Jio-Facebook Deal Portends a Bruising Time for Paytm

Facebook’s WhatsApp, which has been working on gaining regulatory approval for obligations providers in India, is gearing up for a full rollout of those solutions by June, according to a source familiar with the matter.

The partnership with Reliance announced on Wednesday, will give WhatsApp an inside track on payments for Reliance’s retail unit, which intends to serve thousands of little stores across India. It is going to also be able to link up with Reliance’s telecoms business, which has taken the market by storm since its launch in late 2016, and WhatsApp itself has an enormous presence in India with more than 400 million consumers.

“If someone could have lost sleep since the Facebook-Reliance deal was declared, it has to be Vijay Shekhar Sharma,” said another source, referring to Paytm’s founder.

The source, who has close ties to both Reliance and Paytm, declined to be identified to protect interests.

While having formerly attracted investments in the likes of Japan’s SoftBank, China’s Alibaba, and US-based Berkshire Hathaway, it lacks its wells of funds for funding, putting it at a disadvantage.

Paytm also remains unprofitable, using its parent firm reporting a reduction of over $500 million (roughly Rs. 3,800 crores) from the year ended March 2019.

Launched several years ago as a platform for mobile recharging, Paytm grew fast after ride-hailing firm Uber recorded it as a fast payment option. Its usage swelled farther in 2016 when a ban on high-value money notes lacked digital payments.

But it underestimated the effects of a state-backed digital payment method which was rolled out in 2016. On this particular network, Google Purchase and PhonePe collectively accounted for almost 80 percent of 1.31 billion trades in January. Paytm was a distant third with about 10 percent, based on information from obligations firm Razorpay.

India’s digital payments marketplace is predicted to more than double in size to $135 billion (approximately Rs. 10.29 lakh crores) in 2023 from 2019 levels, according to a study by PwC and Indian industry lobby group ASSOCHAM.

Individual market share can, however, be difficult to assess. Paytm has branched into solutions such as gold and insurance sales, movie and flight ticketing, and bank deposits and remittances.

Goliath-like opponent Paytm has seen the threat posed by WhatsApp, and when the messaging service launched a trial of its payment services in early 2018, Sharma accused Facebook of”cheap tricks”.

Paytm was also a part of a lobbying effort against US companies over local information storage an issue now mostly resolved but which was an impediment to WhatsApp gaining regulatory approval. Together with Reliance behind it, WhatsApp’s route to final approval for the payment service is currently anticipated to be smooth.

On one hand, the sector is expanding, and sources knowledgeable about the matter say Paytm has seen a rise in transactions as the COVID-19 crisis pushes commerce online.

But the Reliance-Facebook mix represents a Goliath-like opponent, especially given Reliance’s track record in decimating competitions when it entered the telecoms marketplace with Jio Infocomm and cut-throat pricing.

“This is a formidable combination of bandwidth and platform participant so it’s going to easily shake the payments sector,” said Ashvin Parekh, an independent financial services consultant.

He added that in any bruising battle over digital payments, a telecom firm like Reliance’s Jio could be hard to beat because it’s far more insight into customer data habits and a greater amount of stores to reach potential customers.

Paytm has increased more than $3 billion (roughly Rs. 22,800 crores) because it was set up, with the most recent infusion of $1 billion (roughly Rs. 7,600 crores) coming last fall. But should it need more, fundraising today looks far harder. SoftBank, its biggest investor, has problems of its own and has backed away from pouring more money into money-losing startups.

A recent move from India to intensify scrutiny of Chinese investments in the country may also complicate any future fundraising efforts.

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