Paytm delinks payments bank from shopping biz

One97 Communications-run online mobile wallet giant Paytm has hived its e-commerce and payments bank businesses into two separate companies, according to a recent filing with Registrar of Companies (ROC). A separate e-commerce business will make a possible joint venture with Chinese major Alibaba easier to execute, analysts said.

However, delinking banking operations is according to regulatory norms prescribed by the Reserve Bank of India (RBI).

According to the filing, the company has been split into two separate entities, Paytm E-commerce Services and Paytm Payments Bank. One97 Communications chief Vijay Shekhar Sharma would be the director of both companies.

Sources close to the company said RBI wanted Paytm to ring-fence its payments bank and marketplace arm from the payments business.

REINFORCING ITSELF

• The company has been split into two separate entities, Paytm E-commerce Services and Paytm Payments Bank
   
• RBI wanted Paytm to ring-fence its payments bank and marketplace arm from the payments business, said sources
   
• The hiving off of the marketplace will also help it to become a top contender to merge with Alibaba, when it enters India later this year
   
• The company was hoping for a merger with Alibaba, said sources
   
• Paytm has been working towards reinforcing its online marketplace in tune with requirements of Alibaba

“Hiving off the payments bank is purely a regulatory requirement as guidelines require the payments bank to be a separate entity. Also, as the banking licence is in Vijay Shekhar Sharma’s name, he would be the director of the company,” said a source close to the company.

The hiving off of the marketplace also helps it to become a top contender to merge with Alibaba, when it enters India later this year. In a recent interview, Sharma had said Amazon and Alibaba would be the top e-commerce players in India in a year. He had also said the company would hive off its e-commerce platform into a separate company and then try to raise funds or be merged or acquired.

Sources said the company is hoping for a merger with Alibaba. However, the Chinese firm is keeping its options open and looking at others, too. Snapdeal, trying to tweak its business to hit upon the right model, has also incorporated the iron triangle, a format that is in sync with Alibaba’s.

Paytm has been working towards reinforcing its online marketplace in tune with requirements of Alibaba, sources have indicated. According to RoC filings, the company plans to expand the number of services provided to its sellers. The company had earlier said it would have a host of sellers from China and Southeast Asia on its platform.

Alibaba believes mobile and payments would be an important strategic asset for it in India. According to a transcript of the earnings call, available on seekingalpha.com, Joseph C Tsai, executive vice-chairman, said: “The other emerging market is in India, where we have decided to play some very strategically located assets in that market. We invested jointly with Ant Financial into a company called Paytm, the largest mobile wallet company in India. We think mobiles and payment are going to be important strategic assets for us in that market.”

While Paytm in its ROC filing reported a loss of Rs 1,534 crore in the financial year ended March 2016, 312 per cent higher than the loss of Rs 372 crore posted in the previous financial year, sources close to the company said it was putting the money it was earning back into the business to fuel expansion.

“The company is dabbling with many spheres, it is getting into tie-ups, trying to expand its user base to 500 million, expand its marketplace and that is the reason it is showing such losses,” said the source. Paytm has projected revenue of Rs 869 crore for the year in the RoC filing.