SoftBank puts all its eggs in the fintech basket

Masayoshi Son asked Visal Shekhar Sharma to take more funds than the $1.8 billion Paytm needed for expansion
When last year SoftBank Group's Masayoshi Son met Vijay Shekhar Sharma, the founder of One97 Communications run Paytm, to talk about the amount to be invested in the wallet major, the discussion was a little unusual. While in most cases it is the company founders trying to convince investors to shell out more capital, here according to sources close to the firm, it was Son asking Sharma to take more funds than the $1.8 billion Paytm needed for expansion.

This is the level of confidence Son, the man who over the years strategically invested in few of the biggest tech giants in the world including Alibaba, Uber and Didi Chuxing had in Paytm and India's burgeoning fintech space.

After almost doubling its investments in Flipkart and in the process recovering losses it made writing off its losses in beleaguered ecommerce player Snapdeal, SoftBank which has completely exited the Bengaluru based online marketplace, would put all its might behind Paytm. 

"I think SoftBank is bullish on the fintech sector in India. One cannot say if they would again invest in Paytm or not but they believe in the Indian ecommerce ecosystem. Paytm is a good brand, has a large customer base as well as the capital,” said Harish HV, Partner – India Leadership team, Grant Thornton India LLP.

Branded a 'Chinese' firm to being majority owned by Japanese 

It was SoftBank Group that came to Sharma’s aid when the company faced a peculiar perception problem. When the geo-political situation between India and China went from bad to worse early last year, and companies associated with Chinese funding were being blackballed in this case Alibaba being the principal backer of Paytm, it was SoftBank that came in, bought the largest stake in primary as well as secondary share sales. 

SoftBank invested $1.4 billion directly in the company, and the rest $400 million it spent on buying One97’s secondary shares. SoftBank directly holds a 20 per cent stake in the company, while it gained 12 percent by virtue of being a major shareholder in Alibaba. The Chinese tech giant’s shareholding in One97 technically went down to 29 percent from 41 percent. Sharma holds around 19 percent in the firm.

Create India’s Alipay

It is not just a billion dollars in investment that Paytm gained from Alibaba. One of the biggest ecommerce and tech giants in the world has backed Paytm with everything starting from state-of-the art tech, bringing in ideas and processes it uses in China to India, to setting creating the Paytm app into the wholesome ecosystem it now is. 

The result has been Paytm becoming one of the biggest mobile wallet app there is with more than 280 million registered users. It has already launched its Payments Bank and would soon sell mutual funds and other financial services on the platform.     

According to market sources, SoftBank plans to build Paytm into India’s Alipay which is the biggest digital money platform in China. “SoftBank believes that the way digital finance revolution happened in China, it would also happen in India. Paytm has in the last few years managed to penetrate into most of the country which makes it ideal to be pitched as the digital money alternative of future,” said a senior analyst with an international consultancy firm. 

Sources said that SoftBank plans to pitch Paytm as the biggest fintech player not only in India but take it global. Though Paytm early last year started its services in Canada, sources said that in the mid to longer term SoftBank plans to take it to US, Australia and other such markets.

Even with an exit, SoftBank still in the online marketplace race  

Though in a much smaller way, with a $600 million investment in Paytm Mall technically the third biggest player in India SoftBank is still in the online ecommerce game. Paytm Mall which did a gross merchandise value (GMV) of $3 billion last year is hoping to make thrice of that by end of this year. The company is bolstering its various verticals, including the grocery segment and is also working closely with the segment biggie Big Basket. 

It still has to figure out its cab aggregator play

After exiting completely from Flipkart, SoftBank according to industry sources would concentrate on streamlining the cab aggregator segment. SoftBank which owns a large chunk of double digit stake in Bengaluru based Ola as well as Uber would now decide on who it wants to back in the longer term. Bothe these companies have already put their best foot forward and have made it clear in their own way that they will not give in to investor demands and would not settle for anything less than a majority stake post merger.

“SoftBank has had discussions with both the firms and is yet to decide on the stand it will take about backing which company. It was waiting for this deal to culminate,” said a source close to one of the cab aggregators.

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