The FreeCharge application is shown on a OnePlus phone for an arranged picture in Mumbai. (Photographer: Mahima Kapoor/BloombergQuint)

Axis Bank Acquires FreeCharge In All-Cash Deal

Axis Bank Ltd on Thursday said that it has struck a deal to acquire digital payment platform FreeCharge in an all-cash deal. The bank will acquire 100 percent equity capital of the company for a cash consideration of Rs 385 crore, it said in a notification to stock exchanges.

With this, Axis Bank wins a closely fought deal to acquire the payment platform, which was bought over by Snapdeal in 2015. On Wednesday, BloombergQuint reported that Amazon Inc. and Times Internet Ltd. were the other contenders to acquire Freecharge.

Detailing the acquisition at a press conference in Mumbai, the Axis Bank management said that payments are at the core of the bank’s retail strategy and the FreeCharge acquisition fits in with that.

The acquisition was a strategic fit. The platform is a good quality one and we felt the value we paid was good.
Shikha Sharma, CEO, Axis Bank

Acquiring FreeCharge will allow us to ‘top up’ our services, said Jairam Sridharan, chief financial officer at Axis Bank. The acquisition will help the bank double its customer base, he added. FreeCharge has 5 crore customers while Axis Bank has 4 crore customers, according to data provided by the bank.

The deal will be subject to regulatory clearances.

At present, Reserve Bank of India (RBI) guidelines say that one entity cannot hold more than one pre-paid instrument licence. Sharma told reporters that the bank will engage with the regulator to understand whether FreeCharge can remain an independent entity. Based on the RBI’s directions, the bank may look to merge the operations of FreeCharge with the bank at a later stage if needed, she said. The 200 employees of FreeCharge would be absorbed into the bank, Sharma added.

Axis Bank’s acquisition of FreeCharge comes at a time when the government continues to push customers towards digital payments. Pre-paid instruments, one such tool of digital payments commonly known as digital wallets, recorded transactions of Rs 2410 crore in June, according to data from the RBI website. The transaction value has nearly doubled compared to Rs 1320 crore in November 2016.

Rajiv Anand, executive director and head of retail banking at Axis Bank, explained that the idea behind the acquisition to the gain the technology, the customers and the brand of FreeCharge. In addition, the platform will allow the bank to simplify the payments process for customers.

Payments is core to our franchise. The more customers do payments with us, their stickiness with us is much higher than customers who don’t do payments with us. In that context, FreeCharge becomes compelling. It is imperative for us to make payments simple.
Rajiv Anand, Executive Director, Axis Bank

Online marketplace Snapdeal had purchased Freecharge for an estimated price of Rs 2,400 crore in April 2015. In comparison, the price at which Axis Bank has acquired the franchise appears reasonable. However, at a price of roughly Rs 770 per customer, the acquisition cost still appears steep.

Sridharan disagrees and says the big picture behind the transaction justifies its cost. “Is this the kind of value we can justify by what we can extract in the short to medium term from this entity and on that our answer is unequivocally yes.”

“Analytics are at the centre of this deal,” Abizer Diwanji, partner and head of financial services at EY told BloombergQuint.

FreeCharge has a lot of historical data on their customers and their spending habits. This can give the bank a lot of insights, which they can use to sell their products.
Abizer Diwanji, Partner and Head-Financial Services, EY