Paytm (an Indian Company Backed by Chinese Investors) Launches Payment Bank to Address India’s New “Cashless” Economy

On January 15, Indian online-payment platform, Paytm, announced that it will launch Paytm Payment Bank (PPB), a new online financial services system that will aim to address India’s demonetization crisis and help lead 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 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 scrutiny.

Paytm is fully-owned by One97 Communications, an Indian company that counts among its investors, Alibaba, Ant Financial, and Hong Kong-based private equity firm, SAIF Capital.  Alibaba and Ant Financial make up its largest investors, having financed $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 for 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 foreign 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 disclosures.  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.