Paytm raises $1.4B from SoftBank, eyes 500 million users

In one of the biggest funding rounds from an individual investor, on Thursday, payments company Paytm announced that they have raised $1.4 billion from Japanese conglomerate SoftBank Group Corp.

According to sources close to the matter, though not confirmed by the unicorn itself, the funds raised were at a valuation of around $8 billion.

According to a press statement issued by the company, Paytm plans to invest Rs 10,000 crore (approximately $1.6 billion) over the next three to five years to expand its user base to half a billion Indians.

It has also been stated that the money raised will be utilised to launch a slew of financial products involving wealth management, deposits, and money lending.

The news comes just a day after Paytm Payment Bank released a public notice regarding the launch of their payments bank, which debuts next week on May 23.

Speaking on the occasion, Paytm Founder and CEO Vijay Shekhar Sharma said,

"We are at an inflection point in our journey with Paytm. This investment by Softbank and support of the incredible entrepreneur Masa Son is a great endorsement of our team's execution and vision. We believe we have a great opportunity to bring financial inclusion to half a billion Indians."

Through this, SoftBank joins long-time partner Alibaba Group as a major shareholder in the company, and will take a seat on the Paytm board.

Paytm Payment Bank - The crown jewel

While the investment has gone into the parent company, One97 Communications, which owns around a 40 percent stake in Paytm's Payment Bank, sources claim that both Alibaba and Softbank are keener on the payments bank business than Paytm's e-commerce endeavour.

According to the Reserve Bank of India, the foreign shareholding in the payments bank would be as per the Foreign Direct Investment (FDI) policy for private sector banks. It states,

"As per the current FDI policy, the aggregate foreign investment in a private sector bank from all sources will be allowed up to a maximum of 74 percent of the paid-up capital of the bank (automatic up to 49 percent and approval route beyond 49 percent to 74 percent)."

At the same time, the regulation also states that, for the first five years, the license holder (here Vijay Shekhar Sharma) needs to own 40 percent of the entity capital.

Speaking on the fundraise, Masayoshi Son, Chairman and CEO, SoftBank Group Corp., said,

"In line with the Indian government's vision to promote digital inclusion, we are committed to transforming the lives of hundreds of millions of Indian consumers and merchants by providing them digital access to a broad array of financial services, including mobile payments. We are excited to partner with Paytm in this journey, and will provide them with all our support."

Adding to the conversation was Eric Jing, CEO - Ant Financial, who stated,

"India has presented us with the world's largest opportunity in terms of financial services, and we are confident its market will grow exponentially over the next decade. We are proud to be Paytm's strategic partner and be a part of the great story as it emerges as the country's biggest and fastest growing fintech company. We will continue to extend our tech know-how to support Paytm's growth in the country. And we welcome SoftBank to a great ride together to provide equal access to financial services in India."

The news comes at a time when Paytm is in active talks to acquire arch rival Freecharge; however, according to sources quoted above, there is no link between the two transactions.

Just today, the news also came out that Ola restricted Softbank and other investors' ability to increase stake in the company. Moreover, any transfer of shares by investors representing 10 percent of the company's capital will need to take approval from the founders. This means that Softbank cannot buy more equity shares to increase its stake in the cab aggregator unicorn.

It is no secret that Softbank has been pushing aggressively, over the past few weeks, to sell off e-commerce company Snapdeal to market leader Flipkart.

It seems that the Japanese investor is restructuring its investments in India, which at present have majorly bombed, such as in the case of Housing and Snapdeal.

The last investment for Softbank was a $250 million round in budget hotels marketplace OYO Rooms, according to media reports.

(With inputs from Radhika Nair)