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One97's Paytm banks on the future of mobile wallets

'Tis the season for ecommerce in India, and one challenger, One97's Paytm, is banking on the future of mobile wallets. Shades of Alibaba?

Published: Nov 18, 2015 06:45:25 AM IST
Updated: Nov 18, 2015 09:16:33 AM IST
One97's Paytm banks on the future of mobile wallets
Image: Getty Images
“People are turning Diwali into a reckless celebration of throwing away $100 to earn $70.”

In the weeks leading up to Diwali, India’s festival of lights, the country’s top etailers set alight a display of full-page newspaper ads and boisterous TV commercials, beguiling buyers with cutthroat discounts on everything from saris to smartphones. One of them, however, played it cool.

“People are turning Diwali into a reckless celebration of throwing away $100 to earn $70; they are chasing vanity sales numbers to maximise the next fundraise,” says Vijay Shekhar Sharma, founder and chairman of One97 Communications, which runs the Paytm retail platform and digital wallet.

Domestic web retail biggies Flipkart and Snapdeal, backed by global investors like Masayoshi Son, Jack Ma and Yuri Milner, are taking on Amazon India to be India’s default click-buy. And 40 percent of the country’s annual online spend is at stake during this peak shopping and gifting season. Paytm may have held back, yet its visitors and GMV (gross merchandise value) shot up 2.5 times, piggybacking on rivals’ promotions. “Thank you, my friends,” says Sharma, tongue-in-cheek. (His own marketing efforts were timed to debut on November 9, just before the three-day festival commenced.)

Paytm is playing differently in many ways. While rivals hawk smartphones and electronics—Flipkart sold a record half-million 4G phones in 10 hours during its Big Billion Days Diwali sale—nearly all of Paytm’s GMV comes from heftier-margin products in categories like fashion, gardening supplies, auto accessories, and home and kitchen. In lieu of deep discounts, merchants on its platform offer “cashback” credits back to Paytm’s own digital wallet.

Be advised: “There may be two or five or ten $100 billion ecommerce companies in India in a decade—I don’t know how many, but I want to be one of them,” declares Sharma, in his unadorned offices in dusty, crowded Noida, a New Delhi suburb. The standout headquarters feature is a music theme. A sign outside the conference room quotes John Lennon’s ‘Imagine’: “You may say I’m a dreamer, but I’m not the only one.” The music fiend/founder, 37, calls himself “Resident DJ” often quoting songs to illustrate his business philosophy.

Paytm’s $2.3 billion GMV is modest compared with rivals’—Flipkart projects $8 billion this year—but Sharma wants his combination of payments and commerce, with banking up next, to be the differentiator. To Paytm’s advantage, no other Indian online retailer has a strong digital payments service—last year, Flipkart closed its PayZippy within a year of launch, and Snapdeal has just acquired FreeCharge.

It’s showtime. “This Diwali has become all about who’s going to beat who in GMV. India’s top online retailers have all geared up their resources, technology and systems to ensure smooth deliveries despite the big spike in business,” says Swati Bhargava, CEO of CashKaro, India’s largest cashback and coupon site, which works with all leading etailers.

Yet this holiday is a mere glimpse into Indian ecommerce’s potential. The internet user base, though tripled from 2010 when it was still minuscule, has further room to swell. Soaring smartphone adoption and 4G speeds make browsing and shopping speedier.

Sharma has had a chequered business journey that is the story of India’s internet itself. One97 began as a people-search service for mobile operators (197 is India’s phone inquiry dial, like 411 in the US), then provided content about cricket, Bollywood and such through telcos, became a prepaid phone-service app and ultimately settled on the Paytm platform.

“He is a maverick, he has an edge to him, and that truly qualifies him to be an entrepreneur,” says Naveen Tewari, founder and CEO of the mobile advertising platform InMobi, who is on the One97 board. “It is amazing that he kept going despite so many failures, but those have kept him rooted and taught him vital lessons.”

In fact, One97’s business buffet was generating income by 2005. The big step came in 2011, with additional funding from Intel Capital and SAP Ventures. “I wanted to build a payment system, independent of the operators, that everybody loved. Paytm, or payment through mobile, was born,” Sharma recounts. Users could load their digital wallets with cash or through credit cards.

One97's Paytm banks on the future of mobile wallets
Image: Sumit Dayal for Forbes
Armed and dangerous: Vijay Sharma aims to be one of India’s $100 billion ecommerce giants

By June 2014, Paytm had crossed 10 million wallets and at the year’s end had signed up Uber and several big merchants as clients. It now has 107 million digital wallet users (China’s Alipay has 350 million and eBay’s PayPal 270 million) compared with 20 million total credit card users in the country.

Around that time, Sharma got his mobile-only marketplace going with its cashback feature. This Diwali is the biggest test.

“Only one internet economy founder in India has survived the feature phone to smartphone generational change, a feat even BlackBerry and Nokia could not pull off. That says it all,” says Mukul Singhal, a principal at Asia-focussed VC fund SAIF Partners, an early investor in One97.

As rivals engaged in a discounting war in recent weeks, Paytm’s founder has been busy elsewhere. One97 received the final investment tranche of a total $680 million from Alibaba arm Ant Financial, propelling it to the unicorn league early this year. Sharma signed a $32 million title rights deal with India’s cricket board for four years. And he received a payment-bank licence from the country’s Reserve Bank to broaden Paytm’s financial offerings.

Sharma is readying to list on the Paytm platform an avalanche of 100 million Chinese products, including hot sellers in fashion and home, from Alibaba’s AliExpress. He brushes off the small stake that the Chinese giant acquired in rival Snapdeal. “Alibaba’s investment in Paytm is strategic, and together we will build the truest ecommerce powerhouse in the country,” says Sharma, who holds 22 percent in One97, while Alibaba-Ant Financial has 40 percent and SAIF Partners 33 percent.

He demonstrates a “bargain” feature on chat mode where buyers and sellers can negotiate on the credits that Paytm uses. Also for sellers, the platform has negotiated base rates with hundreds of “partner” small logistics firms and warehouses.
His critics stress that Paytm’s many units are Alibaba imitators, but Sharma counters, “We treat Alibaba like a classroom—they answer questions for which we don’t have the answers.” A dozen Alibaba-affiliated employees work out of Paytm’s headquarters, yet Sharma dismisses talk of his marketplace turning into “desi Taobao”, Alibaba’s monstrous China marketplace.

Sharma’s digital wallet strategy is clearly drawn, but its commerce model may not be, says Radhika Aggarwal, co-founder and chief business officer of Tiger Global-backed retail platform Shopclues. “Customers do not want cash back,” he says. “That is not the way to do consumer retail.”

Sharma is mindful of his challenges. Among digital payments, commerce and a banking licence, has Paytm spread itself too thin, he wonders. Also, an entrant can disrupt the market: “Somebody new can shoot and kill. I fear the unknown.”

But if he is betting right, digital payments will become the dominant platform for ecommerce and many future Diwalis could belong to One97 and Paytm. From that, Sharma hopes to grow from $2.3 billion to $10 billion by 2018 with 500 million users and eventually a conglomerate on the lines of Ma’s Alibaba and Masayoshi Son’s SoftBank. Quoting a signature verse from his favourite singer, Bono, he chants, “You make me feel like I can fly so high.”

(This story appears in the 27 November, 2015 issue of Forbes India. To visit our Archives, click here.)

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