 "Paytm to have Rs 1-lakh cr GMV by 2018: Vijay Shekhar Sharma")
Vijay Shekhar Sharma, founder and chief executive of One97Communications, which runs Paytm, spoke to Nivedita Mookerji on the group's payments bank plans, funding and valuation in e-commerce and its biggest investor Alibaba's India foray. Edited excerpts:
Do you see this as a challenging time for fundraising in e-commerce?
I can say it's not difficult for us. There's more demand (to invest) than we can handle, there's more incoming request than there was previously. And we have said more 'no' than 'yes'.
We don't need money now. We have enough money for current operations. People have been making offers and benchmarking prices, while we are saying 'not yet'….
Has your company experienced a valuation markdown like some others?
The offers that we have received are many times over our expected valuation. We are in the business to build money, not to raise money.
What would you peg Paytm's valuation at?
We are not in the market for fundraising, so I cannot give a number yet.
Why do you think valuations in some leading e-commerce companies such as Flipkart have been marked down?
Valuation is typically based on expectation of a business but it is not a single depiction of a company. A markdown could be because of market conditions and demand at a certain point. It may not be a true reflection of a company's intrinsic value. I think the valuation talk is overrated. Founders and entrepreneurs should build intrinsically value-led companies, so that if you are not there, people will miss you hell of a lot. For instance, if Amazon is not there in the US or Alibaba is not there in China, people will miss. If Google is not there, you will miss it a lot.
What about Flipkart? Will it be missed if it was to go?
I'm sure Flipkart will be missed by people who are used to it. There's no doubt about it.
Are you planning to hire more students from IIT, IIM campuses as some rivals have kept students waiting?
Surprisingly, we underestimated our requirements in bank and finance while we hired. So, we can pick up another 100 - given a choice - from IITs, IIMs, XLRI and others soon. This is in addition to recent 45 campus placements.
What's the employee strength and outlook?
It's around 4,500 now, up from 3,500 last year. We have hired more than 200 in technology and business teams this year. Within one year of launching payments bank, the employee strength will be 5,000.
What's your thought on companies shifting from gross merchandise value (GMV) of products sold on a platform to customer satisfaction metrics?
Those who were chasing GMV were dumb from Day One. It was not a number to chase. Their math was not right.
What are the financial goals for the group?
By April 2018, we should have a transaction GMV of Rs 1 lakh crore, up from Rs 20,000 crore now.
Currently, what's the Alibaba play for Paytm?
They are the most important and incredible partners for us. We continue to leverage each others' capability. They also bring us money, surprisingly (laughs).
What if Alibaba enters the Indian e-commerce market on its own? Does that worry you?
No, it is not a worry. We have said clearly that Paytm will be known as payments and financial services company. I haven't heard that Alibaba has plans in those areas in India.
But do you believe that Alibaba will make a direct entry into India on its own, rather than with companies where it has invested?
That's a commercial and economic model discussion. I don't think I have a direction on that. I know Paytm will be a formidable banking and financial services company. We both (Alibaba and Paytm) are in sync. They are giving us ammunition in technology, resources and money as we demand and as we need.
Are you looking for another round of funds from Alibaba?
We have money for 31 quarters if we were to carry on with our current businesses. Once we launch payments bank, the money will still last us three to four years. There has to be tremendous reason to raise money or if someone is selling.
Are you looking at phasing out e-commerce or any other segment over time?
E-commerce is an incredible asset for us, like Amazon Web Services. It is a profitable asset in our business book. It is also critical for access to merchants. As for phasing out, the recharge business may come down in percentage terms in the total transaction pie. It is 25 per cent now and may be down to 5-7 per cent in one year.
How will you rank the segments within the group, in terms of profitability potential?
Financial services will be on top followed by commerce, treasury and payment. Wallet or payment is last because we want to incentivise merchants and consumers. That should remain sustainable rather than looking for profit.
When are you launching the payments bank and how much will you invest?
We will launch by Diwali and will invest around Rs 300 crore to begin with. Reserve Bank of India (RBI) has mandated an investment of Rs 150 crore.
How many bank branches are you looking at and which regions do you want to go into first?
We are not aggressive on branches. Maybe one or two, while focusing more on business correspondents. We want to begin with Northeast and central India as they are the toughest. If we solve the tough places, we will be able to solve the rest.
There are concerns around the business model of payments bank and whether they can be profitable.
It is a totally profitable business model. Profitability is not a distant dream. No mark has been decided by the board. The idea is to make sure you are prudent enough and start making money.
What about profitability in your e-commerce business?
We are among the rare e-commerce companies to have started making money. We are technically profitable.
In payments bank, what will be your acquisition cost of a customer?
We are setting it at $1, including know-your-customer (KYC). Currently, the group's acquisition cost of a customer is $2. We have to keep it low.
Are there any regulatory challenges in banking?
Not now, unless roadblocks come later. In KYC, we are talking to the regulator to understand the rules… We want to build India's first Aadhaar-only bank.
Is it a concern that three banking licencees have dropped out?
Not at all. People have to discover their business models. Ours is sorted. We may bring a new banking business to the world along with RBI.
STRAIGHT TALK
ON ALIBABA
They are giving us the ammunition - tech, resources, money as we demand and as we need
ON GMV VS CUSTOMER SATISFACTION
Those who were chasing GMV were dumb from Day One
ON CAMPUS HIRING
We can pick up another 100 from IITs, IIMs, XLRI, if given a choice on payments bank
We want to build India's first Aadhaar-only bank
Do you see this as a challenging time for fundraising in e-commerce?
I can say it's not difficult for us. There's more demand (to invest) than we can handle, there's more incoming request than there was previously. And we have said more 'no' than 'yes'.
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When is your next round of funding?
We don't need money now. We have enough money for current operations. People have been making offers and benchmarking prices, while we are saying 'not yet'….
Has your company experienced a valuation markdown like some others?
The offers that we have received are many times over our expected valuation. We are in the business to build money, not to raise money.
What would you peg Paytm's valuation at?
We are not in the market for fundraising, so I cannot give a number yet.
Why do you think valuations in some leading e-commerce companies such as Flipkart have been marked down?
Valuation is typically based on expectation of a business but it is not a single depiction of a company. A markdown could be because of market conditions and demand at a certain point. It may not be a true reflection of a company's intrinsic value. I think the valuation talk is overrated. Founders and entrepreneurs should build intrinsically value-led companies, so that if you are not there, people will miss you hell of a lot. For instance, if Amazon is not there in the US or Alibaba is not there in China, people will miss. If Google is not there, you will miss it a lot.
What about Flipkart? Will it be missed if it was to go?
I'm sure Flipkart will be missed by people who are used to it. There's no doubt about it.
Are you planning to hire more students from IIT, IIM campuses as some rivals have kept students waiting?
Surprisingly, we underestimated our requirements in bank and finance while we hired. So, we can pick up another 100 - given a choice - from IITs, IIMs, XLRI and others soon. This is in addition to recent 45 campus placements.
What's the employee strength and outlook?
It's around 4,500 now, up from 3,500 last year. We have hired more than 200 in technology and business teams this year. Within one year of launching payments bank, the employee strength will be 5,000.
What's your thought on companies shifting from gross merchandise value (GMV) of products sold on a platform to customer satisfaction metrics?
Those who were chasing GMV were dumb from Day One. It was not a number to chase. Their math was not right.
What are the financial goals for the group?
By April 2018, we should have a transaction GMV of Rs 1 lakh crore, up from Rs 20,000 crore now.
Currently, what's the Alibaba play for Paytm?
They are the most important and incredible partners for us. We continue to leverage each others' capability. They also bring us money, surprisingly (laughs).
What if Alibaba enters the Indian e-commerce market on its own? Does that worry you?
No, it is not a worry. We have said clearly that Paytm will be known as payments and financial services company. I haven't heard that Alibaba has plans in those areas in India.
But do you believe that Alibaba will make a direct entry into India on its own, rather than with companies where it has invested?
That's a commercial and economic model discussion. I don't think I have a direction on that. I know Paytm will be a formidable banking and financial services company. We both (Alibaba and Paytm) are in sync. They are giving us ammunition in technology, resources and money as we demand and as we need.
Are you looking for another round of funds from Alibaba?
We have money for 31 quarters if we were to carry on with our current businesses. Once we launch payments bank, the money will still last us three to four years. There has to be tremendous reason to raise money or if someone is selling.
Are you looking at phasing out e-commerce or any other segment over time?
E-commerce is an incredible asset for us, like Amazon Web Services. It is a profitable asset in our business book. It is also critical for access to merchants. As for phasing out, the recharge business may come down in percentage terms in the total transaction pie. It is 25 per cent now and may be down to 5-7 per cent in one year.
How will you rank the segments within the group, in terms of profitability potential?
Financial services will be on top followed by commerce, treasury and payment. Wallet or payment is last because we want to incentivise merchants and consumers. That should remain sustainable rather than looking for profit.
When are you launching the payments bank and how much will you invest?
We will launch by Diwali and will invest around Rs 300 crore to begin with. Reserve Bank of India (RBI) has mandated an investment of Rs 150 crore.
How many bank branches are you looking at and which regions do you want to go into first?
We are not aggressive on branches. Maybe one or two, while focusing more on business correspondents. We want to begin with Northeast and central India as they are the toughest. If we solve the tough places, we will be able to solve the rest.
There are concerns around the business model of payments bank and whether they can be profitable.
It is a totally profitable business model. Profitability is not a distant dream. No mark has been decided by the board. The idea is to make sure you are prudent enough and start making money.
What about profitability in your e-commerce business?
We are among the rare e-commerce companies to have started making money. We are technically profitable.
In payments bank, what will be your acquisition cost of a customer?
We are setting it at $1, including know-your-customer (KYC). Currently, the group's acquisition cost of a customer is $2. We have to keep it low.
Are there any regulatory challenges in banking?
Not now, unless roadblocks come later. In KYC, we are talking to the regulator to understand the rules… We want to build India's first Aadhaar-only bank.
Is it a concern that three banking licencees have dropped out?
Not at all. People have to discover their business models. Ours is sorted. We may bring a new banking business to the world along with RBI.
STRAIGHT TALK
ON ALIBABA
They are giving us the ammunition - tech, resources, money as we demand and as we need
ON GMV VS CUSTOMER SATISFACTION
Those who were chasing GMV were dumb from Day One
ON CAMPUS HIRING
We can pick up another 100 from IITs, IIMs, XLRI, if given a choice on payments bank
We want to build India's first Aadhaar-only bank