Alibaba Group Holding Ltd (BABA)

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Alibaba Pays To Play In India
By AARON BACK Jan. 12, 2015 4:33 a.m. ET
Click For wsj.com Article


The Alibaba logo at the company's headquarters in Hangzhou, China. REUTERS


Alibaba is bidding for a chunk of the coming payments revolution in India.

In its first India investment, Alibaba and an affiliated financial services company have agreed to pay $575 million for a 30% stake in One97 Communications, The Wall Street Journal reports, valuing the Indian company at more than $2 billion. It’s the latest in a flurry of big investments in Indian e-commerce, seen as the next big digital market.

The Indian company’s prize asset is Paytm, a mobile payments platform, which also runs an online marketplace in India that matches merchants to shoppers, similar to Alibaba’s business model in China.

In the Alibaba deal, Paytm users can shop for goods on Alibaba’s sites and vice versa. This appears to fit with Alibaba’s ambition to expand the reach of its marketplaces beyond China. But the opportunity for cross-border e-commerce through this deal will be limited.

Paytm’s marketplace is small compared to rivals such as FlipKart and Amazon’s local India operations. And China is hardly teeming with unmet demand for Indian goods. There are stumbling blocks to Alibaba’s China-based merchants selling to the subcontinent, given India’s import tariffs and cumbersome customs procedures.

The bigger opportunity lies in how people will actually pay for their online purchases. India has dozens of so-called “mobile wallet” providers. While reliable third-party data isn’t available, Paytm describes itself as the largest, with 20 million registered users.

Payments are a bottleneck for Indian e-commerce, with low credit card penetration and the bulk of e-commerce transactions settled through cash on delivery. China was the same not long ago. Alibaba transformed this with Alipay, which offered an innovative escrow service allowing buyers to withhold payment until satisfied with a purchase. Under the deal, Paytm gains access to Alipay technology.

In India, mobile payments are also held back by regulators. Users can put money into mobile wallets but can’t take it out except for online purchases. The Reserve Bank of India’s initiative to expand access to banking services promises to change this.

Paytm has applied to the central bank to become a “payments bank,” a new category of financial institution that won’t make loans, but will be able to take deposits, issue ATM or debit cards, and distribute financial products such as mutual funds and insurance.

Alibaba affiliate Ant Small & Micro Financial Services Group has ample experience to share, having pioneered in China financial innovations including the Yu’E Bao money-market fund, with tens of billions of dollars in assets under management.

The spread of affordable smartphones, rising interest in e-commerce and a push to expand banking services to the 40% of the population that lack them are conspiring to drag forward mobile payments in India. Alibaba sees the trend and is getting in early.





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