Alibaba may pick majority stake in Paytm’s e-commerce biz

Alibaba

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Online and mobile commerce giant Alibaba, which owns a significant stake in One97 Communications Pvt. Ltd that runs mobile payment and commerce platform Paytm, is likely to pick a majority stake in Paytm’s e-commerce business, a senior company executive said.

Paytm has created a separate entity for its online retail business under Paytm E-Commerce Pvt. Ltd to separate it from its payment business. The move is aimed at help the firm raise a larger investment from its major investor Alibaba through SoftBank, the technology and telecommunications giant that holds a 32.3% stake in Alibaba, the executive cited above said.

“We are now hiving off our e-commerce business into a separate entity. Our key overseas investor may come directly into our ecommerce business, take additional stake and run that business and we would concentrate more on the payment business. They have massive experience of running this business,” said a senior Paytm executive during TechCircle Walkabout, organised a day ahead of the Delhi edition of News Corp TechCircle Startup 2016 event on 24 August.

According to a recent filing with Registrar of Companies (ROC), Paytm has created two separate entities christened Paytm E-Commerce Pvt. Ltd and Paytm Payments Bank Ltd under which its ecommerce and banking services will operate respectively.

The ecommerce entity, created on August 16, currently lists Vijay Shekhar Sharma, founder and CEO, Paytm, as the majority stakeholder.

A Paytm spokesperson confirmed the development saying “it’s true”, but declined to elaborate. He, however, said Alibaba’s stake in One97 Communications will be transferred to the e-commerce business. “Vijay Shekhar will hold 51% of stake in the payments business because payments bank licence was issued on his name, and 49% of the stake will be held by One97. Alibaba’s stake in One97 Communications will be transferred to the Paytm E-commerce business,” the spokesperson said.

The development was first reported by Mint.

NYSE-listed Alibaba Group Holding Ltd along with its financial-services affiliate Ant Financial has invested a significant amount of capital into the company to own close to a 41% stake in One97.

Alibaba owns a string of e-commerce properties in China and is the largest online and mobile commerce company in the world in terms of gross merchandise value. Ant Financial runs Alipay, a mobile payments wallet like Paytm.

Talking about the reasons behind the move, the Paytm executive said the initial plan was to keep both the business on a single platform and convert a small portion of its customers from payment business to ecommerce. However, he said the company has incurred some losses and was running the ecommerce business with limited success. “We have this set of transacting users and the core thought behind was to offer them an online shopping experience where we could convert at least 10% of them into ecommerce customers. But we realised that it’s a far more complex business than we thought it was. We have lost some money in that business,” he said.

“Our core experience is related to digital goods. Ecommerce, though it looks like an e-business, has actually a very big offline component – logistics, delivery, merchants, catalogues and more. It’s very complicated. We have done that with limited success. Therefore, we are now separating the business into a separate entity,” he said.

Paytm’s registered around Rs 2,000 crore in gross merchandise value (GMV) at a group level in July, becoming the third player after Flipkart and Amazon in the country, said the Mint report. It marked four times growth since March 2015 when its monthly GMV stood at Rs 490 crore. Nearly Rs 250-300 crore came from its marketplace business while the payments business accounted for about Rs 500-600 crore in July. Its online-to-offline (O2O) business contributed nearly Rs 300-400 crore to the overall GMV.

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