"Alipay India Sprints for IPO, De-Aliisation Becomes Biggest Challenge｜Titanium Media In-Depth: Native Payments in India

Paytm, dubbed "India's Alipay" and closely associated with Ant Group, is taking significant steps towards a public listing. According to the latest disclosure on the Securities and Exchange Board of India's website, Paytm plans to raise 166 billion Indian rupees (roughly 14.4 billion yuan or 2.23 billion U.S. dollars), including the issuance of new shares worth 83 billion Indian rupees as well as the sale of shares in the same amount.

The IPO will make Paytm India the country's third-largest listed company behind state-run mining company Coal India, which went public in 2010, and Reliance Power, which went public in 2008. like its Chinese counterpart Alipay, Paytm has a large user base in India. Paytm has a large user base in India. The prospectus shows that as of March 2021, Paytm has 333 million registered users covering 21 million merchants - which is almost half of India's internet users considering the current internet user base is around 700 million. Paytm has become the largest company in India and the third largest digital wallet in the world in terms of number of users.

However, Paytm's performance pales in comparison to the impressive numbers in Alipay's prospectus: after nearly a decade of operations, the company is still losing money.

Paytm's list of shareholders reads like a Who's Who of the business world, including Berkshire Hathaway and SoftBank, among others. Ant Group owns nearly 301 TP3T, making it the largest shareholder, while Alibaba has an indirect stake of 7.21 TP3T. Since around 2015, Ant Group has been strategically expanding its overseas payments business, investing in local payments companies and helping to build local versions of Alipay in India, Thailand, Bangladesh, South Korea, Myanmar, Brazil, etc. Paytm was the first of these companies to start the IPO process.

Notably, before filing the prospectus, four of the seven seats on the board of Paytm's parent company were held by Chinese directors from Alibaba, who promptly resigned. Normally, the single largest shareholder in a listed Indian company cannot hold more than 251 TP3T shares, overseas investment bankers told Titan Media APP. Therefore, Ant Group may need to reduce its stake by at least 51 TP3T before and during the IPO.

Paytm has had a bumpier growth journey than Alipay. A central reason for this is India's chronically outdated mobile internet infrastructure. As of April 2015, only 100 million people in India had access to broadband services, and 4G networks are not yet widely available. Nearly half of India's population is not even banked, according to 2016 World Bank data (47%), and many Tier 2 and Tier 3 cities lack banks. With low bank and credit card penetration, cash-on-delivery has become the main payment method for online shopping in India.

In this context, Paytm's initial efforts to promote its service struggled to replicate China's success with mobile payments. For example, in 2014, Paytm's user base remained limited despite a partnership with Uber that boosted its visibility. By 2015, the company had only 25 million registered users.

The turning point came with the launch of the "Digital India" initiative by the Prime Minister of India, Narendra Modi, who encouraged citizens to learn about the e-economy, the effective use of e-banking and banking applications and how to conduct business without cash. In addition, he envisaged India becoming a "cashless society".

In 2016, the Modi government announced a policy of currency demonetisation to "fight corruption, cut off funding for terrorist organisations and eliminate the circulation of counterfeit currency notes", which led to the demonetisation of most 500 and 1,000 rupee notes. In the wake of demonetisation, Paytm reported a record number of transactions, a surge in app downloads and a significant increase in average user transactions. Its registered user base grew to 122 million in four months.

During this period, Paytm received consecutive investments from Alibaba Group and Ant Group, making it the largest shareholder with a stake of around 40%. QR code payments were quickly introduced in India, and Paytm mentions in its prospectus that it was the first company to offer QR code payment services to Indian merchants. Currency demonetisation policies and QR code payments finally got Paytm out of the woods and maintained its dominance in offline scanning payments. By 2018, Paytm's user base had reached 250 million.

In FY2021, Paytm's total payment transactions accounted for around TP3T of the market share, with wallet payments market share ranging between TP3T of 651 and TP3T of 701.Paytm's association with Alipay goes back a long way.Vijay Shekhar, the founder of Paytm's parent company, has shared the story of how he met Jack Ma:In 2009. Vijay founded Paytm, initially as a mobile recharge platform.In 2011, after listening to a speech by Jack Ma, he was inspired by the Alipay plus Taobao payment scenario and started developing a similar mobile shopping and online payment model on Paytm.

In October 2014, shortly after Alibaba's IPO, Vijay travelled to Hangzhou to meet with Jack Ma, Daniel Zhang, Peng Lei and Xiandong Jing to share his vision for inclusive finance. Alibaba planned to enter the Indian financial sector more deeply, and Paytm, with 20 million users at the time, was already the largest mobile payment platform in India. Soon after, Alibaba made successive investments in Paytm, becoming its largest shareholder.

Alibaba's choice to invest overseas is understandable, as it is easier to obtain relevant financial licences through investment than by establishing a "Chinese-owned company". Since then, Alibaba has started providing hands-on experience to Paytm. Insiders told Titan Media APP that Alibaba often flew Paytm engineers to Hangzhou for training and mentoring. People from both companies travelled frequently between Hangzhou and Delhi, and Paytm adopted Alipay's systems, structure and operational experience almost exclusively.

However, unlike Alipay, Paytm has a significant inherent weakness - it lacks Taobao equivalence. starting with "mobile top-ups", Paytm only began to pursue offline payment scenarios after the rise of the mobile internet, but it lacks a natural online traffic portal like Taobao. Paytm lacks a natural online traffic portal like Taobao.

In March 2017, Alibaba led a $200 million investment in Paytm's new e-commerce unit. At the time, there were even market rumours that Alibaba was considering acquiring the unit altogether to create "Tmall India".

Paytm's e-commerce attempt, 'Paytm Mall', is indeed a Tmall-like B2C e-commerce platform covering products ranging from food to apparel and home appliances. However, the e-commerce market in India is highly competitive. paytm has to compete with the likes of Amazon, Walmart's local partner Flipkart and Reliance Group's Reliance Retail.

"TMC India" did not turn out well. In FY2018, Paytm Mall's losses widened to INR18bn and its market share dropped to 3%.Since then, Paytm Mall has started scaling down its retail operations.

Paytm is also facing increasing competition in the payments space with many competitors entering the Indian market including Walmart's PhonePe, Google Pay, Amazon Pay and Facebook's WhatsApp Pay.

According to the National Payments Corporation of India (NPCI), in terms of total transaction volume as of June 2021, Walmart's PhonePe holds a market share of 471 TP3T in the UPI ecosystem, with Google Pay accounting for 37.81 TP3T, while Paytm's share is just 7.421 TP3T - -UPI is primarily targeting large online money transfer scenarios, whereas Paytm's strength lies only in offline scanned payments.

Analysts at technology research firm Counterpoint said that Paytm almost dominated the Indian market five years ago, but now its performance has slipped. The company must seize the opportunity to go public as competition is increasing and an IPO may give it some competitive edge.

Jerry Wang, founder and CEO of Wall Street investment firm Haihai Global, echoed the same sentiment, telling Titan Media APP, "Paytm's foundation is too weak compared to Alipay and lacks natural traffic. Previous aggressive marketing campaigns have not resulted in significant improvement in performance, forcing the company to cut back on marketing spending to reduce expenses and narrow losses."

In his view, "The Indian government is encouraging local tech companies to go public, and with the abundance of global liquidity, this is a golden opportunity for Paytm. That's why it is rushing to list despite declining performance."

The prospectus also confirms this, showing that Paytm's total revenue has declined for the third consecutive year since Q1 2018; in FY2021, revenue declined by 14.61 TP3T YoY, while net loss attributable to the parent company declined by 40.31 TP3T YoY to INR16.96bn (roughly Rs. 1.4bn), thanks to a reduction in total expenses -Paytm's marketing and promotional expenses have declined at an annualised rate of nearly 60% over the last three years.

Alibaba's significant investment in Paytm is obvious, but its influence will wane as the company moves towards an IPO. Ant Group participated in four consecutive rounds of funding for Paytm from 2015 to 2019, making it its largest shareholder (29.21 TP3T stake), but due to Indian regulations, the group may need to reduce its stake by at least 51 TP3T before and during the IPO.

In addition, prior to the IPO, four of the seven seats on Paytm's parent company's board of directors were held by Alibaba-affiliated Chinese directors, including Ant Group's current chairman and CEO, Xiandong Jing; Alibaba's senior vice president and chief financial officer, Yunren Yao; Alibaba-affiliated company's president of global strategy and investment, Guangming Cheng; and Alibaba's head of strategic investments in Southeast Asia and India, Donghong He. Wells held the position from 2015 until the eve of Paytm's IPO preparations.

The prospectus shows that the four resigned promptly before the prospectus was filed.

Meanwhile, among the new members joining Paytm's board, only one has worked with Ant Group - Douglas Lehman Feagin, an 'Additional Director' and former Senior Vice President of Ant Group. Douglas Feagin has been a senior vice president at Ant Group since June 2016, public records show. Douglas Feagin is no longer listed in Ant Group's most recent management list.

The relationship between Alibaba and Paytm took a turning point in 2020. In May that year, the Indian government banned dozens of Chinese apps, including Alipay, and imposed various restrictions on Chinese-backed investment activities, as Sino-Indian relations were strained for some well-known reasons. Anti-China sentiment even emerged in India.

Jerry Wang believes that the Indian government may have privately imposed certain intangible listing thresholds on Paytm, such as the requirement to remove all Alibaba-related directors from the board. In his view, Ant Group, which was previously positioned as a strategic investor, will now have to be content with the role of a financial investor. While Ant's investments in India have been very successful financially, the reason it entered India in the first place and invested heavily may not have been solely for financial returns.

For Paytm, the loss of board seats and the reduction of Alibaba's stake could make it difficult for the company to maintain the full support it once had. "Alipay India" will need to face the challenge of growth on its own. Coincidentally, in addition to Paytm in India, South Korea's largest online payments company Kakao Pay is also preparing for an IPO, with Ant holding a 45% stake. According to its previously filed prospectus, the company was scheduled to list on the Korean exchange on 12 August, but was suddenly asked to revise its prospectus at the end of July for reasons that have yet to be made public. (This article was first published on Titan Media APP by | CHOI PENG CHENG)