Why Is Alibaba Investing In Indian Online Payment Platform Paytm?

Alibaba has an ambitious goal: becoming the first company to exceed $1 trillion in gross merchandise value in the next five years. To accomplish this, Alibaba is looking to expand in emerging markets, as developed markets like North America and Europe are mature and have high barriers to entry. Emerging markets with rapidly growing smartphone penetration, relatively poor offline retail experiences, challenging logistics environments, and limited online payment infrastructures are ideal targets for Alibaba’s expansion.

India ticks all four of those boxes, making it an attractive opportunity (as are Southeast Asian countries including Singapore, Thailand, Indonesia, and Malaysia). Alibaba’s decision to invest in Indian online payments platform Paytm is its starting point to enter the Indian market:

  • The mobile marketplace is a huge opportunity. Forrester expects mCommerce in India to top $19 billion by 2019— an attractive opportunity for players like Paytm, which currently counts more than 25 million users. Forrester expects that the number of online buyers in India will rise from 36 million in 2014 to 125 million by 2019.
  • Alibaba gets a leg up in India.India’s mobile marketplace is crucial to Alibaba’s growth outside China, and Paytm gives Alibaba a good starting point. Paytm gives Alibaba access to an already existing online payment solution in a mobile-first marketplace where more than 40% of total online sales come via smartphones. Online payments and mCommerce are both growing rapidly in India. The deal allows Paytm users to shop for goods on Alibaba (giving them access to Chinese sellers without having to go through AliExpress) and Alibaba customers to use Paytm. In terms of an online payment solution, Alibaba gains access to more than 25 million Paytm users,allowing the retailer to bypass the limitations of Indian eCommerce, like low credit card penetration; Alibaba is looking to make Paytm “the Alipay of India.” Paytm is already the preferred choice of many Indian consumers in terms of paying utility bills and topping up mobile phone balances; it has also applied for a license to become a payments bank that can issue ATM cards and sell financial products. Alibaba has significant expertise in both areas — making this a good match.
  • Paytm gets much-needed expertise and clout. Paytm can leverage Alibaba’s expertise in rapidly scaling up marketplaces to boost its presence, which is currently small compared with other market players. Indian online buyers are not loyal to any marketplace and will readily switch to one with better prices and customer experience. This deal helps Paytm engage the 25 million users it already has to shop online for goods, pay utility bills, and use mobile wallets. Paytm is looking to fulfill several objectives: rapidly enhance its marketplace offerings, build its online payments business with the help of funds and technology from Alipay, and expand in Southeast Asian regions including Singapore, Thailand, Malaysia, and Indonesia— countries of keen interest to Alibaba.

Indian online retail is powered by marketplaces like Flipkart, Amazon, Snapdeal, and Shopclues. The entry of another mobile-first marketplace backed by a giant like Alibaba with only accelerate this already fast-growing market and fuel growth in the online payments sector, which is critical to the success of other online services being offered in the market, like app-based cab services.

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