Indian m-payments giant Paytm has received a massive investment from Japan’s Softbank and taken its first step outside India by launching its Canadian subsidiary. Paytm sees Canada as the test laboratory for its international expansion plans. Robin Arnfield reports
In May 2017, Japan’s Softbank announced a $1.4bn investment in Paytm’s parent company, Indian mobile Internet firm One97 Communications, giving it a 20% stake.
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Paytm said in a statement that the investment will complement Paytm’s plans to invest around $1.6bn over the next three to five years to expand its services in India.
In March 2017, Paytm launched a bill payment app in Canada, its first outside India. The app, developed by the Paytm Labs R&D facility in Toronto, enables Canadian users to pay around 5,000 billers, including their cellphones, internet, cable TV, utilities, insurance and property taxes.
HISTORY
Paytm (Pay through mobile), One97’s mobile payments and m-commerce arm, was founded in 2010 by One97 founder Vijay Shekhar Sharma.
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By GlobalDataInitially, Paytm just offered mobile airtime recharge, but it subsequently launched the Paytm Wallet app which can be used to make P2P transfers, bill payments, Uber bookings, and purchases at Paytm’s e-commerce marketplace.
Since November 2015, Paytm has offered the ability to use Paytm Wallets for “offline” purchases in bricks-and-mortar stores as an alternative to cards and cash. Users can transfer funds to Paytm Wallets from bank accounts, credit and debit cards.
Paytm’s offline mobile payment service has proved popular with Indian merchants, many of which do not accept credit or debit cards. To accept Paytm they simply display a QR code sticker which customers scan into their phone – they do not need a POS device or internet connection.
INVESTORS
The biggest investor in Paytm is Chinese e-commerce giant Alibaba and its payments arm, Ant Financial Services, which runs Alipay. Softbank is the biggest investor in Alibaba.
In March 2017, Alibaba and venture capital firm SAIF Partners respectively invested $177m and $23m in Paytm’s e-commerce marketplace, Paytm E-commerce, which competes with Amazon India.
According to Paytm: Building a Payment Network, a January 2017 Harvard Business School case study by Sunil Gupta, Das Narayandas and Rachna Tahilyani, by October 2016 Paytm was India’s largest mobile payments and commerce platform with 142 million users and a valuation of $5bn.
“In November 2016, a new growth opportunity emerged for Paytm with India’s move to demonetisation,” the Harvard Business School case study says. “India announced that INR500 ($7.81) and INR1,000 ($15.62) notes would cease to be legal tender with immediate effect.
“The elimination of about 90% of the currency in circulation would create a short-term cash shortage and provide an impetus to digital payments.”
Reuters said that by May 2017 the number of Paytm users had risen to 220m.
“Paytm is the largest mobile wallet company in India currently,” says Forrester Research senior forecast analyst Satish Meena. “It’s looking to build the Indian version of Alipay in India.
“After the Indian Government’s demonetisation in November 2016, Paytm benefited the most in terms of additional user numbers and transactions. With very limited access to credit cards and other payment methods, customers use mobile wallets like Paytm to make payments in both online and offline channels.”
Meena says Paytm’s focus remains India, as the country’s payments and e-commerce markets are growing at a rapid pace. “Canada is used as a test bed for international expansion,” he says.
“But Paytm’s main focus area remains finding profitable business models in the Indian payments and e-commerce segments, which have high losses due to the discount wars for customer acquisition and the investment required in technology, logistics and warehouses,” Meena continues.
“With backing from Alibaba and Softbank, Paytm has some time to build the business case for both these segments, but Amazon’s presence in India is one of the biggest challenges it faces, especially in online retail.”
MADHUR DEORA
In October 2016, Paytm appointed former Citigroup senior executive Madhur Deora as CFO and senior vice-president of Paytm, which is responsible for Paytm’s financial services business.
Commenting on Paytm’s Canadian launch, Deora told Electronic Payments International: “We’ve always wanted to be international and move into developed markets outside India. So we looked to see which technologies and services we have developed in India, would be relevant to a country like Canada which has very high banking penetration and different payment and banking systems to India’s.
“One reason we chose Canada is that we have a set of people in our company who understand the Canadian market very well.”
Deora says that, even in developed countries such as Canada where people have been using digital payments for some time, much of the underlying payment infrastructure was built many years ago.
“Most developed countries have antiquated or legacy card payment systems which underpin their digital payments services,” he explains. “In fact, some of the digital payment services we have in India are more advanced in some ways than those in developed countries.
“We won’t do a ‘copy and paste’ from our Indian services to Canada, or to other countries, and hope they work.
“We go into new countries to get some learnings about what services can be replicated internationally and what have to be heavily localised with country-specific settings,” Deora continues.
“We think we will learn things in Canada that we can apply elsewhere, as it is a test lab for other markets. Also, we can receive learnings from our partnership with Ant Financial if we enter countries that are similar to those where Ant operates.”
Deora notes that Paytm’s partnership with Ant does not prevent it from entering markets where Ant has subsidiaries.
PAYMENTS BANK
In August 2015, the central Reserve Bank of India (RBI) gave Payments Bank licences to 11 companies, including Paytm, Indian telcos Airtel, Vodafone and Idea, and to India Post. The first Payments Bank has already been launched by Airtel.
Targeted at unbanked consumers, Payments Banks are allowed to offer current and savings accounts with restrictions on the size of deposits, along with mutual funds, insurance and pensions, but not loans or credit cards. Customers can use correspondent agents such as merchants to make deposits to their Payments Bank accounts.
In May 2017, Paytm announced that it had been granted the final stage of its Payments Bank licence from the RBI, and would officially launch its banking business on 23 May 2017.
Paytm said its customers’ Paytm Wallet accounts would be transferred from One97 to the newly created Paytm Payments Bank.
“The core mission of Paytm Payments Bank will be to cater to the requirements of the unserved and under-served communities of India, and bring them to the mainstream economy,” it said.
Paytm Wallet customers who apply for a Paytm bank account will be given a cheque-book and debit card, and will also be paid interest on deposits in their account.
“Paytm Payments Bank allows us to expand the number of deposit-type relationships we have with our customers including digital current and savings accounts,” says Deora. “We can become the primary bank for our customers. Currently, most of them have banking relationships with another financial institution.”
Speaking about Paytm’s retail payments business, Deora says Paytm plans to offer its offline merchant customers value-added benefits for accepting Paytm Wallet payments, including the ability to track any payments they receive.
“The launch of the Payments Bank will see the split of the current Paytm proposition, with the Paytm Wallet going to the Payments Bank and the Paytm e-commerce operation continuing as is” says Shiv Putcha, associate director, telecoms at IDC Asia-Pacific.
“While Payments Banks aren’t meant to lend, they can take deposits and act as instruments of financial inclusion. In a country like India with a significant unbanked population, access to these financial services will be potentially lucrative.
“I believe Paytm will continue with its strategy of enabling P2P payments and focusing on all the transaction scenarios being enabled by the growth of the online to offline segment in India. Paytm will continue to see strong growth and could cross 400m accounts by the close of 2018,” Putcha notes.
PAYTM CANADA
Paytm opened Paytm Labs, which provides R&D for its Indian operation from Toronto, in 2014. The R&D facility’s team of 55 data scientists and engineers apply big data, AI and machine learning to Paytm’s data assets to build products for the group.
Aditya Mhatre, product manager at Paytm Canada, says Paytm’s Toronto Lab does a lot of work for Paytm’s Indian business.
“The entire Paytm India app is personalized, and that personalisation intelligence was built by our engineers in Toronto,” he says.
“Paytm’s fraud detection system was developed by our staff in Toronto. We chose Toronto for the Lab because of all the fintech ability here. As we already had an office in Canada, it made sense for us to launch our first foreign service in Canada. This enabled us to get going quickly.”
“It makes sense for Paytm to locate its R&D activity in Toronto due to the fintech activity here,” says Christie Christelis, president of Canadian consultancy Technology Strategies International.
“Although Canadian banks offer bill payment services, we believe bill payment is a neglected area in banking services,” says Mhatre. “There are certain aspects of bill payments that haven’t been fully developed. For example, I read that around $20bn is paid in overdue charges for bills in North America. So there’s a big opportunity for us to help users with bill payments.”
One feature offered by Paytm Canada’s app is reminders that a bill is becoming due.
“We will also offer alerts that, for example, could tell a customer that they have C$900 ($662) worth of bills to pay but have insufficient funds in their account to pay these bills, so please address this,” Mhatre says.
Currently, Canadian users pay for bills from their Paytm app via credit cards, but Paytm plans to offer a Paytm wallet in Canada. Paytm also plans to offer P2P transfers within Canada in the near future.
“P2P services are still a challenge in Canada,” says Christelis.
INTERNATIONAL BILLS
Paytm Canada will provide a service enabling Indians living in Canada to pay bills on behalf of their family back in India.
“Most remittances to India are sent to pay for bills such as mobile phones, insurance and school fees,” says Mhatre.
Originally, Paytm thought the users of its Canadian app would just be Indo- Canadians. “In fact, our user base reflects the ethnographics of Canadian diversity,” says Mhatre. “We haven’t done any marketing, and the app has been promoted by our users via social media.
“We’re happy with the frequency of the transactions and the transaction volumes that people are doing.
“We’re targeting tech-savvy people like young professionals who want the ability to get things done quickly whenever they want and wherever they are.
