It is widely believed that Paytm was the biggest beneficiary of the Indian government’s demonetization policy. As cash dried up in the system, scores of merchants as well as consumers took to mobile payments in a jiffy.
However, while Paytm grew leaps and bounds in a post November-8 India, it continued to battle a perception largely propagated by its detractors. That Paytm was 60 percent owned by a Chinese company (e-commerce giant Alibaba holds 40 percent, and its financial services arm Ant Financial owns the rest) didn’t go down well with some. The Noida-based firm’s other shareholders include founder-CEO Vijay Shekhar Sharma (20 percent) and venture firm SAIF Partners (20 percent), one of its initial investors.
It didn’t matter that Paytm boasted of 220 million desi consumers and 5 million desi merchants on its network and reached several nooks and crannies of the country. Chinese Alibaba’s strong hold on it continued to raise eyebrows. There were social media admissions even of people refusing to use Paytm for not being Indian enough. ALSO READ: Paytm gets $1.4 billion from SoftBank to help expand digital financial services
Enter SoftBank. The Japanese telecom and investment giant who’s just infused a massive $1.4 billion in Paytm, the biggest ever funding by a single investor in an Indian startup, has done three things:
a) It has taken Paytm closer to becoming India’s most valued startup (Paytm’s valuation is being pegged upwards of $7 billion trailing only Flipkart at $11.6 billion)
b) It has diluted Alibaba’s stake significantly (and that should please the detractors)
c) It has brought in much-valued Japanese capital to the company
And by Sharma’s own admission, “Japanese capital is very well-respected in India.”
“Also, SoftBank and Masa Son (Softbank founder Masayoshi Son) have a longstanding relationship with financial institutions and funds across the globe. They also bring credibility to the table,” Sharma told Mint.
Following this capital infusion, Softbank gets to hold about 20 percent in Paytm and has also earned itself a board seat. From Paytm’s point of view, a few long-term investors as opposed to several short-term ones, augurs well when it comes to aligning objectives and company vision. ”With regard to SoftBank… they are a long-term investor. And with long-term capital you can do a lot of things without worrying about the pressure of exits,” Sharma reportedly said.
Moreover, as Paytm makes its diversification from a mobile wallet to a full-fledged financial services company, Softbank’s credentials and long-standing relationships with financial institutions across the world comes in handy. Paytm has announced that it will use the Softbank funds to launch a slew of financial products and bring half a billion Indians under its payments bank ambit.
That’s an ambitious target but not a misplaced one. Here’s why: The Indian fin-tech market which is currently pegged at less than $2 billion is projected to reach $500 billion by 2020 and contribute 15 percent to India’s GDP, according to a report by Google and Boston Consulting Group.
Paytm will, of course, lead the movement. And Softbank might just have its first real success in India, after what transpired at its erstwhile marquee investment, Snapdeal.