Alibaba-women-620xaAccording to the Financial Times Alibaba is in advanced talks to buy a $500m stake in the parent company of leading Indian mobile payment platform Paytm, marking the Chinese technology group’s first significant foray into the country’s rapidly expanding start-up scene.  Both Alibaba Group Holding’s ecommerce arm and its online payments unit Alipay are set to participate in the transaction.  Under the terms of Alibaba’s deal, Alibaba and Alipay will take minority stakes as part of a two-stage investment in One97 Communications, the parent company of Paytm, India’s biggest mobile payments company by market share.

Paytm allows Indian phone users to place funds in a mobile wallet, which they can spend on services such as taxi app Uber and cinema ticket service BookMyShow.   It claims to have about 20m users.  Paytm also launched an online marketplace last year, providing a platform for business to sell products to customers online.  This is similar to the Alipay, China’s leading payment platform by revenue, which Alibaba offers in its home market.

Paytm will use the new funds to invest in infrastructure helping thousands of smaller Indian businesses to begin using their mobile marketplace, grabbing more of an ecommerce sector that will be worth $44bn by 2018, according to analysts at CLSA, the financial services group.

The arrival of Alibaba is likely to increase excitement over the sector’s prospects. It will also pit the Chinese company against US-based Amazon, which invested $2bn in its local subsidiary last year.  No doubt these new developments will accelerate the pace of moving India from a cash society to electronic transactions.  In India one needs good luck in finding a local store or delivery person who accepts anything but cash.  Even in nation of 1.2bn, fewer than 1 million retailers are set up to take a credit card.

The Indian government should be delighted by this development.  When cash is converted into electronic payments they become transparent for the tax authorities.  It will also help reducing the amount of cash in circulation, thus reducing the cost of printing money.

Source: Financial Times