India's PM Modi scraps large notes, Jack Ma makes an unexpected profit: what India's native payments mean

In May 2015, Indian Prime Minister Narendra Modi visited Shanghai and had a private conversation with Jack Ma.

Jack Ma himself may not have anticipated the unexpected joy that an unexpected news item from India would bring him as he was busy attending the Wuzhen Internet Conference.

**"India's Alipay" reaps windfalls **

Recently, just as Indians have been protesting over Prime Minister Modi's decision to abolish large currency, the decision has become a stealthy boon for the country's e-payment companies.

As reported by India.com on 15 November, Modi's announcement to scrap the 500 and 1,000 rupee notes has revolutionised the payments ecosystem in India. Paytm, India's largest mobile payment and commerce platform, known as "India's Alipay", is expected to be the biggest winner of the event with Alibaba's stake of nearly 401 TP3T.

On 8 November, Prime Minister Modi addressed the nation and announced the cancellation of existing 500 and 1,000 rupee notes in a bid to fight corruption. Subsequently, Indians accustomed to using cash flocked to banks to exchange their notes, causing some confusion.

Despite the displeasure of many Indians, Paytm placed full-page adverts in several mainstream Indian media outlets congratulating Prime Minister Modi for taking "the bravest decision in the history of finance since India's independence". The advert featured a full-body photo of PM Modi smiling.

**Paytm's advertising campaign**

Paytm does have reason to be happy. As people temporarily lack enough cash, they have to turn to online payments, which was not common in India before. Last year, 78% of consumer transactions were made through cash, which is three to four times the rate in developed economies.

India.com reports that 4 million people have started using the Paytm wallet since the announcement of the abolition of the large currency. The platform now processes 5 million transactions per day, handling payments and transfers amounting to $3.5 billion. The amount of money in the platform's accounts has increased tenfold, website traffic has grown by 700%, app downloads have tripled, the average transaction amount has doubled, and the average number of transactions per week by users has increased from three to 18.

Kiran Vasireddy, Senior Vice President, Paytm said, "Over the past few days, we have witnessed unprecedented growth. Our user base has increased significantly."

In an effort to maximise the reach of payments during the "demonetisation" event, Paytm has even introduced a "Nearby" feature, making it easy for users who don't have access to cash to see which merchants accept the Paytm wallet.

Sonia Dhawan, senior vice president, Paytm, said in a statement, "We have been building an ecosystem that benefits both consumers and merchants."

She added, "I believe that with the launch of the 'Nearby' feature, our user base will increase and our merchants and partners will experience exponential business growth. This is a great example of technology driving local retail growth."

Paytm is capitalising on this golden opportunity to guide users towards cashless transactions and invite more merchants to join its payment platform.

Moreover, due to the current cash shortage, Paytm has waived the 1% fee for transferring money from Paytm wallet to any bank account, facilitating emergency transactions for those who lack cash in their bank accounts.

On 16 November, Indian bus company Travelyaari announced that all its customers can use Paytm to pay cross-city bus fares, a move that also benefits the bus company by removing the need for cash handling at ticket counters.

Indian media outlets also reported that in addition to Paytm, MobiKwik, India's second-largest payments company, has seen rapid growth: its app downloads have doubled, and the amount of money it processes has increased nearly 20-fold.

**Strong ties with Alibaba**

Often referred to as "Alipay India", Paytm is actually a New Delhi-based company that is not only similar to Alipay in terms of its business operations, but also has strong ties to Alibaba in terms of its entrepreneurial journey.

Paytm founder Vijay Shekhar Sharma has always openly admitted that Jack Ma inspired him to start Paytm. "I came to China in 2011 and saw the changes that Taobao and Alipay have brought to the daily lives of Chinese people, and that inspired me. I wanted to do the same in India." Vijay said.

At this year's "Third Internet Finance Wuzhen Summit" inclusive finance session, Vijay said: "Indian elite in Silicon Valley and Wall Street has achieved remarkable success, but in India, we still see a huge gap between the rich and the poor. India's population is almost the same as China's and most live in rural areas. Many have never even seen a bank, let alone used financial services."

He added, "We wanted to create a mobile-based tool that would enable hardworking people to have an account to store their assets securely, stop worrying about receiving fake currency while working odd jobs, and be able to transfer money to their families anytime, anywhere." By the end of 2014, Paytm officially launched its mobile-based e-wallet.

In January 2015, Alibaba made its first investment in Paytm. The Wall Street Journal reported that Alibaba Group and its financial services subsidiary Anthem jointly invested about $575 million in Paytm's parent company One97, holding about 30%.

At that time, Paytm had about 15,000 merchants and 25 million registered users. It also had 20 million mobile wallet users, including those from ride-hailing service Uber, online travel company Expedia and accommodation site Airbnb.

On 29 September 2015, Alibaba Group and its subsidiary Anthem increased its investment in Paytm again by injecting fresh capital. The Times of India reported that after this round of investment, Alibaba's investment in Paytm reached $680 million, with a stake of nearly 401 TP3T.

Alibaba brought not only capital, but also technology and operational experience. Leveraging Ant Financial's experience, Paytm achieved rapid growth, with its user base increasing several times in just over a year. Talent exchanges between the two companies have become the norm, with Ant Financial Services stationing a team of 20 people in India, while Paytm sends people to China for training every year.

Paytm has now received its first payments bank licence from the Reserve Bank of India, allowing it to carry out payments, savings, remittance and transfer services in the Indian market. Its investors include Anthem, Alibaba Group, SAIF Partners, Sapphire Venture, Mediatek and Silicon Valley Bank.Paytm has a user base of more than 150 million and aims to expand it to 500 million at a valuation of $5 billion.

Kiran Vasireddy said, "Our goal is to create a super app where you can do anything and the core remains payments. Ultimately, we want people to be able to do everything with their Paytm wallet and make India a cashless country."

**Ma's friendship with Modi**

Interestingly, the Alibaba-Paytm connection is not the only point of intersection. jack Ma and Prime Minister Narendra Modi also maintain a close friendship. Observers note that they have had at least two in-depth conversations.

The first time was in March of the previous year. The Global Times, citing a March 31 report by Indian financial website MoneyControl, said Modi met Alibaba Group Chairman Jack Ma on March 30.They discussed how Alibaba could help India's small and medium-sized enterprises (SMEs), and the conversation lasted more than 50 minutes.

After the meeting, Modi tweeted that he had a "good conversation" with Jack Ma. Alibaba Group also tweeted, "Jack Ma and PM Modi discussed ways to support the growth of SMEs in India."

Jack Ma failed to meet Prime Minister Modi during his visit to India in November 2014, his second visit to India in four months.

During Modi's visit to China in May 2015, he held a roundtable discussion with 25 Chinese entrepreneurs in Shanghai. Jack Ma was supposed to be the first to speak at the roundtable, according to News Morning. After the discussion, Modi pulled Jack Ma aside for a private conversation without prior arrangement. The content of their conversation was not disclosed to the public.

According to Indian media, Modi has long been interested in the "Alibaba model" and has a deep understanding of e-commerce, Internet finance, social logistics, cloud computing and mobile Internet, which he is committed to using to promote the country's economic development.

Currently, Alibaba Group has several teams in India, located in Mumbai, Delhi and Bangalore.

**Chinese giants target India's internet**

For Chinese internet companies, India's huge population is like another treasure trove outside of China, and the mobile payment space has huge potential.

Since the early 2010s, dozens of digital payments companies have been set up in India to offer bank customers the ability to top up their virtual wallets from their bank accounts, allowing them to pay merchants using a single number.

Of these companies, the two largest are Paytm and MobiKwik.MobiKwik has received investments from a range of investors including Sequoia Capital, Tree Line Asia, American Express and Cisco.

Data shows that 19% Indians are currently internet users and by 2020, the number of internet users is expected to exceed 400 million. The Indian e-commerce market was valued at $13bn in 2013 and is expected to reach $70bn by 2020, according to a joint report by KPMG and the Internet & Mobile Association of India. Almost everyone believes that the Indian market will witness a repeat of the Chinese e-commerce saga.

The Chinese internet giant is not the only company eyeing the Indian market. Baidu, a member of the BAT triumvirate, has invested in three Indian companies: online search and food ordering site Zomato, ticketing site BookMyShow and online supermarket BigBasket.

This follows a $100 million funding round for Indian e-commerce company Flipkart in July 2014.DST and Tiger Global are the main investors with deep ties to China, with Tiger Global being an investor in Jingdong, once the largest shareholder in China's largest self-service e-commerce company.

Tencent, on the other hand, focuses on the field of communication software. In August this year, India's instant messaging social software Hike announced the completion of a $175 million round of D financing, with the company's valuation reaching $1.4 billion. The round was led by Tencent and Foxconn, with participation from existing investors Tiger Global, Bharti and SoftBank. Notably, this is Tencent's largest investment in India to date.

The logic of Chinese internet giants investing in India could be very simple: replicate a successful internet model from one developing populous country to the next.