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Alibaba, SAIF Partners pump $200m into India's Paytm E-Commerce

Fresh Chinese investment is aimed at taking on Amazon and Flipkart

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Paytm signs are popping up at shops across India.   © Reuters

MUMBAI -- Chinese e-commerce powerhouse Alibaba Group Holding and venture fund SAIF Partners are investing a total of about $200 million to help India's Paytm E-Commerce boost its domestic presence against such majors as Amazon of the U.S. and Flipkart of India, according to sources.

The fresh round of funding from Alibaba's Singapore arm for Paytm's e-commerce venture will not only help Alibaba better take on global giant Amazon in India, it may also create opportunities for other players to raise money, experts say.

Paytm has yet to comment on the investment. 

Paytm E-Commerce, which recently launched Paytm Mall -- similar to Alibaba's Tmall online marketplace -- has been spun off from parent One97 Communications. One97 Communications runs mobile wallet operations under the Paytm brand.

Paytm Mall claims to offer customers a choice of 68 million products from some 140,000 sellers. It has partnered with various third-party warehouse providers and makes deliveries via 17 logistics centers and 40 courier companies.

According to various media reports, the combined stakes of Alibaba and affiliate Ant Financial in Paytm E-Commerce will now increase to 62% from 40%. The Economic Times reported that One97 Communications was valued at $4.8 billion in 2016, when it raised $60 million from Taiwanese chip designer Mediatek. Ant Financial owns a 32% stake in One97 Communications, while Alibaba holds around 8%.

Other investors in One97 Communications include U.S. venture capital company Sapphire Ventures and Silicon Valley Bank.

This is another big boost for One97 Communications, whose mobile wallet business surged after India's demonetization move took high-denomination currency notes out of circulation. Some experts say Alibaba's latest investment could help Paytm expand its e-commerce business beyond India.

Paytm is still small compared with Amazon and Flipkart, which together control 80% of India's e-commerce market. Amazon India has deep pockets thanks to its parent company, and Flipkart is reportedly looking to take in a billion dollars in fresh funding.

Snapdeal, another big Indian e-commerce player, recently had to lay off employees to remain profitable. Alibaba holds a roughly 5% stake in the company.

Although growth in India's e-commerce industry has been slowing recently, global payments company Worldpay predicted in December that the country will overtake the U.S. as the world's second-largest e-commerce market after China within 20 years. The segment is seen growing by 28% a year from 2016 to 2020.

Vikram Gupta, founder and managing partner at IvyCap Ventures Advisors, says we are witnessing the start of an industry consolidation that will ultimately see just two players remaining: Amazon and Alibaba.

"This may be good for investors like us since some of our companies may create multiple options for potential investors wanting to take stakes in these companies," Gupta said.

Counterpoint Research's Tarun Pathak believes that while e-commerce in India is dominated by two to three players, there is still room for others to grow and coexist, as only a third of the population is connected to internet.

"As internet penetration increases, the user behavior and digital shopping trends will also change in coming years," Pathak said. "In such a scenario, any player which is ramping up or planning to enter the Indian market -- Alibaba in this case -- should make sure not to enter a price war but rather focus on experience and focus on outperforming segments."

Continued Pathak: "For example, in the online smartphone segment, we have seen an upward trend in the ASP (average selling price) of smartphones sold on e-commerce platforms to the mid-segment, which could present an opportunity for these players to target such specific segments in their race to turn profitable."

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