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What does Warren Buffett’s investment in Paytm mean for the company?

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The Warren Buffett investment is an endorsement for Paytm from one of the world’s biggest and most respectable investors who had so far stayed away from private tech stocks. Photo: Reuters

The deal with Warren Buffett’s Berkshire Hathaway pegs Paytm’s valuation at $10-12 billion, making it the country’s most valuable startup

With Warren Buffett picking up 3-4% in Paytm (One97 Communications Pvt. Ltd), the fintech startup’s capital table reads like a list of the who’s who of the biggest names in the global venture capital business. Mint analyses what this means for Paytm and the startup ecosystem in India.

 

What does Warren Buffett’s investment in Paytm mean for the company?

The investment is an endorsement from one of the world’s biggest and most respectable investors, who, until now, had stayed away from risky, technology private stocks. His support could signal immense confidence in not only Paytm, but also the Indian tech and startup ecosystem. A deal with Buffett would value Paytm at $10-12 billion, making it the country’s most valuable consumer internet startup. Flipkart, which was bought out by Walmart, held this distinction till May.

 

Why is the timing of Warren Buffett’s investment in Paytm important?

India has turned into a battleground for the world’s biggest firms trying to stamp their dominance in the digital payments market. Backing of renowned investors such as Buffett could help Paytm differentiate itself from the crowd. Over the past year, Paytm’s near-monopoly status in digital payments has been challenged by Google’s Tez, Amazon Pay, Flipkart’s PhonePe and the center’s UPI-based BHIM app. Newer players such as WhatsApp payments service may also pose a significant challenge.

Today, Alphabet Inc.’s Google said it is teaming with HDFC Bank Ltd, ICICI Bank Ltd, Kotak Mahindra Bank Ltd and Federal Bank Ltd to offer instant, pre-approved loans to customers “right within Google Pay in a matter of seconds”.

 

Any turning points?

The center’s demonetisation move in November 2016 was Paytm’s biggest turning point. Investor interest in Paytm rose after that, boosting online transactions.

Why does Paytm attract so much interest from investors?

Paytm retains a huge brand loyalty among consumers in the digital payments economy. It has entered the e-commerce sector with Paytm Mall and launched its own payments bank. For investors, the combined value of all its offerings makes them bet on Paytm. It already has the backing of the SoftBank Group and Alibaba, besides marquee investors such as SAIF Partners, MediaTek, and Ratan Tata.

What are the biggest challenges for Paytm?

Paytm is yet to come up with a long-term, sustainable business model. The company continues to burn a significant amount of capital to attract new users and retain the existing ones by offering them cash back and discounts. With newer challengers emerging in India’s digital payments landscape, it will only become more difficult for Paytm to maintain its dominance.