At a specially-curated “Ask Me Anything” session during DealStreetAsia’s Asia PE-VC Summit 2020 on November 24-25, Paytm founder and CEO Vijay Shekhar Sharma shared candid views on several prickly issues that have come up around one of India’s most valuable unicorns.
During the session, moderated by DealStreetAsia editor Joji Thomas Philip, Sharma shed light on the much-publicised confrontation with Google from earlier this year and accusations that Paytm was being controlled by Chinese investors like Alibaba and Ant at a time when the ongoing geopolitical tensions between India and China have resulted in the ban of over 200 apps with China-based antecedents including massively popular ones like Tik-Tok and PUBG.
[Reuters reported on December 2, 2020, that Chinese fintech giant Ant Group was considering selling its 30% stake in Paytm amid tensions between the two Asian neighbours and a toughening competitive landscape].
Through the course of the session, Sharma clarified that his problems with Google stem from the tech major’s dominant position in the Indian mobile ecosystem. He said, “It is a great company and we are standing on the shoulders of giants who have brought this innovation and creativity in the world. But the challenge is when a firm stifles innovation and does not let somebody else move forward. So yes, I’m bothered about a firm with 97 per cent market share.”
The transcript of the session has been edited for brevity and clarity.
Let me start with the question that a lot of people have – to what extent are you influenced by Alibaba and Ant?
The best learning about financial services and payment comes from Ant. We are a company that learns from everyone in the world – Asian, US, European or Chinese players. There is a phenomenal amount of work they have done.
But as far as Paytm is concerned, I am not sure how people can say that an India-domiciled company, that follows the law of the land could be influenced by one entity or shareholder. They are a large shareholder but are definitely not the ones who are influencing our way forward. We have a heavy-duty independent board and are very strong in terms of local execution.
In fact, when I had met Jack Ma [Alibaba founder] for raising money in 2014, he wanted to take a 40 per cent stake. I was confused about why anyone would want 40 per cent – typically the ask is for a majority stake or ownership.
I asked him why he wanted that specific number. He said, “If you are successful, which we believe you will be, you will be a large domestic company. We want to be a large commercial shareholder, but don’t want to be the one who ever influences or controls you or gets in your way or your country’s way.”
We also have Berkshire Hathaway and SoftBank – also very heavy-duty shareholders. Each of them has hundreds of billion dollars in the bank. Learning from our partners, including SoftBank, Berkshire and Alibaba is phenomenal. But as far as operating the company is concerned, that is completely Indian and done by us.
Do these questions concern, irritate or upset you?
No! I started in 2001 when I was nobody. I’m used to questions after 20 years. Every question tells me that people are curious about our success. More than irritated, it tells me that we are relevant and that people are interested in us.
What is the impact of Ant’s stalled or halted IPO on Paytm’s operations?
First of all, Ant’s IPO and Paytm’s operations are absolutely disconnected. As a fintech company and our shareholder, we look up to Ant and its incredible amount of traction.
But do you see similar regulatory pressures coming up in India, like the new norms that have come up in China?
When you consider rules for financial services, typically regulations follow the market. But India is taking the lead in areas like data localisation, for instance. Our regulators have been far more proactive. There are already guidelines on digital and P2P lending, even before these sectors have taken off and had a significant impact on the economic or financial landscape.
The Indian regulators understand a lot more in terms of market movement and act very fast. They’re looking at literally everything.
What if Alibaba and Ant are unable to put in more money for Paytm? Your second-largest shareholder SoftBank also has its own challenges. If you need to raise money going forward, where will it come from?
Our investor base is very diverse. We also have Berkshire, Discovery, T Rowe Price and many other giant US shareholders. I don’t think that we’ve ever been in a situation where we needed capital and it was unavailable.
Paytm is the result of everybody’s belief that there is an opportunity in India and that India wants companies like us – homegrown and sizable – to be successful. Paytm is not an individual shareholder’s company – it is India’s company. A dream of India epitomized into an organization that can build on a world stage.
I’m very proud of what we built in Japan with PayPay. Our shareholder – SoftBank – is a JV partner. As far as potential shareholders are concerned, there are many who are incoming. Success brings more success – either in terms of money in the bank or investor interest. If we were to accept everything that has come to the table, we would have got a couple of billion dollars more, even after raising and completing our recent $1 billion round.
In other words, we are extremely conservative. Our cap table does not have very many small shareholders. Having a few key large shareholders, helps us build a company for the long term with shareholders that are aligned to the vision and opportunity.
As for the need to raise money – if you look at our numbers, previously and today: we started monetizing in 2019. Our EBITDA burn is now more than half reduced. In 2020, despite the pandemic, our revenues have only increased. So that’s the beauty of it – revenue growth, and nearly flat costs mean that the net cost has gone down. It has given us an opportunity that we now consider a target – that the money that we have in the bank, will earn our salaries.
That is what I tell my team: We will be a sizable impactful company if we are able to stand on our own feet and not require equity capital.
So, we have a specific question on revenues. Paytm’s FY20 results show your payment revenues have been flat over the last two years. Does that mean your primary business has peaked?
In the last two years that you are talking about, our payment business – namely wallet, UPI and bank account – have all moved to the bank. It is accounted in the bank’s balance sheet. The bank has announced $300 million in revenue.
So, it is factually wrong that the payments revenue has stagnated – the revenues of these three line items have gone to the bank. Our revenue overall has grown because One 97, Paytm’s parent company’s business model is about bringing in services to the customers – whether in payments, commerce or financial services. One 97 does not even own the majority – it’s a completely domestically owned company.
You’re looking at financial services as your next growth engine – have you been able to iron out all the initial hiccups for lending and wealth management?
We launched with zero mutual funds and can very proudly say we are the largest mutual fund asset distributor in the country. In two years, nobody would have been able to achieve that level of direct attention. Paytm has only lent its brand name. Traffic is also independently acquired by the team and app.
We have two lending products. We have been able to partner with different banks and NBFCs to offer Paytm Postpaid which is a ‘buy now pay later’ product. The balance sheet goes to the bank side. The second is the merchant lending product – merchants who receive payments can get a cash advance.
They are doing phenomenally well. We saw some numbers of industry peers – thanks to the COVID – write off in the balance sheets. We are tracking better and don’t have losses. Other players would have huge losses thanks to moratoriums.
Our technology platform and our customer base have started to grow both on the consumer and merchant side. The delay of launch on lending was a blessing in disguise. We don’t have any losses to carry forward. We could have started lending in 2018, but we were experimenting with different business models and partners. In 2019-2020, we were able to discover all this and sort it out and in FY 20, I’m glad to say that instead of losses, we have more growth and customer acquisition.
You want to be a player in the stockbroker space, lending, insurance, mutual funds…Do you have the expertise to do these things? And do you have users to sell these services to?
Paytm was not born out of a corporate house where they have the ability to do a set of things. Obviously, we are first-timers in everything that we do. We didn’t know payments or commerce when we did it and none of us had banking experience before we received a payment bank licence. Being first brings no baggage – just the opportunity to think mobile and cloud first.
Earlier, customers chose a bank based on what was nearest to them and that became a port of call for every financial service. But from 2015, in India, customers started using smartphones and now no longer go to a single brand for everything. Instead, they go to the internet and obtain phenomenally well-differentiated services via the app ecosystem.
To give you an analogy, previously you saw only what your cable TV provider had on offer. Now, thanks to the internet, you can choose from a large amount of OTT content. That’s what is happening in financial services: giving customers an opportunity to experience a large number of differently created services. Even traditional players like HDFC, ICICI and Bajaj are doing well, embracing technology.
As for the number of users – there was a time in 2012-2013 when we were asked if our mobile recharge customer was really of any use? My statement was this customer is downloading an app for a mobile recharge. It indicates a commitment of time, resources and ability to a transaction. That makes him an alpha customer, over someone who walks into a store.
If we get everybody who’s on the internet, which is now more than half a billion people – or maybe even 200 million to 300 million of them – to buy into financial services in India, we would have far better inclusion, better financial services landscape and a more stable economy.
We have always said that we will bring half a billion people into the mainstream of the economy – never that we will sell them A, B, C or D services.
I think I get this inspiration from Elon Musk – if we can be the champions, catalysts and accelerators of the movement of financial services to every nook and corner of the country thanks to the technology built on smartphones and mobile internet, we will be very happy and successful. That is our vision and mission set.
We’ve been talking about global Internet players, but what happens if Reliance Jio enters your space?
I view it as an opportunity. When Reliance enters a market, players with traditional business models, whether they are highly leveraged, or unwilling to accept a new norm, have got victimized. But the market has always expanded. In a growing large market, we definitely will be a key player. I have never seen it as a zero-sum game. I see them as a champion of growing the market.
What about WhatsApp Pay and GooglePay – they come with global expertise, a huge R&D base and global users that they can test their products on. How do you compete?
The best product wins. Ultimately customers look at no reference point, other than if a product fulfills their demands. Paytm’s success can never be labeled as one that happened in a closed or protected market. In the last three or four years, multiple billions of dollars have got poured into our business, but Paytm remains a dominant force.
That speaks volumes about our attention to what customers need. Whether you will or won’t exist is defined by your customer, not the competition.
Also, if you notice, the competition has followed everything we have done. We were the first to bring QR codes, payment from a bank account and a wallet. Anybody who has not done that so far is finally coming towards that solution. Players will either grow the market or take a share of the pie. I welcome everybody.
Are you genuinely worried about the dominance of Google? Apple and Chinese players too take a 30 per cent cut for in-app payments – but you have only been vocal about Google. Why?
In India, 97 per cent smartphones are owned by one company’s operating system. Which other company should I talk about? One with 0.5, 0.2 or 2 per cent? Is this a trick question?
It is a great company and we are standing on the shoulders of giants who have brought this innovation and creativity in the world. But the challenge is when a firm stifles innovation and does not let somebody else move forward. So yes, I’m bothered about a firm with a 97 per cent market share.
As you run your global expansion plans, are you still focused on India? What about your plans to launch in US/Canada; countries that still lack payment players?
2020 was a washout and we were focused on making India a lean mean machine. Let’s see what happens in 2021.
Thanks to the pandemic, digital payments are now a secular trend across the world. More merchants accept digital payment than ever before. There’s an induction effect and that creates a network effect. We will champion this in India and also in Japan.
What we have seen and shown in Japan is an opportunity for us to replicate in other parts of the world. If a local country’s capital is available for risk, we definitely will bring the Paytm technology and brand, depending on the commercials.
We have set ourselves the milestone of becoming a globally recognised technology company. We were very happy when we saw that India’s technology is powering the country where the QR code was first created. It makes us very committed to expansion.
Finally, why don’t you talk much about the JV with Japan?.
PayPay is an independent company – it is a joint venture with SoftBank Corporation and Yahoo Japan Corporation. We are a shareholder in Paypay. SoftBank and Yahoo Japan are phenomenally great partners. Not just Paypay – we don’t talk about a lot of things (we do).