After recently spinning out its e-commerce business as a separate platform, Paytm is now planning to put in around INR 800-1,000 crore in the entity. The investment will be aimed towards scaling its marketplace and help it gain a secure foothold in a niche with cutthroat competition.
In 2014, rumors of Paytm’s attempts to build a separate e-commerce entity to take upon the likes of Amazon and Flipkart surfaced. The company already offered stuff for purchase through its payments portal, however this time, the idea was to create something which would be able to lay all of its focus upon scaling the e-commerce business.
Then, a few months ago One97, which runs and manages the portal, registered an all new entity called Paytm E-Commerce Pvt. Ltd. The entity is expected to handle the online retail business of the payments and e-commerce platform in the near future.
However, e-commerce in India is a highly saturated space. With investors wary of cash guzzling startups and a significant percentage of online shoppers already committed to one or other of the handful of major portals still operational, gaining a foothold is not going to be easy for a new player. Particularly when you have competitors like Flipkart, Amazon and Snapdeal.
In fact, Paytm founder Vijay Shekhar Sharma acknowledged as much in July when he said that,
The ecommerce business and market is reaching maturity of players. The next 6-9 months, it will be decided who the key contenders of the business are.
However, he still believes that backed by the presence Paytm has in the digital payments space, it’s e-commerce spin-off will be able to carve a niche for itself, eventually. Hence the 1,000 crore investment.
Speaking on the topic with the Times of India, Sharma said,
The latest funding round will take about two months to close but the management has decided our marketplace is a key business for us, and new investors will put in money into the commerce entity . We will be able to adequately capitalize our marketplace business with Rs 1,000 crore initially.
The company certainly needs a shift in strategy if it wishes to seriously continue with e-commerce. And the spin-off followed by the subsequent investments may just be exactly what it needs. Last year, the company closed with a $3 Billion GMV. Almost 60% the said amount stemmed from its core payments business and the company recorded almost Rs 372 crore worth of losses.
Most of these losses were incurred due to the money Paytm was putting into its e-commerce vertical to give it a fighting chance against the likes of Flipkart and Amazon. There is also a strong probability that the company would have come up with an overall profit, but for the cash lost in propping up the e-commerce portal. So yes, the spin off certainly makes a lot of sense.
Creating a new entity for the marketplace will allow the company to allocate separate resources and also invite independent shareholders to invest in the business. Meanwhile, it may provide an opportunity to Paytm’s largest backer, Chinese behemoth Alibaba, to launch a consumer-focused online retail business.
It will also allow Sharma to focus more of his attention on Fin-Tech, which according to him, is slated to become a market more valuable than e-commerce. Paytm is already putting in significant capital into its payments bank business, and is hoping to go ahead with a beta launch around the Diwali festive season.
The company certainly has the funds it needs to kick start its e-commerce journey. It recently raised around 400 crores in a funding round led by MediaTek and is said to be in the midst of raising another 1,600 crore round. Flipkart, Amazon and the rest of the giants already battling it out in the niche are not going to make it any easier for Paytm. However, a 1,000 crore investment may just go a long way in smoothing out Paytm’s road to e-commerce.