Paytm’s big play

“I cannot tell you the excitement, the anger, and the energy that was bubbling inside us… It was more like ‘if not now, when? If not us, who? Let us do [it].’” Vijay Shekhar Sharma’s enthusiasm was infectious even over a Zoom call. The 42-year-old founder of home-grown fintech major Paytm, last valued at $16 billion, was visibly stoked about the Paytm Mini App Store for Android phones. Reason? It holds the potential to bring Indian developers to its mini apps platform, challenge Google’s dominance in the mobile Internet economy, and eventually turn Paytm into a true-blue super app.

Paytm has already signed up several hundred developers, and become the face of the movement for self-reliance in the Indian tech ecosystem, a mantle Sharma appears quite happy to wear. “I wish that we, as a company, champion Indian technology,” he says. “I tweeted today about PayPay Japan [Paytm’s joint venture with SoftBank and Yahoo Japan]. And I’m so proud of what we’ve done as a company from India, building a payment system in Japan. That is exactly what I want to stand for... that India has a place in the world of technology.”

Sharma’s words have been backed by Paytm’s actions. Consider how the company has taken on the might of Google, questioning its policies and processes, even alleging they are detrimental to the growth of India’s app ecosystem.

For context, let’s go back a few months and understand the trigger for Paytm’s face-off with Google.

The battleground

In mid-September last year, the global tech giant pulled down the Paytm app from its Play Store for a few hours, saying it had violated Google’s gambling policies. Paytm’s gaming app, Paytm First Games, was also removed. Paytm, in a blog post a few days later, accused Google of “arm-twisting”. Since Google owns Android, which powers over 95% smartphones in India, it “has enormous control over which apps you download through its Play Store policies”, Paytm said.

Google, in a statement, countered: “Our policies don’t allow online casinos or support any unregulated gambling apps that facilitate sports betting, including daily fantasy sports in India.”

But Paytm’s president, Madhur Deora, points out that fantasy sports apps are allowed in the country. “The Supreme Court of India has said that they [fantasy sports] are allowed if you live in a country called India,” he says. But “if you live in a country called Google”, they are illegal. However, government think tank NITI Aayog, in a recent draft report, has recommended setting up a selfregulatory body for the online fantasy sports industry.

As the battle heated up, Vishwas Patel, founder of payments gateway CCAvenue and chairman of fintech industry body Payments Council of India, was quoted in a media release by the Internet and Mobile Association of India (IAMAI) as saying, “Just because Google owns the gate and the gateway to the digital ecosystem of this country, they should not act arbitrarily and enforce their rules and regulations which are contrary to our country’s laws.” He added that they cannot force Indian app developers/owners selling digital services to compulsorily use the Google billing system and charge 30%.

When Fortune India contacted Google for its comments, it directed us to its blogs. One of them, dated September 29, said Google had “always required developers who distribute their apps on Play to use Google Play’s billing system if they offer in-app purchases of digital goods, and pay a service fee from a percentage of the purchase”. It added that Google collects a service fee if the developer charges users for downloading its app or sells in-app digital items. “Less than 3% of developers with apps on Play sold digital goods over the last 12 months, and of this 3%, the vast majority (nearly 97%) already use Google Play’s billing.”

Google hadn’t enforced the rule earlier, but wanted all apps on the Play Store to comply with the directive by September 30, 2021. The blog further explained that based on developer feedback, it would make it even easier for people to use other app stores on their devices after the roll-out of Android 12, slated for sometime in 2021.

That, then, sets the stage—and the context—for what happened next.

Enter, Paytm’s mini app store

In early October, India woke up to full-page ads in newspapers about Paytm’s mini app store. Mini apps are custom-built web apps which give users an app-like experience without having to download one. It has partnered with companies like Ola, Domino’s, and Decathlon, among others, and wants a million such apps on its store by 2021.

“As technology companies, we are all struggling, scrambling to raise money… In the middle of all this, there is someone who is saying I will not let you run it the way you think, or how it should have been run logically,” says Sharma, referring to Google. After Paytm was shut down on the Play Store, a team from Google had spoken to them, but they hadn’t heard back since then, he adds.

But Google did speak up publicly, in another blog post dated October 5, where it said it is setting up “listening sessions with leading Indian startups to understand their concerns more deeply” and organising “policy workshops to help clear any additional questions about our Play Store policies”. It clarified that Google Play is a billing system that supports more than 290 forms of payment globally, including all supported Unified Payments Interface (UPI) apps. It also said it is extending the time for developers in India to integrate with the Play billing system to March 31, 2022, from the earlier September 30, 2021 deadline.

In the IAMAI release mentioned earlier, CCAvenue’s Patel had called for a “level playing field for everyone in the ecosystem”. Sharma says the objective of the mini app store is precisely that, and to achieve that, he has kept nothing off the table, including building an operating system for the mobile phone. Paytm also announced a ₹10-crore investment fund for developers at a conference in October.

Piyush Sharma, Executive-in-Residence, UCLA, and a C-suite+ and startup advisor, says the one big advantage of the mini app store is these won’t take up any space on phones. “Secondly, the developers benefit because they do not have to be dependent on Google or Apple completely, or pay the 30% commission.”

As of now, an early version of the store is live on the Paytm app. Shreyas Srinivasan, founder of discovery platform Paytm Insider, says the company is rolling out a small subset of beta apps every day and thousands of developers have registered with them. The listing and distribution of these mini apps within the Paytm app is free of charge, and users can use the Paytm wallet, Paytm Payments Bank, UPI, or net banking for payments at no charges, and credit cards at a 2% fee. These apps are low-cost and quick to build, using HTML and JavaScript, Paytm said in a blog. “We want to be a gateway for developers in India. [For that] you need to give them all the tools to be able to take that creation to consumers,” says Srinivasan, who hosted the Paytm developers’ conference.

David vs Goliath

How does this impact Google, which commands more than 95% of India’s smartphone market through its Android operating system? According to Statista, a website that tracks the app ecosystem, globally, the Google Play Store has nearly 3 million apps, whereas the Apple App Store has about 2 million.

Google already has had a few antitrust cases against it in India, which, experts believe, can upset its plans in the country. It was accused of “search bias” by Bharat Matrimony (now known as Matrimony.com) in 2012, and fined about $21 million in 2018. Another case filed by a complainant/informant (whose name has been kept confidential) alleged abuse of the dominant position of its app store to promote its payments service—the probe was ordered by the Competition Commission of India.

UCLA’s Sharma says accusations about its “monopolistic behaviour” and antitrust cases will matter to Google. “It’s no longer a decoupled world,” he explains. “What happens in Europe affects Google’s business in India; what happens in India affects its business in another part of the world. Secondly, if they’ve committed $10 billion to India, it means that it is an important market, one of the top-most growth markets in the world. They wouldn’t want to mess with it.

Paytm’s move to combat Google’s dominance has reverberations of the intent behind the Coalition for App Fairness, a non-profit created in 2020 in the U.S. by companies like Fortnite-maker Epic Games, music streaming services Deezer, Spotify, and others, who want a level playing field for businesses. It is rallying developers to amplify opposition against a 30% tax levied by Apple on in-app purchases, as well as its alleged “anti-competitive policies”.

Vijay Shekhar Sharma is quick to point out that protecting the interests of Indian companies against their international counterparts does not mean creating a “protectionist” system, but a “fair” one. “We must have an open economy where everybody is playing by the rules,” he says, adding that the rule book should apply equally to all.

That said, even as Paytm advocates selfreliance for the Indian app ecosystem, it has an impressive roster of investors from across the planet, including Jack Ma’s Alibaba, Masayoshi Son’s SoftBank, and Warren Buffett’s Berkshire Hathaway (see chart). This global footprint of investors doesn’t dilute Paytm’s Indian identity, as far as Sharma is concerned, a belief reinforced by this exchange with Ma. He recalls the time he met the Alibaba founder to raise Series A funding, and Ma asked for a 40% stake in Paytm. Intrigued by the figure (investors usually ask for around 25% or 51%), Sharma asked Ma to explain the 40% ask. Ma replied that when Paytm became successful, it would remain a company from India. “‘We want to see you successful, and we would like to take commercial success out of it for us,’” Sharma remembers Ma telling him.

The Paytm founder continues to maintain that foreign investments are welcome, amid reports that Alibaba is looking to sell its stake in the fintech firm in the wake of Indo-China tensions. Both sides have denied the reports.

The race to a super app

Countering those who consider Paytm’s move into the mini app store world a knee-jerk reaction to its spat with Google, Paytm says it has been working on the idea since June. After all, it is a perfect step in its evolution into a super app (though it has never explicitly stated that as its goal). But it isn’t far-fetched. The concept of super apps, championed by Chinese tech conglomerate Tencent’s WeChat in 2017, has intrigued users and Internet firms around the world. The Chinese app, that provides everything from ride hailing to food delivery and loans, has over a billion monthly active users.

The Paytm ecosystem already covers categories such as payments, e-commerce and insurance, points out Deora. In some of the other categories, it prefers to go the partnering route. For instance, says Deora, “We don’t necessarily want to do ride sharing ourselves in the way that Uber and Ola do. Therefore we said, how can we work with developers so that they can get access to traffic, and consumers can get access to products and services without having to download many apps?”

The biggest challenge for developers, says Sharma, is to make their services accessible, and to monetise them. “And that is something that, if Paytm can offer, we would love to be the champion and platform [for]. And if that makes us a super app, so be it,” he says.

The super app concept isn’t new to India. Walmart-owned PhonePe launched PhonePe Apps in March 2018. In September 2019, when it was renamed PhonePe Switch, founder and CEO Sameer Nigam had said, “While startups are able to acquire high-quality users at low costs, larger partners get help in specific areas like driving non-cash payments and growing their business in select geographies, etc.”

In fact, at this point, everyone from Facebook’s WhatsApp to Reliance Jio, Tata, and Amazon has the potential to build a version of a super app. But what would an Indian super app look like? Mihir Gandhi, partner and leader-payments transformation, PwC India, says super apps can be broadly defined into three categories: The first—like State Bank of India’s YONO—is where users can conduct transactions such as payments and access value-added services like ordering food. The second type (such as WeChat) exists in a larger ecosystem where a consumer has a messaging platform, access to social media, and is able to customise different transactions on one platform. This app allows users to perform a variety of tasks like ordering food, booking a ride, making payments, and even offers loans. The third variant is an extension of the first one, with additional infrastructure and services, a good example being Chinese insurer Ping An. It offers financial products, payments, and other services. It also provides cloud infrastructure to its merchants. It was reportedly used by about 600 million people last year alone.

“Everyone is trying to build their own ecosystem. Paytm has been trying to do that for a long time. It also has its own QR code, and merchants where only Paytm QR code is accepted,” Gandhi says.

Paytm has various references for its mini app store. Apart from Ping An, WeChat and Alipay have something called mini programs or mini apps, which run within these apps. For frequently-used apps, it is a way to bypass downloading them from an app store.

Sharma says that Paytm wants to be a platform where people can perform as many tasks as possible. “That’s why we have extended pure payment flow to book movie tickets, flight tickets, commerce, information, chat, and so on. And we believe that it is not [just for] us, it is for everybody else who has to participate in it,” he says. “And that not only gives an opportunity to developers but also to our customers to experience many services.”

Experts believe that for one or more of the super apps to be successful, “stickiness” will be key. If Facebook, Paytm, Amazon, or Google can keep consumers hooked by making commerce, access to information, payments and other services convenient and seamless, they have the potential to rake in billions in one of the largest consumer markets in the world. Barnik Chitran Maitra, managing partner and CEO, Arthur D. Little, India and South Asia, says that while Paytm may be capable of building a super app and rally developers to build mini apps for its store, there is still a question mark on whether the concept will work in India. The one draw for customers will be discounts and cashbacks, he says. “It’s a difficult thing to pull off, particularly if you don’t have leaders or number two players in that app category,” he adds.

Necessity and innovation

The battle for super app supremacy is really a function of the competitiveness of the fintech industry, with some of the biggest players in the world fighting for dominance. The real challenge is to bring as many customers and merchants onto an ecosystem and offer them as many services as they need. “The payments business is actually a very low margin and nearly no margin business... [you] can only make money if you extend yourself in financial services; that is why we are applying for a bank, applying for insurance and what not,” Sharma says. Apart from One97 Communications, which is the mother company of the Paytm service, the Paytm ecosystem includes other entities like Paytm Payments Bank, Paytm Insurance, and Paytm Games.

According to a recent report by RedSeer Consulting, India’s digital payments industry is expected to grow to ₹7,092 lakh crore by 2025, driven by merchant payments, government policies like Jan Dhan Yojana, and the low penetration of banking services.

Meanwhile, the National Payments Corporation of India (NPCI) says that UPI transactions grew to 2.2 billion in November. Google Pay continued to be the leader with 960 million transactions; it also had about 43.4% of the UPI market share while PhonePe and Paytm held the second and third positions, respectively. Paytm maintains that UPI doesn’t account for all its transactions, but the stiff competition is undeniable.

Paytm has about 300 million users on its platform, says Sharma, but maintaining market share, especially with the roll-out of WhatsApp Pay, is not going to be easy. At last count, WhatsApp had 400 million monthly active users in the country, who will potentially have access to its payments service.

Then, there’s PhonePe with a 250 millionplus user base. According to Karthik Raghupathy, vice president, strategy and business development at PhonePe, there are over 280 partners live on the platform. “Over the last few years, PhonePe Switch has been instrumental in helping our merchant partners acquire millions of new customers,” he tells Fortune India. Recently, fintech unicorn Razorpay also launched its app store for small businesses. All of this is to say that for Paytm, it has become even more important to protect its turf.

The philosophy behind Sharma’s approach to a competitive future goes back to his first meeting with SoftBank founder and CEO Masayoshi Son, also known as “Masa”, in September 2014 in New York. He had prepared a presentation to woo Son but a few slides in, Son asked him to stop. The photograph on the slide indicated that Paytm was India’s No. 1 mobile internet app without any external funding, and Son asked Sharma how he got there. “I said, ‘India’s customers will use technology using mobile internet and the smartphone, not from the desktop. ‘So, you fundamentally believe that everything is going to be on a smartphone?’ Masa asked. I said, ‘that is why you pay through mobile (Paytm), not through anything else,” Sharma says with a laugh.

The ambition is clear and the efforts are ongoing but UCLA’s Sharma believes all attempts by Paytm in the past 12-18 months to transform itself from basically a payments company to a full-fledged financial services company à la Alipay have not yet paid off. “They have done a tremendous job as far as the wallet is concerned, as far as merchant commerce is concerned, but it is going to be a difficult road ahead.”

But, despite this, he remains bullish on the fintech firm. Because, if it is able to get its act together, and use the current circumstances to its advantage, Paytm could well end up a winner.

(The story originally appeared in Fortune India's January 2021 issue).