Vijay-shekhar-sharma-harinder-takhar-paytm

Mobile payments and commerce company Paytm* announced that it had sold 25% stake to a subsidiary of Alibaba, China’s e-commerce behemoth last month. Paytm and Alibaba are similar in the sense that Paytm has a consumer markertplace business as well as a payments business (via the Paytm Wallet). Paytm founder Vijay Shekhar Sharma (VSS) has also applied for a Payments Banks license.

A couple of weeks ago, MediaNama spoke at length with VSS about the fund raising, plans for business, differentiation, and how Paytm’s operating environment is different from what Alibaba faced. Part one of our discussion with VSS:

MediaNama: What are you going to use the money raised for?
VSS: This country has half a billion Indians, no bank, no financial institution with their current cost structure. These people have Rs 2,000-5,000 to spend on utilities (need) and another Rs 2,000-5,000 on their desires. We want to bring them into the mainstream economy, and first thing, we want to sort out their payments, so that is why we take care of their utilities and other payments.

Over and above that, once we have a credit and transaction history for them, which is the fundamental need for any large financial institution, we will be able to offer other financial services in partnerships with large banks. A part of the money that we raised will be spent on getting these people in the mainstream economy. We are aiming at 100 million by next year (2016).

Over and above that, once we have a credit and transaction history for them, which is the fundamental need for any large financial institution, we will be able to offer other financial services in partnerships with large banks.

The economic impact doesn’t come from one side: it is two sided, with buyers and sellers. We have 40 million registered SMEs in this country and I would say that about 100 million, all inclusive, need help with their technology business. These companies are fighting large retail and online retail. We want to bring these people in the mobile commerce platform. Sometimes they are boutique producers and small manufacturers. So, we want to remove the middlemen and allow them to sell their produce directly to consumers.

Because of financial inclusion as an agenda, these companies don’t get overdraft and small loan facilities. I myself have gone through this, where taking a loan was not possible from a bank and I ended up taking a loan whose interest was 24%. It is very evident that banks are meant to serve those who speak the language of the corridors, not necessarily those who speak the language of business. These people do cash transactions.

If they come to our platform, they will have a commerce story and history, and banks and financial institutions would be able to help them. Our business model requires these people to be brought on to the mobile commerce platform, meaning we could be spending nothing less than $200-250 per merchant. The money that we’ve raised will be used in bringing these half a billion Indians and 100 million merchants on the mobile commerce platform.

MediaNama: These are two separate businesses, so what comes first: the financial inclusion part or bringing the merchants on board? What drives the two sided network?
VSS: Different companies answer this question differently. Our answer is very straight: consumer comes first. If there is traffic and footfall, the merchant will come. First, we have to build a consumer base, to whom we offer a minimum viable product, with minimum usability of the payment offering. That is why we operate with an anchor of a few utilities. Consumers use three key utilities every month: energy, transport and communication. These are such needs of a monthly expenditure, that we anchored our platform on these, and will double down on them more. That way consumers will stick around on our platform. Once that happens, merchants will also come. The first pitch is to bring consumers on the wallet platform.

The answer to fighting one big gorilla is not to become one more big gorilla, but create thousand more gorillas.

MediaNama: If you look at it as a funnel, how many consumers are currently transitioning from the utility and energy platform to the merchant platform right now?
VSS: You can call it a funnel or an anchor store in a mall. This is what a Big Bazaar or a Cinema becomes in a mall. You go there for them, and then rest of the shops get benefit of that footfall. We have 30% of our GMV from non topups. We’re crossing 20,000 bus tickets a day now, and our booking partners found that we were moving offline consumers to online, not taking their market. Consumers have put trust in our platform for their first transaction on the Internet. Recharge has become a category for acquisition for commerce overall, not just…

MediaNama: But travel is just a utility, again, right?
VSS: If you look at it, everything other than a Ferrari is a utility. It’s a spectrum, not a hierarchy. This is the beauty of it: first we focus on everything that you have to queue up for. That is our first opportunity. From there on, we can bring you something for which you need consumer comfort. Our understanding has been – build a comfort and trust relationship with a consumer. Today, India has not more than 30 million transacting users, who pay online, and not through cash on delivery. Paytm has around 26 million of these. These 26 million who put trust in recharges can put trust in other transacting categories, and bus tickets was the first of those. It’s a need, a utility. Incidentally, internally, we haven’t been able to define what a utility is. These are all digital goods.

MediaNama: How many of them…
VSS: 80% of our marketplace are those who have recharged. We are crossing a million orders a day. Merchants have to do a good job of bringing merchants on board, and then merchants have to do a good job of giving an offering to consumers.

MediaNama: How are you going to spend the money raised? Are you going to put feet on the street for merchant acquisition?
VSS: When we went online, and created a link for becoming a merchant, we got 500-1,000 queries a day. Our target is, this year, we want to bring 100,000 merchants on our platform. Our merchants are those who will be selling.

Most of the marketplaces in this country have a dormant merchant base. They have it as a fancy number to announce, but they don’t have a catalog, inventory or even orders for those accounts. If you see India, it’s not more than 5,000 merchants selling online.

Most of the marketplaces in this country have a dormant merchant base. They have it as a fancy number to announce, but they don’t have a catalog, inventory or even orders for those accounts. If you see India, it’s not more than 5,000 merchants selling online.

The true differentiation of a marketplace would be – how have you been able to bring and support the merchants that no one is taking care of. Bring support, training, logistics, operations, order management. I think that is where Paytm will differ from others. In a year’s time, there would be a clear demarcation of who is a marketplace which supports merchants, and who is a marketplace for legal reasons, and selling by proxy merchants. The very reason that people discount is because they are themselves selling. Otherwise, in a given scenario today where you are discounting the sellers item, the sellers affiliate is buying the product, and a circle is made: your GMV is growing because the seller is buying the product himself, not even sending the inventory. Anyone can build a billion dollar business by accounting and spending $100 million. If you want to build a long term, scalable, impactful marketplace for this country, you have to bring these millions of SMEs on board. Our processes are being built for bringing millions of SMEs on board. It includes catalog operations or it includes help as an account management. We have account managers for helping merchants. Today, all marketplaces have shown that there is a huge consumer appetite. They haven’t shown active merchant numbers, which is not more than 5,000-6,000.

MediaNama: How many do you have currently, in terms of active merchants?
VSS: Not more than 15,000 active.

MediaNama: What are you going to do? Are you putting feet on the street for this?
VSS: We are adding 5,000 people purely for merchant sign up and management this year. We’ve seen the top cities for economic activity in this country: Jaipur, Vadodara, Ahmedabad, Metros and top 10 cities. We have local offices in the local market, and we want to tell them the advantages of mobile commerce. Thanks to other large e-commerce marketplaces, they already know. Problem is that someone is himself a proxy marketplace, and is himself a seller. Our business model doesn’t conflict with the merchant’s business objective.

MediaNama: In this battle for domination of marketplace business, where do you place JustDial?
VSS: It’s the consumers perception, in terms of what you do. The work that last five years have been done in commerce, tells us that there’s a tremendous amount of work to be done. I don’t know how it’s playing out for them. My understanding is that they have a consumer base, and a merchant base, and they should be placed optimally. One thing is clear: every businessman in this country knows that the every other businessman in this country knows the business model. We don’t sit on arbitration of information asymmetry. We all sit on the side of execution, and who can execute better, smarter and faster. I doesn’t matter on first, second and third, but how we’re executing it.

MediaNama: What sort of tools will you provide the merchants?
VSS: The minimum thing that we Indians do is that we talk to the seller. What we have is a messenger, and proxied it from sellers for a long while, because we weren’t sure of whether they would bring manpower to this. Now they have, and want to. We will have communication as the first tool. Catalog management is a minimum feature. We’ll offer them insights on consumers, and what they do and don’t do, and give them analytics and feedback on their storefront. Third is marketing: if we’re running a promotion, they can become a part of it. Paytm’s business model is: we take money for payments, marketing, and smaller merchants who do not have logistics, potentially that’s the third earning point.

MediaNama: Could logistics be the differentiator in this market?
VSS: More than differentiator, it has become hygiene. If you’re buying an iPhone from Jaipur and you want a price, we would first show you a price from a Jaipur seller, and you could get it the same day. We don’t want to be the company hiring 20,000 delivery boys. We want to be the company which will solve the merchant’s problem first by giving them customers in their vicinity. Second, if they are selling to remote places, we have created a logistics cloud, where multiple logistics companies are collected. For example, if you are a Vadodara seller, selling to someone in Puri. This merchant can put it on the platform, we pick a point to point courier from Vadodara to Mumbai for Rs 5, Bombay to Bhubhaneshwar for Rs 10, and Bhubhaneshwar to Puri for Rs 15. We are able to sort out the problem in Rs 45, versus what would have cost Rs 65. We’re creating a “Star alliance” for courier companies. We would always have our technology team solve a problem. The answer to fighting one big gorilla is not to become one more big gorilla, but create thousand more gorillas.

*Disclosure: Paytm is an advertiser with Medianama