Caixin
Sep 27, 2016 07:21 PM
BUSINESS & TECH

For Alibaba, India Is the New China

Partnering with Alipay, Paytm is making mobile payment available to many streetside shops in India. Photo: IC
Partnering with Alipay, Paytm is making mobile payment available to many streetside shops in India. Photo: IC

(Beijing) — India has become the new China for many international tech companies as they seek better growth opportunities, and e-commerce giant Alibaba Group is at the center of the action.

Having conquered the world's most-populous nation with its online shopping platform and mobile-payment services, Alibaba is targeting India's nascent but booming market for online payments as a springboard to expand into its Asian neighbor and beyond.

Alibaba, through its payments affiliate Ant Financial Services Group, is partnering with Paytm, which has grown into India's largest online payment provider since its modest launch in 2010 as a mobile top-up service provider, to tap the Indian market.

Since the two companies teamed up in 2015, Paytm has seen its user numbers grow from 40 million to 140 million and now offers services in 50 major Indian cities for users to pay their utility bills, book tickets and make purchases both online and offline. Although there are around 40 companies fighting for a slice of India's online payments market, Paytm now accounts for about 74 percent, according to data released by the Reserve Bank of India, the country's central bank.

Vijay Shekhar Sharma, founder and CEO of Paytm, said the company is planning to expand its services to cover 500 million people in 200 cities by 2020, allowing people to "live without cash."

"Alibaba has achieved it in China, and so can we in India with Alibaba's help," Sharma said.

Alibaba and Ant Financial have provided both cash and technology investment. In 2015, they invested more than $900 million for a 40 percent stake in Delhi-based One97 Communications, the owner of Paytm, and have sent a 20-strong tech support team to Paytm to help develop products, improve its systems and risk control capacity, and carry out marketing campaigns. Bhusan Patil, Alibaba's former director of wholesale business, was named a vice president of Paytm in March.

"Over the past year, we've been sharing our leading financial technology and business models with Paytm," which has enabled the Indian company to develop its payment services, said Chen Yan, general manager of the India business division of Ant Financial, the operator of China's largest payment service, Alipay.

In late August, Paytm kicked off a new round of fundraising, securing $300 million from investors, including Taiwanese chip maker MediaTek, Singapore's sovereign wealth fund Temasek Holdings and investment bank Goldman Sachs. Alibaba and Ant Financial also participated. On Aug. 31, MediaTek agreed to invest $60 million, valuing Paytm at $4.8 billion, almost double its valuation last year.

Low penetration of electronic payment systems has made India an attractive market for third-party payment companies like Ant Financial. Most Indian people use cash for their daily spending, although the country's authorities have been encouraging electric payments to prevent tax evasion and to better track money flows. Data from India's central bank show that in a country of 1.2 billion people, banks have issued a total of nearly 686 million debit and credit cards, although only 185 million cards are actively used. In contrast, banks in China, which has a population of about 1.4 billion, have issued a total of 5.6 billion bank cards, according to the China Banking Association. Meanwhile, only 6 million offline vendors in India have installed point-of-sale terminals that allow customers to use their debit and credit cards.

Paytm is also replicating a model that's proved successful for Alibaba in China — promoting quick-response (QR) code payment technology, which allows consumers to pay for goods and services from bricks-and-mortar, or offline, retailers by scanning a bar code with their mobile devices.

Sharma has traveled regularly to Alibaba's headquarters in Hangzhou to learn about Ant Financial's experiences of connecting online users and offline services through QR code payment technology.

"Before visiting China, none of us believed QR code payments could become mainstream in India," Sharma said.

The number of daily transactions handled by Paytm's system now exceeds 3 million. The company said earlier this year that it was targeting 10 million transactions every day by the end of this year.

Paytm is planning to spend heavily in e-commerce and online financial services. The company has earmarked $764 million over the next three years to expand its business from online shopping and payment to insurance, wealth management, banking and other Internet financial services.

Even so, transplanting Alipay's business model into India faces many challenges, most notably the lack of Internet infrastructure and low penetration of smartphones, according to Ant Financial's Chen. Although India now has about one billion mobile phone users, fewer than 300 million use smartphones that have the technology and functionality to allow digital payments and only 150 million handsets have data services.

Unlike China, where consumers and the market have reached a level of maturity that has made online payment platforms and third-party providers ubiquitous, India's market is still immature and is still in the education stage, said Nitin Misra, Paytm's director of payment business.

India's regulators have also taken a more cautious approach to internet finance than their Chinese counterparts, imposing stricter regulation on online lending and bank services.

Even so, the market is growing rapidly. A 2015 study by MasterCard showed that online purchases made via cellphone in India more than doubled between 2012 and 2014, the fastest pace of expansion among 14 countries across the Asia-Pacific region. China, as an early adopter of mobile payment systems and with the largest population, retained the top spot in mobile commerce, even though it saw slower growth of 30 percent.

Alibaba and Paytm are also collaborating to connect buyers and sellers from both countries, the two biggest markets in Asia. According to Yao Min, a senior technology expert at Ant Financial's international division, Paytm has adopted Alibaba's technology standards in part of its system that will enable Chinese Alipay users to make QR code payments in India in the future.

The tie-up with Paytm is an important part of Alibaba's strategy of seeking new growth opportunities outside the highly competitive domestic Chinese market. Although Alipay services are now available in more than 70 countries and regions, stricter financial supervision and regulation in developed markets such as U.S. and Europe mean emerging markets like India offer better prospects.

But rather than taking the riskier path of going it alone, Alibaba and Ant Financial are hoping to replicate the successful partnership they have developed with Paytm.

"We will pick a partner like Paytm in every overseas market" that Ant Financial enters, said Peng Yijie, vice president of Ant Financial's international division. Ant Financial will focus on supporting startups by providing so-called fintech standards such as risk control systems and data mining technology, Peng said.

Paytm isn't Alibaba's only investment in India. Last year, the Chinese company paid $500 million for a stake in snapdeal.com, one of India's largest online shopping sites, and formed a partnership with DHL, a division of German logistics giant Deutsche Post, and Delhivery, an Indian logistics service, to provide domestic and international logistics support to Indian sellers.

But Alibaba doesn't have the field to itself — India's potential is attracting some of the Internet giant's fiercest Chinese competitors. In mid-August, Indian messaging startup Hike Messenger said it raised more than $175 million from investors led by Tencent Holdings, which has developed a wide-range of online financial services based on its popular messaging app, WeChat.

As China's online payment and e-commerce markets mature, India is likely shaping up to be the next battleground in the long-running war between Alibaba and Tencent.

Contact reporter Han Wei (weihan@caixin.com)

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