Amidst Coronavirus Crisis, Indian Oil Corporation Enters into Strategic Partnership with China-Backed Paytm in Further Embrace of Cashless Payments

On January 15, Indian online-payment platform, Paytm, will launch Paytm Payment Bank (PPB), a new online financial services system that aims to address India’s demonetization crisis, leading the way into a new “cashless” economy for the country.  Paytm has over 160 million users, a number that continues to grow, as a result of India’s demonetization policy, which is un-circulating 86% of its cash in an effort to tackle corruption and counterfeiting.  As Paytm takes a leadership role in India’s newly emerging financial infrastructure, its ownership and ambiguous links to Chinese investors has been cause for concern.

Paytm is fully-owned by One97 Communications, an Indian company that counts among its primary investors, Alibaba, Ant Financial, and Hong Kong-based private equity firm, SAIF Capital.  Alibaba and Ant Financial are its largest investors, having provided $680 million in 2015, each acquiring a 20% stake in the payment platform.  SAIF Capital has invested about $625 million for what was reported at the time to be approximately 50% of the company.  Subsequent reports, however, have put the combined stake of these three companies in Paytm at 70%.

In January 2017, Paytm announced changes to its ownership structure in an effort to get PPB approved by the Reserve Bank of India.  The company announced that its founder, Vijay Shekhar Sharma, would maintain a controlling share of 51% in PPB, while One97 Communications would have a 49% stake.  The company maintains that Alibaba and Ant Financial’s shares will be moved to the Paytm E‑Commerce Pvt. Ltd, the e‑commerce division of Paytm.

Despite these changes, there remains cause for scrutiny as to the degree of involvement of these Chinese investors in the operations of the company, especially as it emerges as a foundational entity in India’s changing economy.  There are also reports of Alibaba and other Chinese investors planning to make additional investments in Paytm, again with somewhat opaque financial disclosure.  The lack of transparency in these investments makes it difficult to gauge the role that Chinese entities play in the internal decision-making of Paytm.

Most recently, on March 24, 2020, amidst the coronavirus crisis, the state-owned Indian Oil Corporation Limited (IOCL) entered into a strategic partnership with Paytm, designed to facilitate digital transactions across IOCL fueling stations in the country.  The partnership will also allow consumers to make cashless payments via Paytm for home delivery of IOCL’s LPG cylinders – a pervasive and critical energy appliance for Indian households. The IOCL-Paytm deal is intended to minimize the spread of the coronavirus through currency notes.

The current public health risks associated with cash payments is likely to accelerate Paytm’s government-led drive to promote a cashless economy in India.  The company has reported a 20% growth in digital payments since the coronavirus pandemic emerged.  With Paytm’s growth comes increased influence on the part of the company’s Chinese backers and leading investors.