Updated: March 8, 2021 8:05:10 am
VIJAY SHEKHAR SHARMA: In 2001, instead of going to the US (like other engineers), I wanted to start a company in India. Back then, at the Sunday market in Delhi I would buy old copies of Fortune and Forbes magazines. One of these magazines had a story about garage start-ups in Silicon Valley. The concept stayed with me… I thought I will make enough money here and then go and study at Stanford University in the US.
However, I soon learnt that there is no support for start-ups in India… Unlike the US, there was no concept of angel investors in India at the time. I used my own savings and a telecom operator became my customer. But I missed one of the biggest lessons of doing business, which is ensuring cash flow. I was running some sort of businesses in the field of technology, with call centres, content services and what not, except that I was not being able to collect money in time. Slowly, all my savings got exhausted. Then I took loans from friends and family members, which got over too. Finally, I ended up taking a loan of Rs 8 lakh at 24% interest… I was in a financial mess.
In the midst of this, a gentleman with whom I was doing small assignments to make ends meet came to me and said that if you make my company profitable — it was a loss-making technology company — I can invest in your company… I turned his business around and he took 40% equity of my company One97 Communications (which runs Paytm) for Rs 8 lakh — the loan that I had to pay back. I used that capital to grow on the back of the growth in the telecom sector, and turned my company from a cash flow loss-making firm to a positive cash flow company.
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In 2005, there was no structural approach to investment by VCs (venture capitalists). There was no place for an entrepreneur to go to… Between 2005-2010, a lot of investors came from the US to invest in Indian start-ups. SAIF Partners invested in my company in 2007… Start-ups today are luckier because there is much more capital available to them and the ecosystem has come of age in that sense.
In 2010, the telecom boom was at its peak in India… There came a point where we had to decide whether we wanted to take our software business to the international market or build something in India. In 2011, I decided that India is the market for me and planned on building a B2C or a consumer brand here. Through a round of eliminations of ideas, we ended up picking payments as a stack, thanks to the smartphone stack logic which showed that payments sector will be run by domestic players. That is how Paytm or ‘pay through mobile’ came about.
…The actual tipping point came when Flipkart managed to raise a billion dollars. That is when I realised that you can be in India and raise a billion dollars. I gave up my one197.net email address and began to use my Paytm business card… Now, there is no doubt that consumer Internet companies need billions of dollars. My Board also suggested that I back off… The final nail came from a SAIF Partners’ guy, who said how will you change customer behaviour? In this country even when they have a card, people prefer cash. He asked me what made me believe that people will be ready to pick up mobile phones to make payments? I said that if India wants to become a $5 trillion economy, Indians have to learn to pay using smartphones. The Board finally gave me Rs 5 crore and Paytm was born.
…By the time demonetisation came about we had already launched offline payments, like for payments at stores, to auto-rickshaws etc. We knew it was an opportunity. Demonetisation did give us growth, no doubt about it. We were running a billion transactions, which went up to three billion in the next two months. But the biggest thing that demonetisation and later sponsoring the Indian cricket team did for us was that it gave Paytm a brand. And, the next two years were phenomenal… Finally, the pandemic just amplified the usage. The product actually came to their rescue. And today, thanks to pandemic, we are hitting the billion dollar mark since the last couple of months. Also, the billion transactions a month number would not have been achieved if the business was growing organically. The pandemic created that acceptance. Now, paying using smartphones is mainstream…
I believe that in the next decade payment start-up like ours, or technology start-ups like Oyo, Ola and the others who were considered brash boys throwing money at projects without doing basic math, will convert into legitimate businesses which generate profit.
ANIL SASI: In October last year, Google removed Paytm from its Play Store, citing violations of the app store’s gambling policies. At the time, you said in a statement that it was less about regulation and more about policy enforcement. What prompted you to say that?
VIJAY SHEKHAR SHARMA: It was one of those very sad commercial moves… The email that I received was so sad that I discarded it at first thinking that it had come from a junior employee from Google because of some misunderstanding. We thought we would make a call to a senior executive and explain to them that the ‘points’ being given to customers was part of a promotion and that there was no gambling. It was like getting points on your credit card… But the seniors said it was done by somebody in California. Our emails were rejected and we were told that only if you take the game (the cashback option) down will the app be reinstated.
…This is a horrible case of being the judge, jury and executioner. This is not bad, this is horrible. And it is only because they treat all of us as people from a third world country. If it was the US, I could have sued Google for costing me my reputation, money, customer base… In India, however, no court orders apply to them.
We are playing with fire when we make friends with companies which have such a dominant market share and control our Internet narrative in such a manner that if I am not on their app store, I will not be able to reach 95% of smartphone users in the country.
ANANT GOENKA: All over the world now the digital space is pretty much controlled by a few companies. How vulnerable does that make entities such as Paytm, and what advice would you give governments who are trying to figure out a way to have a sustainable relationship with these kingmakers of the digital world?
VIJAY SHEKHAR SHARMA: I think the word kingmaker is so apt, because these four-five companies can decide which business will exist or not exist. The influence of big tech on the lives of common citizens of a country and a democracy like ours is underestimated… Google has announced that every digital product that you buy on an app that is downloaded from its Play Store… and if you are paying say Rs 100 for it, then
Rs 30 from that will be taken by Google without paying GST… How can a young entrepreneur or even a large business exist if there is such a clean cut… Only governments can deal with these companies. No company, small or large, has the power and wherewithal to control, give guidance, or even talk to and negotiate with these companies. Only a country’s rules and regulations and its obligation to businesses can stop these companies… If we run businesses at the present cost structure, we will kill our digital dream… If countries, companies, businesses have to become digital, they will have to bring apps, and the apps have to be on Android, which have to be bought through an app store. I mean, this is a stack that we are talking about. Google takes 30% and is effectively asking us to pay a tax on its own income. They are taking money out of this country and not even investing or putting that money back in this country. It is horrible. It is sad. It is bad.
I applaud the Indian government for the new digital regulation… It is very sad to know that we are treated like a market, we are treated like a place where the users are, we are treated like a place from where the toll is collected, and yet none of these companies is even agreeing to follow the laws of this country. It cannot get more outrageous than that… Look, Australia has done it. Europe has done it; India is doing it. No company can do this (have a monopoly) unless we let them do it. And it is a commercial company. They have got technology; we have got the numbers… In the US, they have been able to bring search antitrust cases against these companies in instances where they believe small businesses are being put at risk… We cannot be governed, guided by, and put on a tax regime by another company that is not even Indian. We can’t even take the company to court in India. I mean, how many (tech) companies in this country are worth a billion dollars, not more than 20. And that tells you how many companies will actually have the energy and ability to fight such evil-intended, big-tech guerrillas. That is why we have to come together and governments must take some action on these companies.
…I have faith in the government. If governments don’t support businesses that are made in India, if they don’t support the Indian Internet and technology start-ups, nobody else will support us. Whom do we pay our taxes to? By whose rules and regulations do we live by? The government of India has a responsibility and it is owning up to it.
PRANAV MUKUL: There is an old criticism that India hasn’t come up with a big data or big tech company. Do you think that is possible now?
VIJAY SHEKHAR SHARMA: The biggest thing that was missing in the Indian technology ecosystem was customer base. IT services companies were there before 2010… because they were able to acquire customers by travelling outside. Indian consumer product companies could not have come up till there were Indian consumers. Today, India’s power is that India has hundreds of millions of Internet customers, ability of growth in a democratically run country, and a GDP that is second to none. Today, India has everything that gives it power to control the narrative… and run businesses with earnest commercial motives… And it does not require us to depend on only a few companies. There are more companies out there who are ready to be coexisting partners with countries, instead of choking, blocking and stifling innovation.
PRANAV MUKUL: Is choking innovation and not following laws of the land specific to India?
VIJAY SHEKHAR SHARMA: Google is completely known to block and choke its competition when it starts to fight them. They do this in India and other places. This is their style of working.
ANIL SASI: How do you look at the backlash Chinese investors are facing in India now?
VIJAY SHEKHAR SHARMA: …Today, there is a huge amount of domestic capital available. Policies of the Indian government is attempting to make public markets available to young start-ups. This will bear fruit and we will not need to look East or West for capital. The best technology ecosystem will be built on Indian capital and by Indian entrepreneurs… We need Indian capital to be supporting Indian entrepreneurs. When it comes to cross-border investments, only the companies, countries and investors who have seen similar markets and growth will be able to appreciate (Indian firms). That is why we do not get many investors from the West. Actually, India’s entrepreneur ecosystem is built around an appetite for risk. It is built around capital from the East, from Japan, China, Hong Kong, Taiwan… The big boys club doesn’t like it when somebody (new) enters the club. The West is that club… However, we should have more investor-friendly policies so that we get more capital. Investors who understand our market will come, and the others will come too when they see the success of our companies.
AASHISH ARYAN: Do you think many of the start-ups now are as opaque in their functioning as the big firms?
VIJAY SHEKHAR SHARMA: Foreign investors have far more stringent corporate governance expectations. Although I’m not sure which disclosures are missing, I fundamentally believe that when you have a private equity capital in a company, and depending on the stake and influence of external measures on that company, the company continues to have more additional disclosures and corporate governance. Young start-ups are far more transparent and corporate governance compliant than traditional (companies)… While a large company can choose to talk to investors in a more commanding manner, a young start-up or loss-making company has to go to new investors. This involves a lot more disclosures. Over a period, these companies get publicly listed in India. This requires an incredible amount of disclosure…
NANDAGOPAL RAJAN: Do we need an Indian app store to offer a level- playing field at least to the Indian companies?
VIJAY SHEKHAR SHARMA: There is no doubt about it that on an Android ecosystem, Google has locked the app store ecosystem… We need a holistic solution… Having another app store is a probability but Google does not allow another app store. Even if it allows mini app stores, it does not allow them to charge using another system. Anything that is downloaded from Google Play will have to use Google Pay… The problem is not about adding few technology nuances that would solve it. It is the government of this country that has to say, ‘Hello Google! We got to talk here….’ It has to be understood by common people in this country that we are governed and controlled by the platforms that we use and their rules and regulations… So solutions are found when the person who is creating the problem is ready to hear or suggest a solution.
ANANT GOENKA: Suppose US President Joe Biden’s administration splits Android and Google. Will it change anything?
VIJAY SHEKHAR SHARMA: Yes. The services are owned by Google and Android is technically an independent open service. These companies are so smart that it takes another technology company to rival them. For example, the Apple and Facebook fight. Facebook is feeling bad about what Apple is doing. And Apple is stating its fundamental value that I do not want my customer to be tracked by your app. If you want to track, let the customer give you a consent. How can this be a risk? These companies who have access to customer data, payments and every activity on a person’s smartphone have become like the government. Even the government does not know this (information about people). If the government does this, it is called surveillance. If private companies do it, it is called advertisement. If government takes money from you, it’s called tax. When these companies take money from you, it is called platform fees… We have to understand that it’s an ecosystem and ecosystems have to coexist and vibrantly bring new innovations to the world.
SUNNY VERMA: You mentioned that from the cash burn stage start-ups, including Paytm, will become profitable. Where do you see this profitability coming from? And, what will the next five years of Paytm be like?
VIJAY SHEKHAR SHARMA: All technology companies and start-ups find their commercial modelling after five or seven years. I have a model of 3-3-3 — for three years we try the product market fit, then for three years we try the revenue market fit, and then for three years we try the profitable market fit. We are starting to enter the last leg. Different companies will find their commercial models differently. In our case, merchants pay for accepting payments. So the card machines, the sound box, the software that they use… They pay a subscription for all these things. So we earn our money from that side. And we also earn money when we are able to bring some financial services to the consumers and businesses. Finally, we also earn money when customers are buying something, which is like commerce done on our platform. So we have multiple revenue line items. We are very hopeful that this journey will give us profitability in due course. This is what our publicly stated plan is.
PRANAV MUKUL: With its 53 crore customer base, does WhatsApp have the potential to wipe off all payment entities if it enters the sector?
VIJAY SHEKHAR SHARMA: We have never felt more excited and sure of our business. We will run it on our own steam, without external capital. A number of players came and billions of dollars got thrown into this country but Paytm still enjoys majority market share and remains bigger than anybody else. It is because consumers prefer it. If one company’s market share was contingent to build the next service, then many companies would have built their own Amazon, Google, Facebook… It is the customer’s choice and the relentless pursuit of what customers want that will win the market.
Why Vijay Shekhar Sharma
With the pandemic amplifying usage of digital payment services, Sharma’s firm is now processing nearly 1.25 billion transactions in a month. Paytm’s valuation shot up to $16 billion after it secured $1 billion in funding in 2019
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