Unicorn payments startup Paytm – India’s largest mobile payments company – has amassed over 200 million users since its launch in 2010. But CEO Harinder Takhar says that only sounds like a lot.
“India alone has at least 1.2 billion people,” Takhar said Wednesday at CB Insights’ Future of Fintech conference. “We think at least 800 million of them should be on our app.” Following a recent raise of $1.4B of capital from SoftBank Group, Takhar and his team have quite a bit of runway to go after them.
Speaking onstage to moderator Selina Wang of Bloomberg, Takhar said that there is no timeline for an exit and “no impatience” for an IPO among his investors, which also includes Alibaba and Ant Financial, the investment arm of Alibaba’s Alipay online payments platform.
As the predominant mobile payments tool in China, Alipay has served as a model for Paytm to learn from. And the information Paytm has gathered from Alipay has been instrumental in Paytm’s development efforts. Whereas Alipay is already on the fifth generation of its product and has the ability to process 200,000 transactions per second, Paytm is only on its second generation … for now.
“We’re not working on the third generation of Paytm. We’re working on Generation 6, with [Alipay], together,” said Takhar. “If we have to prepare for that kind of scale, why not learn at that level and build at that level so we can skip a couple of steps?”
The company, which has raised nearly $3B and is valued around $7B, according to Takhar, counts speed as its greatest asset. Takhar says that Paytm’s quick reaction to major regulatory changes in India – namely Prime Minister Narendra Modi’s demonetization of the Indian currency – has had much to do with the company’s overall success.
“Demonetization was useful to us and to all of our payment partners because for some time there was no currency,” said Takhar. “For three months, people had to do things digitally, which brought a lot of merchants into the Paytm POS.”
Paytm took out full-page ads in Indian newspapers that merchants could post on their storefronts during the monetary policy change to tell cashless customers: “Paytm accepted here.”
So will Paytm be accepted here, in the US, any time soon? The North American market is on Paytm’s radar: The company recently launched an app for Canadian bill payments, and Takhar says Paytm is learning to adapt its Indian-born value proposition to the needs and preferences of Western consumers.
“If we crack that code and we have a very good proof of concept, then there’s no reason we shouldn’t explore doing that in any other country in the world,” said Takhar.
Transcript
Selina: Good morning, everyone. I’m very excited today to be sitting down with Harinder Takhar. He is the CEO of Paytm Labs in Canada, which is the research and development division of Paytm, which is the largest FinTech player in India. But prior to that, he was actually the first CEO of Paytm. So I just wanna start out with Paytm, you know, just a quick summary of what it is and how it went from mobile to e-commerce, and everything else that it’s become.
Harinder: All right. So, Paytm is a mobile payments and commerce company in India. We enable people to pay for their Uber rides, or pay for their food at a restaurant, we allow people to buy movie tickets, flight tickets, whatever else have you. So we mostly work within the mobile app, Android as way more than iOS, as you would expect in India. We have quite a lot of people who do quite a lot of transactions with us.
And very recently we launched our Paytm Payments Bank. It was on the 23rd of May. And so with that, we are actually getting more and more into financial services. We actually use a lot of our data to figure out what financial services people could get. An example is people who previously would not have gotten a loan would get a loan from us and so on.
Selina: And now Paytm grown to more than 200 million users and this Canada arm is important to making the service run smoothly, right? Can you talk a little bit about what you’re doing in Canada?
Harinder: Sure. The Canada arm started in 2014, maybe at near the end of 2014. At that point we figured that data is an important thing and we must do something around data to make sense. And there were a few things that we had in mind, but we started with one, and that was fraud detection. So we were doing at that point a few million transactions a day and fraud is a classic needle in a haystack problem in which it is very important for you to know how to use computers that no longer use any humans to find out what kind of fraud could be happening.
So we set up a machine learning skill lab and then we went on to do more things using machine learning. So today on the app, a lot of things are automated, where machines decide what you could see, whether this transaction is good or bad and so on. So that’s the starting point for our Canada office.
Selina: But you’ve also actually built a product for Canadian consumers, right?
Harinder: Yes. So having been in Canada for a couple of years, we decided that, well, maybe we should take a shot of understanding the Canadian consumers. We found that there is a gap in the bill payment space. So we launched our app in fact very recently, it’s been less than three months.
Selina: Okay. So I can imagine the Indian consumer must be vastly different from the Canadian one. I mean, what are some interesting cultural differences that you found?
Harinder: They’re as opposite ends of the spectrum as I can imagine. The most stark difference is that the Indian consumer would typically stay in queue for a couple of hours to save some money. The Canadian consumer would spend some money to avoid being in that queue.
Selina: Probably like the American consumer as well?
Harinder: And I think so. Yeah. I mean, the Canadian consumer should not be very different from the American consumer. So in that sense, definitely, that’s a good starting point for us. So that’s the first difference. We believe that it’s very different value proposition. We don’t chase discounts over here. We don’t chase something cheaper over here so much as convenience.
The other thing is the regulatory framework. The regulatory markets in the regulatory framework, I would say in Canada, is different. I would say in some places it is much more mature, in other places it is still figuring out. So these are I think the two different things. I mean, consumers, especially in the area of financial services and payment, they don’t really follow the same behaviors across borders.
Selina: So is this kind of a test of the North American market or do you really have sites to bring some sort of consumer product to North America that’s…
Harinder: So I’ll say, at this stage, it is a test. We are trying to see that we, as company that was born and, you know, grew up in India, what we can do to make the life of a Canadian consumer easy. And if, I think, even if we crack that and we have a very good proof of concept, then there is no reason why we should not explore doing it for any other country of the world.
Selina: And I wanna shift gears to back to India. You recently received approval from the Reserve Bank of India to start a payments bank and it just started operations. Can you tell me a little bit about what that’s been like so far and what the ultimate banking ambitions are?
Harinder: The launch started in a very humble way. We literally had like one branch and a few tellers banking with the branch and so on. But just like we did with the Paytm app, we believe that our app will actually serve as a better branch and will do a much bigger outreach. We offer savings accounts and current accounts to businesses and small consumers today, and that is pretty much all we do as of now. Going forward, there is a whole, you know, host of financial services that we could offer to people and that’s definitely on the agenda.
I’ll say, one of the things which I personally am looking forward to happen very soon is, our app would literally have services that you could order from the app itself. And in case it requires you to interact with a person who’s a bank employee or something, then you would request that person…I’m sorry. You would request for that service and let’s say there is a KYC document that you need to upgrade, or you need to withdraw some cash, you would see some people on the map, and one of those will actually come to you probably in a tubular [SP] or something and do the transaction for you.
I think that being in India allows for us to think of these things. We actually might have to do this instead of installing bank branches and all that infrastructure across the country.
Selina: Wow. Okay. I wanna dig into that a little bit more. But first of all, Prime Minister Modi has helped Paytm in many ways with the announcement of demonetization. There was an astronomical growth for digital payment platforms, especially Paytm. What was that experience like and what have been the ensuing opportunities and growing pains as a result of adding so many users in such a short span of time?
Harinder: I’m going to make a correction first. Prime Minister Modi did a lot to remove the corruption and to change the underlying problems that come with cash. Paytm was very good at reacting, and that is actually one of our very strong mottos, if you will. So nearly every office in our company has this poster that says speed is our only sort of big asset, right? Around 8:00 that evening, the announcement was made by Prime Minister Modi and we actually reacted. And by next day morning, we could afford to have, you know, front cover newspapers in all major national dailies.
I think that speed, when we were at the same level of surprise anybody else. Demonetization was useful to us and also to all other payment partners, I would say, because for some time, there was no currency. So digital currencies were the only way out during that time. There was a three-month period where you could not actually use currency in the way that you were used to. So that brought in us…brought in a lot of merchants who found that launching of Paytm Pause, which is actually, literally, just a QR code, was super simple, and anybody with an Android app or an iOS app could come and buy and, you know, sell goods with that.
So we found a lot of uptake from merchants who did that. We had to do a lot of education. We actually educated not only our merchants, but also the government institutions. So there is a funny incident there. We wanted to tell merchants that they could actually just put a Paytm QR code on their shop and say Paytm accepted here. Now, the logistics of that was extremely difficult to pull out in this short time.
So for a few days, we actually took out full-page ads which literally had, you know, a part of the newspaper that you could cut out and just put it outside your shop. And that helped people just put a sticker saying, “Hey, Paytm accepted here.” And that helped them.
Selina: So it wasn’t just the fact that it happened, you also reacted incredibly quickly to it and that was a big part of getting all those users?
Harinder: Yup.
Selina: So back to this Payments Bank, what are the banking ambitions? And, you know, in what way is there tension between Paytm and the traditional financial institutions in India? And in what ways are you working together?
Harinder: I would say there is probably a bit of both, but way more of working together than tensions. We actually have helped in the proliferation of digital payments across to so many buyers and sellers that were simply not addressed. There were so many bank accounts with zero balances or let’s say almost less than 10% digital activation of ATM cards or anything other than the printed passbooks and going to the bank for each and everything. So today, we’ve done the part of educating consumers. So I would say, if you think of this as the pyramid, we actually went two notches down, and now digital payments is a possibility across the board.
So until now, we had current accounts and savings accounts which are actually with every other bank, which were the ultimate sources of money. So people actually started moving money more in the economy and all this money is digital so it definitely gives an opportunity to the government to tax it. That’s one advantage, there is more money in the what’s called the not black money market. And there is also a convenience in transactions.
The offering that we have in our payment bank is current accounts and savings accounts. So we believe that we can actually use what we know about the person to serve that person when that person was typically not going to be served by somebody else. I’ll give you an example, our marketplace, we have a commerce arm. So on the app, we sell everything from shirts, shoes, televisions, everything. We actually partnered with a couple of lending companies. So one of them is Capital Float, for example. It’s very similar to cabbage, if some people here know that name.
And we work with them by sharing the data of the merchant in that marketplace. So if for example, they’ve grown very rapidly and yet the customers are very happy with the kind of service that they provide, they are a potential to get a loan and they would not have gotten loan otherwise because they’re a very new merchant. In India, typically, if you go to a bank and if you don’t have three years of financial returns and you don’t have your corporate score, you know, kept properly, there is no way you can get a loan.
So this is actually an opportunity where those people get that loan.
Selina: And how do you compare that experience to what’s happened in China? Is there similar, you know, rapid leapfrogging as people call it?
Harinder: I think if what we are discussing in India is a leapfrog, China is much more a leapfrog. It’s like a leapfrog over this leapfrog. In China, the use cases are not even funny. The score that you have from Alipay on your app is used not only to give you a loan, but it is almost like a social honesty score, if you will. Every time I go to China, there is an understanding…there is a new understanding of, “Oh, that score is now used for this new purpose.”
So that I think is very radical. You make a simple payment at 7-Eleven stores or any other convenience store, you actually get not only the fact that you paid, you know, $2 to this merchant, but also what you bought. The invoice is integrated right within your app. So the smartphone, I think the capabilities of that have been really stretched in China.
Selina: So do you see Ant Financial as a model of what Paytm could become?
Harinder: I’d say it’s definitely a very good inspiration. The fact that we are friends with them gets us access to the story, you know, because every now and then when we hear of, “Hey, this is what is happening over there,” there is a lot of details that happen along the way. There were a lot of failed experiments that happen that make you reach that end point. So being good friends with them gives us access to the story and how some learnings were made and how some mistakes were made.
Besides, we share on a lot of fronts, not only the business model and how the business model and the ecosystem evolve, but also on the technology and other access to partner as an example.
Selina: And so what’s an example of one of the big mistakes that Ant made that you’re hoping to avoid by knowing their story?
Harinder: I can mention one around technology, for instance. So the Ant Financial technology platform is now on its fifth generation. By my estimate, our technology platform is probably at the second generation in that story. We are not building the third generation, we are actually working with them on generation six together.
Selina: Okay. So what is that integration? It’s sort of integration, together?
Harinder: No. It’s not. So it doesn’t have to be integration, it is that when you go to this level of skills… I will give you an example. We do…well, at least six months ago, we were doing more than 10 million orders a day and that’s good scale. Ten million means that your systems, your processes, architecture has to be in a particular way. During Single’s Day last year, they pulled off, for a couple of hours, a third less than 200,000 orders a second. There is just so much to learn when you think about that sort of scale.
So if we build, if we have to rearchitect our systems and our processes, we now have the opportunity to do and see what the world looks like at that level and learn what they’re doing and just jump to that level. So we can skip a couple of steps.
Selina: And Alibaba and Ant are some of your big investors, as are SoftBank. So in addition to providing you a lot of capital, and we’ve touched on this with Ant, you know, what are some of the other benefits of having them as your investors?
Harinder: So like I said, the partnerships, we actually recently announced that we would be integrating the catalogs from Taobao and Tmall as well and offer them to Indian consumers. We announced the interoperability between the Alipay Wallet and the Paytm Wallet. In fact, when we are discussing what we can do in Canada together, there is actually a global conversation happening with the large financial institutions around what we can do together across the board. So these are a few examples where it’s not just, “Hey, we did this, so you should not do that.” But we actually work as a set of partners doing payments innovation across everywhere, where we are.
Selina: And what about SoftBank? How have they been helpful?
Harinder: SoftBank is very new. They are a very useful partner for us for the wisdom in everything that they have done so far and also, obviously, the money.
Selina: So on the money, the last round was $1.4 billion. Our sources say it was about a valuation of $7 billion?
Harinder: If you say so, then it will.
Selina: Is it high or am I too low, too high?
Harinder: It’s close.
Selina: Close, okay. That’s our Bloomberg source. Okay. So what’s the exit plan? When could you force an IPO and where would you list?
Harinder: Two hundred million people sounds very good, but India alone has 1.2 billion people and we think at least 800 million people should be on our network. We started in Canada, we have these many users in Canada. That’s like zero point something, something of the total network. There is so much to be done and we believe that until we have done this, there is a lot of journey in front of us, not only in terms of the number of users, the offering that we offer to them.
The other interesting thing is that because of Ant financial and because of SoftBank, there is a different aspect of what needing to go to an IPO, sometimes you need to go to an IPO because there is somebody who needs to exit. I don’t think we have anybody of our investors who’s looking for that sort of a short-term exit and, “Yay, I’m sort of out of this thing.” The reason I mentioned what all we can do is an ambition that is shared very consistently by people on our board. So we believe that wherever we are, we can actually become 100x of that. So there is no impatience, I would say.
Selina: Right. So not in the near term, but in the…I men if you had to put a timeline on it?
Harinder: I honestly do not know what timeline we can put. It is, I mean…the timeline should be when we have actually done the work that we have done, that we intend to do, and I honestly don’t know how long that would take us.
Selina: So let’s move on to competition. You’re well ahead of all of the competition, with more than 200 million users. I think your nearest competitor is maybe around like 55 million or so. Do you see your growth sustaining at that rate? Is growth tapering off? Are you are you worried about competition heating up?
Harinder: So there’s two kinds of growth, one is the number of users, 200 million, and I think 800 million adults in the country should definitely have Paytm. So there is just so much more to be done. I’ll take our biggest category which is bill payments. We don’t even do 5% of the bill payments in the country today. There is so much more to be done. And then the other growth is around the services that we provide. You would, if you download an app, there’s actually maybe 15 or 20 icons on that app. You’d notice that every two months we add a new icon. Movies and travel did not exist a year ago, and today we are the, I think, the number two in both these categories within less than a year of launch. We recently launched insurance payments and we actually now sell cars and two wheelers as well. So my point is that the number of services that we can add on the mobile phone for all these consumers is we haven’t even thought about those use cases yet so we are constrained by that. I think of this as still as early stages. The number of use cases that can actually come to the smartphone is still not done yet. The number of ways in which we can offer financial services to people who did not have access to those financial services is still not sorted out yet.
Selina: And what do you think about WhatsApp for instance, getting into digital payments in India?
Harinder: So I think more and more people in India have, what I would say, a digital way to get money. WhatsApp is definitely creating a very useful interface between those people. I mean, when you’re chatting, you can actually do the money transfer to that person as well. To me, the size of the market is good enough and I don’t literally…we don’t literally think that WhatsApp is going to take away something from us. If people are savvy… So I can send you an email on multiple interfaces, it doesn’t have to be just one network. I mean, you have your corporate email, and your personal email, they can exist. I think of this as two networks but they are interoperable actually. WhatsApp supports UPI, we also support UPI, so maybe someday it is actually just the same thing.
Selina: And most of the early adopters of digital payments are in urban centers. You know, what is Paytm doing to try to get those rural and semi-rural consumers?
Harinder: So one of the things that helps us is that we are app-based and we try to make it as much self-serve as possible. Where it is not possible to do self-serve, we actually have a trained field agent who we would onboard and that person would be your local ambassador, if you will. So for instance, you need to do…you need to give us your documentation so that we can open a bank account and there is no bank branch nearby, we would actually use that field agent to do that.
So in that sense we are not constrained by having a presence in that rural area because infrastructure is actually a much bigger concern in rural areas in India than in urban areas. We think that this is how we’ll reach out to those people.
Selina: Interesting. And how important are those consumers going to be as you try to reach that total addressable market?
Harinder: So the thing is rural does not mean poor. That is not a correlation. We think that they are underserved only because the logistics did not allow for an institution to reach out to them. There were no economies of scale. And the fact that we have technology today, the fact that an app which anybody can nearly democratically download from wherever they are, and the fact that there are data networks and there is, you know, the information gap is much lesser, it’s truly that anybody in a rural city has just as much access to these tools that anybody else has.
Selina: And what about profitability? Is that a near term goal? Paytm is known for having very good, you know, discounts and cashbacks. Are your consumers going to continue to see that?
Harinder: So it is good that we have a brand name that Paytm is a very discounted place. But I’ll tell you what, within several categories, we are actually on a positive contribution margin and several of those. So financial prudence is another thing that I will say is very much in our DNA. We are very aggressive for cashbacks and discounts when we are growing a category, but at the same time we know how to balance it. And I’ll tell you what, our data really helps us do that very, very well. The more you understand your consumers, the more you know what is the right level of discounting that you need to do and so on.
So as we are growing, there is new categories that are growing and we are definitely spending on those new categories, but there are established categories that I would call which definitely are not the ones in that.
Selina: And now, there’s been a big flurry of investments into FinTech in India. Of course, there was your fundraising and as well as many others. Do you think the space is overheated? Where do you think it goes from here?
Overheated? Simply no. One word reply. Like I said, I think there is a lot more to be done in FinTech than what we are doing today. It’s a lot of inefficiencies. And I feel that because getting a loan for a house, getting a loan for education is still a problem and it is not correlated with, say, common sense. I know that in my case, when I went to study abroad, I had to take a big loan to pay for my tuition and the only option that I had was to actually put my house for a mortgage and I got 85% value of that house to go pay for my tuition. I didn’t have a house so actually I found somebody else who put their household there and that’s how I got the loan and so on.
It’s inefficient because you actually have much better loans for students which actually take into account their future earning potential, and that’s how they underwrite. The reason these systems don’t exist in India so far is you don’t have enough information, the credit bureau, if you will, the Equifax, TransUnion, there is nothing equivalent of that in India. So our score we believe…so we also have our own score in India, we call it Karma score. We believe that that score is a step where we actually can say, “You know what, Harinder is probably worth it because…or Harinder is probably worth this much of risk on this amount of money because of what we know about Harinder.” And that probably opens up more things. Can we do it all? We definitely don’t think so and there is definitely a lot of potential in companies doing that.
Selina: I want to talk a little bit about partnerships as well. So before you came to Canada, you had brokered a deal with Uber in India which is a very important market for them. You know, what was the deal making process like there and how important has that partnership been?
Harinder: The deal making process was long. I think we started in the very early part of 2014 and we announced it in the later months of 2014. We actually had been talking to every company based in the West that had an interest in coming to India and that was part of my role. I was in Toronto and I was just reaching out to these companies and figuring out what we could offer to them as a payment method. So I think one of the things that worked very well was that we had a dialogue with them for the longest time ever. So they understood us and they sort of knew what we were offering. And also we did a few custom workflows for them. We actually helped guarantee that the Uber workflow, which is, you know, you just tap and you leave the car, you don’t have to do any other confirmation, that was actually happening in our app. Until that time, we had not done this integration with any other merchants, so Uber was like the first merchant ever for which we did this.
Selina: The first one.
Harinder: So that definitely helped. The funny thing around that is that we, I think we were mentioned on TechCrunch for the first time on that day that Uber picks up this company from India and so on. And it was amusing for us because, well, it was some transactions, it was a lot of transactions, but we had been doing so much more already. And the fact that we got Uber, it got us a lot of attention. “Oh, Uber picks up this company,” and we were like, “Yeah. Thank you for noticing us.”
Selina: Finally. Uber does do that to companies. And you know, Modi has been pretty friendly to the FinTech sector. You know, what else would you like to see in an ideal world in terms of government regulation in India?
Harinder: In an ideal world? I think we could do with a lot more transparency in terms of the regulation that is passed. I would definitely want to compliment and comment on the forward thinking that the Reserve Bank of India has. I mean, when you think of any other Indian government organization, you don’t think very highly, but I have to say that. Having dealt with the Reserve Bank of India is a pleasure. They are a very forward-looking regulator. They’ve actually had to balance all the technology advances that are happening and also the needs of the, you know, the lowest person on the pyramid. And they do a very good job of that and they’ve been very supportive of ideas and also being very creative. Well, creative and regulator doesn’t sound right in the same sentence, but I would say that they have been very innovative in figuring out what the right model is to actually bring digital payments to the country.
And the PPI license, the Prepaid Instrument License was actually one step, and the next step of that is the Payments Bank. Other than that, I think all government institutions, we’ve been very tightly integrated with them at the city level, the provincial level, and also the federal level. When demonetization happened, we actually were working with them very closely to help both consumers and, you know, the government side. What would I expect more to happen? Transparency. I love transparency and I think that solves a lot of problems at a large democracy like ours.
Selina: So last question here. What do you see when you look at the financial technology innovation in America? Are there startups that you think are doing interesting things that could be relevant to Paytm, that Paytm could learn for…from, invest in, partner in?
Harinder: So we are just starting in North America right now and what we are really seeking right now is companies that bring us access to more users and companies who have more knowledge about what the consumer needs are. And it’s really an open sort of landscape for us right now. There is a lot of interesting companies that reach out for all sorts of lending options and also insurance options. We think that we have a lot of these problems solved at a much larger scale so we could partner with them on those. I guess the answer is on a case-to-case basis, but we are definitely interested and turn to all spectrum of technology companies or FinTech companies.
Selina: Great. Well, thank you so much, Harinder, for a very interesting conversation.
Harinder: Thank you.
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