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Alibaba Is Expected to Pump More Money into India's Paytm

Chinese ecommerce giant seen as controlling stake

February 7, 2017 | Retail & Ecommerce

Alibaba is reportedly going to increase its investment in Indian ecommerce and digital payment platform Paytm, a move that would essentially give it a majority stake in the company.

The Chinese ecommerce giant has not confirmed the investment, but reports indicate that Alibaba is leading an investment of up to $200 million, a deal that would give Paytm a valuation of over $1 billion.

Top 10 Smartphone Mcommerce Apps Among Android Smartphone Users in India, Ranked by Daily Active Users, June 2016

Alibaba and affiliate Ant Financial—parent company to digital payment service Alipay—have already pumped a combined $680 million into Paytm. The new funding will increase Alibaba and Ant Financial’s combined stake in Paytm to more than 50%, up from 42%.

Alibaba’s interest in Paytm is widely seen as a way for the China-based company to establish itself in India—a market already crowded with competitors like Amazon India, Flipkart and Snapdeal. And Amazon and Alibaba have an advantage, thanks to their deep pockets and strong experience in logistics. The market is clearly a tempting one, though: eMarketer estimates retail ecommerce sales in India will grow from $23.42 billion this year to $47.45 billion by 2020.

Alibaba and Ant Financial are likely keen on Paytm’s strong position in the digital payments sector, and will no doubt find synergies between the Indian company and Alipay. Paytm is already a well-established player in India’s digital payments sector, and found itself a surprise beneficiary of the government’s demonetization efforts in November 2016.

The policy move banned certain high-denomination cash notes with the intent of cracking down on tax evasion and illicit financial transactions. But it had the unintended effect of driving many cash-hoarding consumers toward the relative security of digital payment services like Paytm. The service reported a wave of new users following the demonetization announcement—some 7 million daily transactions in the days after the government’s move.

Ecommerce Platforms from Which Digital Buyers in India Have Made a Purchase, April 2016 (% of respondents)

While much of the media focus has been on Paytm’s digital payment service, it also operates an ecommerce marketplace focused on mobile. According to a study of Android smartphone users conducted by Jana in June 2016, Paytm ranked second among mcommerce apps for daily active users (DAUs) in India, with Flipkart in first place.

Even with the expansion of its investments in Paytm, Alibaba already faces a tough competitor in Amazon. The US company has moved aggressively into the market, with CEO Jeff Bezos pledging to invest a total of $5 billion in its Indian operations over the next few years. There are already signs that those investments are paying off. According to a survey by the Royal Mail Group in April 2016, 79% of digital buyers in India had made a purchase from Amazon, trailing only Flipkart at 87%.

Rahul Chadha

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