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Tuesday, September 21, 2021

Explained: Why a Dutch company is buying BillDesk for $4.7 billion

According to estimates, BillDesk and Paytm together controlled a massive chunk of India’s payment gateway traffic. However, investors of BillDesk had been in the market to find a buyer for the last two years.

Written by Pranav Mukul , Edited by Explained Desk | New Delhi |
Updated: September 1, 2021 8:40:55 am
According to Prosus, the acquisition of BillDesk will give a massive leg up to PayU in India.

Dutch company Prosus, a division of South African multinational Naspers, announced Tuesday that the Indian unit of its fintech business PayU will acquire 100 per cent in homegrown digital payments provider BillDesk for $4.7 billion. With this, Prosus will look to augment its payment business in India.

What is BillDesk and why did it sell?

Mumbai-based BillDesk is one of the biggest payment aggregator gateway platforms in the country. Payment aggregators essentially bring together various payment systems such as credit card/debit card, net banking, UPI, wallets, etc on a single platform for online merchants to offer to their customers. According to estimates, BillDesk and Paytm together controlled a massive chunk of India’s payment gateway traffic. However, investors of BillDesk had been in the market to find a buyer for the last two years in the face of rising competition from a score of players including Paytm, Infibeam CCAvenues, PayU, Razorpay, etc.

Unlike many of its competitors that operate on a loss-making growth strategy, BillDesk had turned profit long ago. For the year-ending March 2021, the company reported a net profit of Rs 271 crore, or around $37 million, making it a prime target for other payments businesses looking to grow inorganically.

Source: Venture Intelligence

What is in it for PayU?

The Prosus unit is present in several different payments segments including payment gateways, wallet, credit services, and even in the non-banking financial company space. Along its journey, the company has acquired or invested several fintech startups including CitrusPay in 2016, ZestMoney and PaySense in 2017 and Wibmo in 2019. PayU acquired PaySense last year.

According to Prosus, the acquisition of BillDesk will give a massive leg up to PayU in India and expects the post-deal entity to handle 4 billion transactions annually — four times PayU’s current level in India.

Experts suggest that this consolidation could prove helpful to the company given that India’s biggest payments company Paytm’s initial public offering is just around the corner.

How is India’s payments space shaped?

According to the FY21 annual report of the Reserve Bank of India (RBI), the number of transactions for digital retail payments has grown by more than 80% from 24 billion in 2018-19 to 44 billion to 2020-21.

Over the next three years, RBI expects more than 200 million new users to adopt digital payments with the average annual transactions per capita rising tenfold from 22 to 220. The digital transactions space, like other online segments, also witnessed a surge during the pandemic.

The acquisition of BillDesk by PayU marks the biggest exit involving an Indian startup through an acquisition. It surpasses Byju’s $950 million purchase of Aakash Educational Services in April, Snapdeal’s $400 million buy of Freecharge in 2015, and Byju’s acquisition of WhiteHat Jr for $300 million last year.

This deal gives an exit to BillDesk’s investors that include General Atlantic, Temasek Holdings and card network company Visa.

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