New Delhi/Bengaluru: E-commerce giant Alibaba Group Holding Ltd is close to finalizing an investment in an Indian e-commerce startup that will see the Chinese company go up against its biggest investor SoftBank Corp. and its international rival Amazon.com, Inc. in India.

Alibaba, together with its payment arm Alipay is close to picking up a large stake in One97 Communications Ltd that runs payments and mobile commerce company Paytm, three people familiar with the matter said, asking not to be identified.

The Wall Street Journal reported on Sunday that Alibaba and its financial-services affiliate agreed to jointly invest about $575 million in One97 Communications for a 30% stake, citing a person familiar with the matter. Mint couldn’t confirm financial details of the proposed transaction.

Paytm did not comment on the deal. However, one of the three people cited above said the deal is likely to be announced within a month when an Alibaba team visits India.

“We have no comment on the media reports about an investment into Paytm. India is an important and strategic market for us. We look forward to growing our business in the country and exploring opportunities with the right partners," an Alibaba Group spokesperson said.

Existing investors are also expected to take part in the upcoming round with SAIF Partners investing up to $50 million, said another of the three people. SAIF Partners did not revert to an e-mail seeking comment.

Paytm, which started out in 2010 as a mobile recharge and bill payment service, now also offers wallets and other electronic payment services.

Paytm’s push into building a mobile marketplace last year surprised many as it put the company in direct competition with Flipkart, Amazon and SoftBank-backed Snapdeal, all three of which have far deeper pockets, more experience and a headstart over Paytm. SoftBank, which recently invested $627 million in Snapdeal, owns nearly 35% in Alibaba.

The company’s push into the marketplace business led to a delay in closing an investment deal, Mint reported on 5 November.

SoftBank held discussions with Paytm about a potential investment, but the Japanese company wanted Paytm to focus on its mobile recharge and wallet businesses and avoid venturing into selling goods, Mint reported then. SoftBank was also asking for a larger stake than what Paytm was willing to give up and the companies couldn’t agree on a deal, the first person and third person said.

One97 Communications founder and chief executive officer Vijay Shekhar Sharma is betting that it can lure its large customer base of 22 million people into buying mobiles, tablets, laptops and other products from its own mobile marketplace.

“Paytm does 800,000-1.2 million daily recharge transactions so if the company can convert a part of these into sales of products then the potential is massive—that is Paytm’s thinking," the third person added.

The proposed fund infusion into Paytm may lead to more marketplace businesses being set up, analysts said.

“The (proposed) investment shows that there’s scope for more e-commerce marketplaces to set up in India," said Harminder Sahni, managing director at Wazir Advisors. “Alibaba has to be present in India and if it hadn’t invested in Paytm, someone else would have. Regarding the Alibaba and SoftBank equation—there are many investors who are present in rival companies in different niches so I don’t see any problem with that."

Sahni said Alibaba’s proposed investment in Paytm raises the possibility of a merger between Snapdeal and Paytm in future.

Alibaba’s interest in Paytm also underscores the paucity of payments solutions providers in India. No e-commerce firm in the country has its own payments service. Last year, Flipkart had to shut its payment gateway Payzippy barely a year after launching the service, as it failed to sell the product to as many customers as it hoped to.

“Alibaba’s primary motivation behind investing in Paytm is payments," said Vineet Toshniwal, managing director of Equirus Capital. “Paytm’s vision is to be a mobile commerce company but they are yet to prove themselves in that space."

Alibaba hopes that Paytm will become the biggest payment services provider and a large marketplace, a model it follows in China, the first person said.

Around 16 million people have downloaded the Paytm wallet and the firm expects this count to rise to 50 million by May. Apps such as bookmyshow and cab services provider Uber use the Paytm wallet exclusively.

Paytm CEO Sharma said owning a payment platform is critical to the success of an online marketplace. He refused to comment on the deal. “Those who are serious about marketplace will create their own payments network."

Investment bankers Citibank and Goldman Sachs are advising Paytm on its discussions with investors.

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