India’s fintech majors may feel the heat of the biggest ever takeover

A mega acquisition is underway in India’s digital payments sector. And it may be giving the industry’s existing players sleepless nights.

The Competition Commission of India (CCI) yesterday (Sept. 05) approved PayU India’s $4.7 billion takeover of payment gateway BillDesk. What now remains is the Reserve Bank of India’s (RBI) nod.

While the 20-year-old BillDesk has a marked presence in payment processing for government agencies, PayU is widely used by internet companies. Both compete with the likes of Paytm, Razorpay, Pine Labs, Infibeam Avenues, and MSwipe, among others.

The details of the deal, however, are awaited.

“We believe this transaction will stimulate both innovation and competition within India’s digital payments industry,” Laurent Le Moal, CEO of PayU, said in a press release. “This will not only help to strengthen India’s digital economy, but also bring financial services to those who may have historically been excluded.”

The payment aggregator would be PayU’s fourth Indian acquisition after Citrus Pay, Wibmo, and PaySense.

The largest fintech takeover

The combined PayU-Bill Desk entity is expected to process a total payment value (TPV) of $147 billion, going by figures for 2020-21, PayU said in an investor presentation (pdf). Their cumulative gross revenues stood at $752 billion.

“This is a big bet for PayU. They are very bullish on the Indian market. Even if the share of online payments goes from 30% to 50% in five years, it is a huge addition to transaction volumes,” said Mihir Gandhi, a partner at consultancy firm PwC, told Moneycontrol.

In 2021, Razorpay and Infibeam Avenues registered TPVs of $60 billion and $48 billion, respectively.

PayU processes $25 billion of payments every year. BillDesk, on the other hand, handled $90 billion of transactions in the last financial year. The homegrown company has tied up with more than 100 e-commerce clients.

Together, they expect growth four times more than PayU’s current one billion in India.

Valuation game

Unlike rivals that operate on a loss-making growth strategy, BillDesk turned profitable long ago. Its stellar performance resulted in an unprecedented valuation for it at about $4 billion, around 20 times its revenue.

Analysts had, however, pegged its sale price at $2.5 billion.

Valuations are often tightly linked to market conditions and timing. Industry insiders believe the Indian fintech space is receiving enormous funding interest now and that makes it a favourable time for the acquisition.

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