Freecharge, founded by Kunal Shah, was bought by Snapdeal in the largest merger and acquisition deal of India two years back. The whole deal was worth 400 million, but just a couple of days ago, Snapdeal closed its deal for the sale of the online payment portal Freecharge to Axis Bank priced at around $60 million.
One of the largest Online Payment Portal, Jasper Infotech-owned Snapdeal of Freecharge is now absorbed by the third largest private sector lender Axis Bank in India. Snapdeal CEO confirmed that building this whole platform for two years have been an enriching experience for them, but now they must continue to concentrate on building the e-commerce company Snapdeal. Reports of discussions of sale of the Snapdeal to its arch rival Flipkart is still on. This has been around for five months now. The proposed deal was valued for around $850 million, there has been reports that suggest that both the e-commerce platforms are trying to convince the Snapdeal Board to look out for an alternate plan instead of the acquisition. Alternate plan, as per reports, is to trim Snapdeal further and continue business operations on a lighter scale. The whole process has been driven by the largest shareholder Softbank holding a stake of 33% in the company. Amazon had also forwarded their bidding for acquisition of Freecharge last week but talks had already been processed with Axis Bank and again a new deal with Amazon would be delaying the thing for another six months. Additionally, Airtel, Paytm and other global payments like PayPal has also been in talks to acquire the company.
What made Freecharge lose its value?
The whole story started when the head of the biggest investor group in Snapdeal wanted to pump in $1 billion into Snapdeal at an estimated $2 billion valuation in January, but it did not come through successful. This was because early investors were adamant on the $6.5 billion valuation after its raised $200 million from Ontario Teacher’s Pension Plan and others and refused to accept the low valuation. In that period, Snapdeal has stopped investing on Freecharge and losing a large number of customer in the process. Even after the boom of cashless payments due to demonetization drive by the government, it was unable to raise boom unlike its competitors like Paytm and MobiKwik. All of these happened either due to lack of resources or inefficiency in management direction added with parent company’s struggles.
Thus, the e-wallet platform which received over Rs. 500 crore in investments after the acquisition by Snapdeal two years back has let it to erode its value almost by 80% in the market just before the sale to the Axis Bank. The earlier investments promised to develop a strong payment technology platform but even in the last stage it had to further invest an additional $20 million to dress it up to make it more saleable. All these data and facts show the reason of it dropping to such low value at the market.
What happens to Freecharge now?
Axis Bank gain has surpassed its shares as much as 1.16 per cent on Thursday at around 2 PM after entering into the purchase agreement with Snapdeal at around Rs. 385 crore. It has now acquired new set of 50 million registered customers and will run Freecharge under regulatory approvals as a separate subsidiary. The RBI regulations set rules that any bank can have only one license for a prepaid payments instrument (PPI) like FreeCharge. Axis bank already has a PPI, therefore, they need to surrender one. It will retain the Freecharge brand.
The main beneficial part comes in the scope that 75% of Freecharge users are under the age of 30 and 85 percent of them use the e-wallet from a mobile device to get access to financial services. Young generation customers prefer digital-driven and anywhere banking option with the tap on the screens of their phones. This will provide the bank with the ultimate scope to capture more customers. And in return will leverage the agile nature of a start-up with the stability of the Bank. The future of Freecharge looks promising. Their scope will broaden by two main opportunities. Firstly, adding other services in the payments platform.
Last, but not the least adding other Axis Bank products like digital savings bank account, credit card application, buying insurance, instant loans and mutual fund products. This is the first of a kind that an e-wallet company has been acquired by a bank and the whole things looks promising.