Late in August 2018, Berkshire Hathaway confirmed that it had taken a 4% position in leading Indian online payment platform Paytm. According to Forbes, Berkshires paid 25 billion rupees (or $350 million) for a stake in Paytm’s parent company One97 Communications, LTD. According to the Forbes article, Berkshire’s Investment places a $10 billion value on Paytm. Paytm has grown into India’s leading online payment platform in just eight years.
While Paytm and its parent company are not publicly traded, Alibaba (BABA) holds a major stake in the company. Investors can gain partial access to Paytm through holding shares of Alibaba.
Alternatively, investors can hold funds such as EMQQ – the Emerging Markets Internet and Ecommerce ETF – which held Alibaba as of 9/7/18.
Paytm is India’s leading digital payment platform. According to the company’s website, Paytm offers mobile payment solutions to over 7 million merchants and allow consumers to make seamless mobile payments from credit cards, bank accounts and digital credit among other means.
A recent article in the India Economic Times noted that Paytm realized over $20 billion in transactions during February 2018, a four-fold increase from the previous year. They also noted that the company is on track to register 1 billion transactions per quarter.
Paytm counts Alibaba and Ant Financial (which is 33% owned by Alibaba) as its backers. After a September 2015 investment, Alibaba and Ant hold a 40% stake in Paytm’s parent company, according to Forbes. Alibaba runs China’s largest digital payment platform – Alipay (Alibaba is held in EMQQ as of 9/7/18). Japan’s SoftBank also holds a stake in Paytm.
Strong Growth Predicted for Indian Digital Payments
Forbes predicts that the digital payment market in India is expected to grow five-fold to $1 trillion by 2023. As a result, competition is intense. There is the state-backed Unified Payment Interface which simplifies interbank transfers. Also, Goggle has rebranded its Tez app as Goggle Pay and announced that it was teaming up with four leading Indian banks to offer pre-approved, digital loans to customers.
New Businesses and Expansion Plans
Berkshire’s investment in Paytm comes as the company is ramping up its expansion plans. In January 2018, Paytm launched ‘Paytm for Business’ app for Android which lets new merchants sign up quickly and get a Paytm QR code. The app also allows merchants to manage their day to day payments and day-end reconciliations, track payments, navigate through past collections & trace settlements.
In March of 2018, Paytm announced that it is planning a major push in the financial services sector. It said that it is planning to launch services including mutual funds, general insurance, life insurance and a number of banking services via its payments bank. The firm is also providing the option to transact offline with a physical debit card.
And more recently, on 9/7/18, Paytm announced its partnership with Visa to enable credit card payments across banks via the Paytm app.
Strong Growth Potential in Ecommerce Should Continue to Bolster Paytm’s Business
As of June 2017, Statista shows over 462 million individuals accessing the Internet. Yet, only 30% of India’s population accessed the Internet during 2016, indicating large, untapped potential.
Online sales in India have grown from nearly $3.8 billion in 2009 to $23 billion in 2015 and were estimated at $38 billion in 2016, according to Statista which expects the volume of retail ecommerce volume is expected to reach $52.3 billion by 2022. Retail ecommerce accounted for just 2.5% of total retail sales in 2016 and 5.0% by 2020. That puts India well behind China, where retail ecommerce constituted an estimated 18.4% of total sales in 2016, again, hinting at strong growth potential.
The majority of India’s internet users are mobile phone internet. As of 2016, India had nearly 321 million mobile phone internet users and forecasts estimate nearly 493 million by 2022 according to Statista.
Adding further to the excitement is a Forbes article which highlighted that in 2016 India’s mobile phone subscriber base crested the 1 billion users mark, as per data released recently by the country’s telecom regulator. “A big chunk of these billion mobile subscribers will become smartphone users in the next couple of years, that is the thrilling next wave,” said Amresh Nandan, a research director at Gartner IT.
Berkshire’s recent investment in Paytm highlights the large potential for ecommerce in India. Many in India are just beginning to access the Internet and gain exposure to ecommerce. With a low internet and ecommerce penetration rate relative to other countries, there is strong potential for continued growth in Indian ecommerce.
Paytm, as the leading digital payment platform in India is poised to potentially benefit from this growth. Neither Paytm nor its parent, One97 Communications, is a public company. Investors can gain partial access to Paytm through Alibaba which holds a 40% stake in the company.
EMQQ investing in internet and ecommerce companies operating in emerging markets. EMQQ held Alibaba as of 9/7/18.
Disclosure: I am/we are long BABA.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.