UPDATE 1-India's largest hotel chain OYO to expand into Britain

* Britain to be OYO's first move outside Asia

* OYO aims to have hotels in 10 UK cities in 18 months

* Whitbread's Premier Inn leads UK's economy hotel market (Adds details on UK expansion, comments, company background)

LONDON, Sept 19 (Reuters) - OYO Hotels, India's largest and fastest-growing hotel chain, aims to shake up Britain's budget accommodation market with a franchising and marketing strategy to sign up 300 independent hotels before 2020, its founder told Reuters on Wednesday.

Marking its first expansion outside Asia, the franchiser said it planned to invest 40 million pounds ($53 million) to launch in 10 British cities in the next 18 months via a smartphone-based service for franchise owners and guests.

Whitbread's Premier Inn chain is the leader in Britain's economy hotel industry. Other branded operators include private equity-backed Travelodge and Holiday Inn Express, a unit of Intercontinental Hotels Group.

Ritesh Agarwal, OYO's 24-year-old founder, said in a phone interview that his company will select hotels from among Britain's 35,000-40,000 independent operators, offering redesign, property management and marketing to help them compete.

"By focusing on the customer and small asset owners, we tend to out compete some of our more traditional hotel chain rivals," said Agarwal, one of India's start-up success stories.

He was among a handful of students paid $100,000 to drop out of university by venture capitalist Peter Thiel and move to Silicon Valley at age 19 to learn about becoming an entrepreneur.

OYO is backed by SoftBank Group's Vision Fund, the world's biggest private tech investor, which views the hotel chain as a prime example of how data and technology driven companies can disrupt entrenched industries such as the hospitality sector.

Britain's hotel market is highly fragmented, with small, independent operators running half the hotels. OYO says hotels in its network will benefit from its partnerships with Expedia , Booking.com and other travel platforms.

OYO said it had hired London restaurant entrepreneur Jeremy Sanders, who co-founded and sold Italian fast-food chain Coco di Mama, to run its British business. By 2020, OYO said it aimed to hire 100 staff in Britain and offer 5,000 hotel rooms.

Agarwal said OYO would launch its first two hotels in the London districts of Edgware and Ilford next month.

Since its founding in 2013, OYO has become South Asia's largest hotel chain, offering 211,000 rooms in 349 cities.

OYO has raised $450 million, according to Crunchbase data. Alongside Vision Fund, other funders include Greenoak Capital and the Indian arms of Sequoia Capital and Lightspeed Venture Partners.

Premier Inn reported turnover of 2.01 billion pounds in its latest fiscal year, offering nearly 72,500 UK hotel rooms at the end of 2017. It aims to have 11 percent market share by 2020, up from 6 percent in 2010.

Travelodge, founded in 1985, offers about 40,000 UK rooms. It reported revenue of 637 million pounds in 2017.

($1 = 0.7588 pounds) (Reporting by Eric Auchard in London Editing by Jason Neely and Edmund Blair)