After Japan, Paytm eyes developed markets

Mobile payments company PayPay, a joint venture between India’s digital payments major Paytm, tech conglomerate SoftBank, and Yahoo Japan, has reached 25 million registered customers in the East Asian country, almost one-fifth of its population.

“The success,” Paytm founder and CEO Vijay Shekhar Sharma said, “shows that the company’s technologies are not just for consumers in emerging or frontier markets but can be as useful in developed markets as well.”

PayPay has over 1.94 million listed merchants partners and local stores in Japan. According to Sharma, on a pro rata basis, PayPay does more transactions than Paytm in India.

“[First] the comfort with technology is higher there and second the financial services are very costly there. We brought some fundamental changes. For example, if a shopkeeper accepts digital payments, money comes in four weeks [according to the present practice there]—there is a four-week delay, [but ] we give it the next day,” he told Fortune India in an interview. “This has helped us.” PayPay started its operations in October 2018. In 2017, Paytm had launched its payments app in Canada and opened an office in Montreal last year. It has had a research & development (R&D) lab in Toronto since 2014.

Paytm is not the only new-age Internet company from India to experiment with international markets. To name a few, hotel aggregator OYO has hotels and vacation homes in 80 countries, taxi aggregator Ola just launched its services in London and operates in more than 250 cities across India, the U.K., Australia, and New Zealand, while home services marketplace Urban Company offers services in Australia, Singapore, and UAE, apart from India.

The understanding among Indian and a lot of multinational companies has been that products and services made for India can be used in other developing, emerging, and frontier markets across Asia, Africa, and Latin America. However, many startups believe their products can be successful in developed markets across Europe, Asia, and North America, and needn’t be necessarily useful only in the comparatively poorer countries.

“Our partner SoftBank has shown us that we can do it in Japan, it is a complex market for many companies. It shows that we have built technology that can be expanded,” said Sharma.

“My understanding has been (it has to go) from India to the developed markets—Japan, to the Americas, to Europe. I would prefer that to happen than to go to frontier markets in Africa. Paytm, if given a choice, we are making technologies for the world and the best benchmark for that will be the day that we go and land in the United States of America,” he added.

Sharma believes the relationship Paytm has with one of its main backers SoftBank, which owns a 19% stake in parent One97 Communications, can help the company realise its international ambitions. Paytm is also backed by Warren Buffett’s Berkshire Hathaway, and Ant Financial, amongst others.

“I am blessed to have relationships with SoftBank, Masa [Masayoshi Son] himself, and various other SoftBank companies like SoftBank Telecom and Yahoo Japan because our relationship is not just as a shareholder-investor, our relationship is also of a business partner,” he said.

The company is, however, clear that businesses in other countries will not grow at the cost of India, where its payments service has about 300 million users. Sharma says the company has always aimed at half a billion users in the country, beyond which customer growth for Internet companies might slow down. Almost 40% of India’s 1.3 billion population has access to the Internet and smartphones. A recent report by Cisco says the number of Indians using the Internet will surge to more than 900 million by 2023.

However, a wide income gap and with a large part of the population below the poverty line, not all those who can access the Internet may be able to afford online products and services. According to a recent World Economic Forum report, Indians born in low-income families would take seven generations to even approach the country’s mean income. It says about 220 million Indians lived on less than ₹32 a day—the poverty line for rural India—going by the last headcount of the poor in India in 2013. It, therefore, will be essential for consumer Internet companies to look for growth beyond India.

“We always say we will bring half a billion customers to the fold of the economy because beyond that is not our customer base probably. We can only cater to the customer who wants payment, financial services, commerce. Really speaking beyond India’s 500 million, they need grants, support, and systems. But it can change,” added Sharma.

Meanwhile, in India, costs remain a concern for the company and its losses have ballooned; it reported a net loss of ₹4,217.2 crore in FY19, compared with ₹1,604.3 crore in the previous financial year. Competition has also increased with other digital payments apps like Google Pay and Flipkart-owned PhonePe recording a high number of Unified Payment Interface (UPI) transactions. The National Payments Corporation of India (NPCI) has also given a nod to WhatsApp Pay for a phased roll-out.