How Alibaba is helping Paytm think differently about ecommerce in India

By Meghna Rao for TechinAsia.com

Paytm has had a unique approach to ecommerce in India. Originally launched as a site for mobile phone top-ups in 2010, the name is an abbreviation for “pay through mobile”. It soon pivoted to become an online wallet and, four years later, it launched an ecommerce site.

In August 2015, it was one of eleven companies to receive permission to act as a “payment bank.” This means that customers can use it to do everything that a conventional bank can, including holding money, transferring between acounts, and withdrawing cash. However, it’s not allowed to give out loans, issue credit cards, or hold more than US$1,472 in a single account.

In February 2015, Alibaba’s financial arm, Ant Financial, took a 25 percent stake in the startup, with some sources estimating that the round was worth US$585 million. Soon after, Ratan Tata picked up a minority stake in the startup and, this past September, it received an estimated US$680 million from the Alibaba Group, which reportedly also took a 20 percent stake in the company.

According to App Annie statistics, Paytm was the second most downloaded retail app in India last year, just behind Flipkart and ahead of Amazon and Snapdeal. It also secured thesecond highest number of monthly active users for 2015.

Paytm has a few tricks up its sleeve that might help it win the ecommerce game in India. Will they be enough?

A partnership with Alibaba

Paytm is the Alibaba Group’s largest investment in India to date. It’s clear that the gargantuan entity from China has a lot of advice to offer.

“The biggest advantage of working with Alibaba is the fact that it’s grown huge and solved a lot of problems,” explains Sudhanshu Gupta, associate vice president at the Paytm marketplace. “That’s something that we can pick up and incorporate. It helps us solve problems of everything from payments to marketplace fraud.”

As an ex-Flipkart employee, Sudhanshu explains that his perspective on how ecommerce works underwent a major shift after working with Alibaba. “We always thought that a marketplace was the best way to scale, but this was the first time we realized that the zero inventory model could work,” he says. “Where once I felt that the ecommerce conversation had to be: we’ll buy or keep x units of the product and then have x margins, those conversations no longer have meaning. Now we ask: can we help you bring your channel online? Are there places that we can help you get offline into?”

The changes extend beyond just a shift in perspective. A few months after Alibaba’s initial investment, Paytm announced the integration of a million Chinese sellers from AliExpress onto its platform.

In the past month, Paytm and Alibaba launched a partnership that would allow Chinese merchants to use Alipay while selling through Paytm. In return, Paytm got access to Alibaba’s cloud computing arm, Alicloud (also known as Aliyun). The company could now work with Alibaba’s massive merchant base.

“We’ve also observed how Alibaba works with brands,” Sudhanshu explains. “They don’t just list products to sell. They go so far as to handle online marketing and establish a digital presence for them, which means now they can work with greater insight and data. This has really helped evolve our conversations with brands. We explain that we can help you bring your channel online, help you out with an online presence, we can figure out where you’d sell most. It’s really a refreshing change for all of us.”

Having your own wallet pays off

Among the other major ecommerce sites in India, Paytm is the only one that started as a mobile wallet. Flipkart tried to launch its own wallet, PayZippy, but shut it down soon after. Snapdeal recently acquired mobile top-ups site Freecharge which partners with Fino Paytech, another one of the eleven mobile wallet services in India to receive a payment bank license.

Still, Paytm is the largest mobile wallet in the country, with Sudhanshu claiming that it has over 120 million users.

The amount of data that comes with a figure like that is immense. “We have so much data from our payments wallet that the transition to ecommerce was natural,” explains Amit Bagaria, associate vice president of business at Paytm. “The number of people that have transacted with us means that we can focus on grander scale things like analyzing consumer behavior and personalized marketing.”

Furthermore, because Paytm is both a mobile wallet and an ecommerce site, it has the opportunity to provide “cash back” deals. Customers on the platform can be rewarded with options that put money right back into their accounts. One of the biggest criticisms of discounting on regular ecommerce sites is that, while sales attract first-time customers, they don’t guarantee return users. When money leaves and enters Paytm’s own mobile wallet, customers are more likely to use it again to buy things on the ecommerce site.

Coming up with new ideas for ecommerce

With plenty of funding in its own wallet, Paytm has its eyes on expansion. It announcedplans to invest US$150-$200 million in Indian tech startups over the next few years. So far, it has backed deals platform Little, auto rickshaw aggregator Jugnoo, and online home services provider Near.in.

There’s also a lot of potential for innovation to be spun out of its own payment technology. For example, one of the biggest criticism of payment wallets is their propensity for fraud. To combat this, Paytm plans to innovate within the seller ecosystem. It’s pioneering a voice detection payment service “Soundpay” that will pick up on sound bytes in the vicinity of a merchant-customer interaction in order to verify that they’re both present and that the transaction is authentic.

Furthermore, it also has the potential to make an entrance into India’s still nascent world of chat commerce. It acquired messaging app Plustxt in early 2013, providing customers with the capability to directly interact with their sellers before processing payments.

The battle is far from over

Ecommerce in India is not for the faint hearted. Despite its strong position, Paytm reported close to US$55 million in losses just after the launch of its shopping portal. Most of this money went to marketing and advertising, which can be attributed to the fact that it was a relatively late entrant into the ecommerce game. Its rivals have larger numbers and huge valuations. Snapdeal’s latest round of US$500 million also includes backing from Alibaba and rumor has it that the Chinese ecommerce giant will also soon take a stake in Flipkart.

This fact doesn’t seem to bother those at Paytm. “We’re just here to focus on our work and help grow the ecosystem,” Sudhanshu explains. “When we met Jack Ma, he stood up and said that what we’ve accomplished in India is only the tip of the iceberg. ‘Don’t worry about it,’ he said. ‘You’re all at a starting point right now.’”