E-commerce major Flipkart on Thursday announced a “partial spin-off” of PhonePe as the digital payment firm raises $700 million in funding — valuing it at $5.5 billion.

In this financing round, PhonePe is raising $700 million (about Rs 5,172 crore) in primary capital at a post-money valuation of $5.5 billion from existing Flipkart investors, led by Walmart, a statement said.

Flipkart will remain PhonePe’s majority shareholder, and the two businesses will retain their close collaboration, it added.

“Recognising the momentum that has been achieved, as well as PhonePe’s significant growth potential, Flipkart’s Board determined that this was the right time to partially spin-off PhonePe so it can access dedicated capital to fund its long-term ambitions over the next three to four years,” the statement said.

PhonePe has crossed the 250 million registered user milestone, with over 100 million monthly active users (MAU) generating nearly one billion digital payment transactions in October 2020.

“Flipkart and PhonePe are already among the more prominent Indian digital platforms with over 250 million users each. This partial spin-off gives PhonePe access to dedicated long-term capital to pursue our vision of providing financial inclusion to a billion Indians,” PhonePe founder and CEO Sameer Nigam said.

Kalyan Krishnamurthy, CEO of Flipkart Group, said the move will “help PhonePe maximise its potential as it moves to the next phase of its development, and it will also maximise value creation for Flipkart and our shareholders”.

PhonePe was founded by ex-Flipkart executives Nigam, Rahul Chari and Burzin Engineer, and was acquired by Flipkart in 2016. In 2018, Flipkart was acquired by Walmart, and PhonePe was part of the transaction as well.