On July 12, Indian digital payments company Paytm will seek shareholder permission for what could be India’s largest-ever IPO.
Its progress will draw interesting comparisons with the fate of its Chinese equivalent – and notable shareholder – Ant Group.
According to a notice calling an extraordinary shareholder meeting in Delhi, Paytm will sell 120 billion rupees ($1.6 billion)-worth of new shares.
That is understood to be part of a combined primary and secondary share sale that will raise the equivalent of around $3 billion, with JPMorgan, Morgan Stanley, Goldman Sachs and ICICI Securities as joint bookrunners.
If it does so, it will overtake the Coal India IPO as India’s biggest-ever listing. Paytm could be valued at close to $30 billion.
Shareholders
As Euromoney explained in our landmark feature on the company in 2017, Paytm started life as a prepaid mobile recharge website in 2010 before taking advantage of prime minister Narendra Modi’s controversial demonetization programme and pivoting to become the largest mobile payment service platform in India.
Along the way it attracted the attention of Ant and its parent Alibaba, in a partnership that was about a lot more than money: Ant used Paytm as one of the largest-scale examples of its strategy to buy minority stakes in businesses in other countries that resemble it, introducing Ant’s tech into the back-end while riding upon the local partner’s licences, cultural knowledge and reach.
Paytm has since assembled quite the roster of other shareholders, SoftBank and Berkshire Hathaway among them, but it is the Ant position that catches the eye, since the Paytm IPO will follow Ant’s aborted attempt at its own listing.
Even some of the bookrunners are the same: JPMorgan and Morgan Stanley were leads on the Ant deal – alongside Citi, which is in the syndicate on Paytm – and Goldman appeared at a lower rung in the syndicate.
Over the years, the relative regulatory positions of China and India towards their fintechs have shifted.
China used to be the best place one could possibly build a fintech: in addition to a vast population, it had a retail market underserved by stodgy mainstream banks, a young populace very happy to conduct business – and surrender data – through their phone, and, crucially, a very benign regulatory environment that gave early leaders such as Alibaba/Ant, Tencent/WePay and Baidu a head start.
India suddenly seems more supportive of fintech power than China does
The Reserve Bank of India (RBI) made its own attempt to shake up banking with its 2014 issue of draft guidelines for a new institution called a payments bank.
Coupled with the Aadhaar national identity scheme and the Unified Payments Interface (UPI) – both state-led digital initiatives to bring about financial inclusion – the potential for disrupters in India seemed exceptionally high.
However, progress was originally jittery: despite 41 applications for payments bank licences, with 11 successful, three ended up giving their licences back, reasoning that it was not worth going ahead.
In the last 12 months, though, things have shifted. China has intervened to reduce the power of its fintechs, most clearly illustrated in the last-gasp abandonment of the Ant IPO and the subsequent restructuring of that company.
In India, the mood is very much of encouragement: Paytm and Airtel Payments Bank have thrived on the back of state-created infrastructure and encouragement.
Digital payments in India have experienced a compound annual growth rate (CAGR) of 61% during the last five years in volume, according to Airtel, with the highest growth both in number of customers coming online and the volume of payments they make when they get there.
The decision by the RBI to allow Lakshmi Vilas, a troubled but storied south Indian bank, to be taken over by DBS’s local digibank operation at no cost beyond goodwill, and to give DBS a full subsidiary licence for it in the process, also speaks to a regulatory willingness to let the digitally savvy do what they need to do to tear up local banking.
And private capital has already shown its willingness to embrace Indian innovation. In a single week in April, funding rounds created six new unicorns – startups with a valuation of $1 billion or more – including the fintech Cred.
Credit Suisse says there are 100 unicorns in India now, worth $240 billion between them.
Challenges
That being said, even if the banking regulator is happy to shake things up, the securities regulator is as stolid as ever, and Paytm will face challenges, not least of which is that it is still loss-making, and the Securities and Exchange Board of India (SEBI) requires companies to be profit-making in order to list.
It is understood that, to get around this, 75% of the offer will need to be made to qualified institutional buyers, with a maximum of 25% going to retail, which includes high net-worth individuals.
On top of that, Paytm, like all Indian enterprises, cannot just up sticks and go and list in the US like the Chinese can, though there is a sense that this might soon change.
Also, the democratic nature of India’s UPI is great as a crucible for new disruptive ideas, but not great for a leader trying to protect market share, such as Paytm.
However, that is for the market to digest. Investment firm Bernstein says Paytm leads on merchant payments and earns 10 to 15 times more revenue per active user relative to UPI-focused competitor payment apps.
The key point is, India suddenly seems more supportive of fintech power than China does, and that is a turnaround.
