Reverse Flipping in FinTech: A Closer Look at The Latest Moves

TGIF! 😉

At the moment we are witnessing strategic maneuvers in the FinTech industry as major players recalibrate their positions. Following Razorpay's recent shift back to India, another significant player, Groww, is contemplating a similar move through a cross-country merger.

This trend, known as "reverse flipping," involves FinTech companies returning to their home country due to the tightening regulatory environment. Taxation policies, notably in India, have emerged as a pivotal factor prompting such decisions. Notably, last year, PhonePe made a similar move, relocating its domicile from Singapore to India.

What is reverse flipping?

Flipping- The process of transferring the entire ownership of an Indian company to an overseas entity, accompanied by a transfer of intellectual property rights and data owned by the Indian company.

It transforms an Indian company into a 100% subsidiary of a foreign entity, with the founders and investors retaining the same ownership via the foreign entity, having swapped all shares.

The Foreign Exchange Management (Overseas Investment) Rules and Regulations, 2022 clarify that the flipping culture has been acknowledged by the Reserve Bank of India (RBI).

Reasons for flipping:

• Taxation benefits
• Ease of setting up in places like Singapore, the US
• Ease of attracting foreign capital

Reverse flipping - It is the trend of overseas start-ups shifting their domicile to India and listing on Indian stock exchanges.

Reasons for reverse flipping to India:

• India’s favourable economic policies (tax breaks, funding assistance)
• Expanding domestic market
• Growing investor confidence in the country's start-up ecosystem

Institutional support (International Financial Services Centres Authority (IFSCA) has constituted an expert committee to formulate a roadmap to ‘Onshore the Indian innovation to GIFT IFSC’)

The reports surrounding Groww's potential relocation raise questions about the tax implications associated with merging its US holding company, Groww Inc, with the Indian entity, Billionbrains Garage Ventures. While specifics on tax liabilities remain unclear, legal experts suggest potential US federal and state taxes, contrasting with the possibility of Groww avoiding additional taxation in India, thanks to the Double Taxation Avoidance Agreement (DTAA) with the US.

Founded in 2017 by former Flipkart employees, Groww, an investment tech platform, initially registered itself in the US for enhanced investment opportunities, despite primarily operating in India.

As per the publication, in April this year, Groww had obtained board approval for the merger. Later on, the unicorn applied to the National Company Law Tribunal (NCLT) to initiate the reverse flipping process.

Razorpay, another major player, is also undergoing a cross-country merger for relocation, potentially incurring a significant tax payment in its current domicile, the US. The company is set to seek NCLT approval in the coming months.

Industry experts indicate that NCLT approval typically takes 6-9 months. However, if the process extends beyond 12-18 months for Groww, the company might explore an alternative approach, possibly a share-swap deal similar to PhonePe's reverse flipping strategy.

Despite the regulatory intricacies, Groww stands out as a leading wealth management platform in India, boasting impressive metrics at the end of September 2023. With 6.63 million active investors, the unicorn turned profitable in FY23.

Supported by prominent investors like Tiger Global, Peak XV Partners, Ribbit Capital, and others, Groww's strategic move reflects the dynamic nature of the FinTech sector, where adaptability and regulatory considerations play pivotal roles in shaping the industry landscape.

And finally, Apple Pay users across the UK can now take advantage of a new feature that taps into the open banking framework to let them connect cards and view their account balance from within the Wallet app.

Soft launched in September, the feature is now live for all Brits, letting them see their up-to-date debit card balance in Wallet and when they’re checking out with Apple Pay online or in-apps. 

Enjoy your weekend! But before you do that, check out the curated selection of news in the list below👇

Cheers,

Marcel

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