Paytm is now SoftBank's biggest investment in the Indian start-up ecosystem
New Delhi: Paytm has raised $1.4 billion from SoftBank Group Corp. in the largest funding round by a single investor in India, making the digital payments firm the Japanese company’s biggest bet in India’s start-up ecosystem.
The deal includes $400 million worth of shares that SoftBank will buy largely from Paytm’s early investor SAIF Partners in a secondary transaction, and a minor stake from founder Vijay Shekhar Sharma, according to two persons close to the development.
The deal values the company at about $7 billion post-money (including the investment) and will take SoftBank’s stake to about 20%, the two people said, requesting anonymity.
SoftBank, SAIF and Paytm did not comment on the valuation or secondary sale.
In August 2016, Paytm’s owner One97 Communications Ltd was valued at about $5 billion when the company raised $60 million from MediaTek Inc. Its valuation soared to $6 billion in March when three existing investors—Reliance Capital, SVB (Saama Capital) and SAP Ventures—sold their combined stake of about 4.3% to Alibaba Group Holdings Ltd and Ant Financial Services Group.
SoftBank, which has not seen too many successful investments in its India portfolio, is now banking on Paytm’s financial services business to replicate Alipay’s (Alibaba Group’s financial business) success in China.
“In line with the Indian government’s vision to promote digital inclusion, we are committed to transforming the lives of hundreds of millions of Indian consumers and merchants by providing them digital access to a broad array of financial services, including mobile payments," said Masayoshi Son, chairman and chief executive officer of SoftBank Group. “We are excited to partner with Paytm in this journey and will provide them with all our support."
Mint first reported on SoftBank’s likely investment in the Indian fintech start-up on 19 April.
Paytm plans to invest about $1.6 billion (around Rs10,000 crore) over the next 3-5 years towards enabling half-a-billion Indians to join the mainstream economy, the company said in a statement on Thursday.
“As a part of this vision, the company will soon launch the Paytm Payments Bank, a mobile-first product that will reach every corner of the nation, and focus on the millions of unserved and under-served Indians," it added.
Paytm, India’s second-most valuable internet firm, will use the money to acquire 500 million new customers and launch a slew of financial services products such as wealth management, insurance and deposits and loans.
“This business will require a lot of capital before it can start generating cash and hence we need long-term investors like SoftBank and Alibaba," founder Sharma said in a telephone interview.
Payments bank licencees are not allowed to lend on their own, but Paytm has tied up with several financial institutions including banks such as ICICI Bank Ltd and Bank of Baroda and start-ups such as Capital First and Capital Float to lend to customers through them.
“India has presented us with the world’s largest opportunity in terms of financial services and we are confident its market will grow exponentially over the next decade," said Eric Jing, chief executive officer at Ant Financial. “We will continue to extend our tech know-how to support Paytm’s growth in the country. And we welcome SoftBank to a great ride together to provide equal access to financial services in India."
Paytm owner One97 Communications currently shelters Paytm’s mobile wallet business, including travel booking, movie ticketing and the payments bank business which is set to be launched on 23 May. The company recently spun off its e-commerce business PaytmMall under a separate entity Paytm E-commerce Pvt. Ltd and counts Alibaba Group, Alipay, SAIF Partners and Sharma as shareholders.
Getting SoftBank on board as a large shareholder will help Paytm have a long-term investor on its capital table and also help reduce the control of China’s Alibaba Group Holding Ltd, currently its largest shareholder. This will help Paytm pre-empt possible government concerns about a Chinese company having a strong hold on Paytm and the financial services sector, considered a strategically important one.
Investor interest in Paytm, the top online payment services provider in India, has increased after the government’s move in late 2016 to invalidate old high-value currency notes. The company’s move to launch a zero-cost QR Code-based payment solution worked very well during the demonetization days and has been adopted by millions of merchants since then. Paytm’s consequent emphasis on digital payments and a strong branding and advertising campaign to build the brand have also worked well.
Paytm was launched in August 2010 as an online recharge and bill payment platform and soon expanded into online commerce and mobile payments through wallets. In January 2014, it launched the Paytm Wallet, which is currently the largest digital wallet with over 220 million users and is accepted by over 5 million offline merchants across India.