Farge, a senior analyst at Payments and Commerce Market Intelligence, a subsidiary of Coral Gables, Florida-based Americas Market Intelligence. 

By contrast, India is 80% banked, due largely to its government's bancarization efforts.

And Cashi has already established a strong foundation for Walmart to build upon, Farge said. "Cashi is the third largest Mexican payments app after Baz and PayPal," he said.

According to Ashutosh Sharma, a vice president and research director at Cambridge, Massachusetts-based Forrester Research, PhonePe is the most widely used Indian payments app.

PhonePe's services include P2P transfers, cell phone top-ups, utility bill payments, mutual funds, and car and motorcycle insurance. 

"We're adding services such as stock brokering and life insurance, and now offer cross-border payments enabling PhonePe users to make QR code-based payments in Singapore and the UAE," said Hopkins. "PhonePe plans to offer [buy now/pay later] through third-party providers to its users."

Other Indian payments services such as Paytm also want to diversify into financial services to improve their financial performance and capitalize on their subscriber base, said Sharma. "They're getting into insurance distribution, mutual funds distribution and other fee-based services," he said.

Around the world

Just north of Mexico, Walmart sees another way to use PhonePe to improve financial services. 

In the U.S., Walmart is the majority shareholder in One, a New York-based fintech that offers a banking app for Walmart customers and staff. One, whose other owner is Palo Alto, California-based Ribbit, plans to make its app a place where users can manage all of their finances. 

"One focuses on different products to PhonePe, but there are bound to be good learnings between them and we're trying to make those connections," said Hopkins. 

Ribbit's investments in One and PhonePe are an endorsement of Walmart's strategy, said Richard Crone, CEO of San Carlos, California-based Crone Consulting.

"Ribbit is a tier 1 venture capitalist, and the startups it backs have a higher success rate than other startups," Crone said. 

Walmart also wants to apply PhonePe's expertise in South Africa. "What we know about Indian and Mexican digital payments should be a recipe for success in South Africa, which is in the early stages of digital," said Hopkins.