Industry POV

Will the Alibaba-Paytm collaboration jolt the Indian ecommerce space in 2017?

07 Feb 2017

The battle for supremacy in the Indian ecommerce space is all set to get even more cut-throat with a new player joining the race. Paytm, the leading digital wallet player in the country, is all set to foray into the ecommerce space with a fresh round of investment totalling over $250 million from its Chinese investor, Alibaba.

Riding high on Paytm’s success
Though Alibaba had plans to enter the Indian ecommerce market on its own, it has finally chosen Paytm as its trusted ally to cruise the rough waters of the ecommerce space, which has been a loss making industry till date, with major players like Snapdeal, Flipkart and Amazon posting a collective loss of Rs 11, 754 crore in 2015-16.

There are also some good reasons for Alibaba not to venture on its own into the challenging Indian ecommerce sector. The advantage of going along with Paytm is two- fold. Firstly, Alibaba’s association with Paytm goes back to almost two years when the Chinese giant invested $575 million in Paytm in March 2015. Also, being a pure Indian entity, Paytm has a better grip over the insights and demands of the local market. Secondly, ever since the demonetisation move was announced, Paytm has witnessed a record growth. The company claims to have registered 700% rise in overall traffic on the platform and 1000% growth in the value of money added to mobile wallets. Both these factors make Paytm an ideal vehicle for Alibaba’s ecommerce debut in India.

Betting big on the burgeoning ecommerce market in India despite challenges
According to a recent report by global payments firm Wordplay, the Indian ecommerce sector is all set to become the second largest market in the coming two decades, only next to China. The market is predicted to reach USD 63.7 billion by 2020 and overtake the US by 2034. Interestingly, ecommerce sales in India totalled an estimated $7.7 billion in 2015, a 15% increase from $5.3 billion in 2014, according to data from eMarketer. Moreover, 65% of consumers in India use mobile devices to connect to the internet. These numbers present an enormous opportunity for global players like Alibaba to look at investing in this booming ecommerce space in India.

However, the lure of this promise is not without its set of challenges. From logistics, high dependence on cash; with 83% consumers in the country opting for cash on delivery (COD), low penetration of credit and debit cards, regulatory challenges and high cost of customer acquisitions, the Indian ecommerce space has a lot to tackle before it can leverage its vast potential. Both Alibaba and Paytm are well aware of these stumbling blocks and it will be interesting to see how they plan to negotiate with these limiting factors looming large.

While speaking about Alibaba’s plans to foray into the ecommerce space in India through Paytm, Harish Bijoor, Brand Expert & Founder, Harish Bijoor Consults Inc., said, “Alibaba and the Paytm guys will pose a challenge for sure. The payment gateway will become an ecommerce player and the ecommerce player will become a payment gateway. Competition is going to be intense. Expect burnouts as investors tire out. The year and years ahead will be full of this ecommerce tumult.”

Commenting on how the ecommerce market is all set for a big jolt in the coming time, Bijoor added, “The ecommerce space in India is set for a jolt. It's going to be a" jolt-up" call for ecommerce outfits that have believed in taking the short cut to customer monies. Those who have depended on GMV at any cost, burning investor funds fast and wild, in this quest will be the first to face this jolt.”

Terming the entry of Alibaba into the Indian ecommerce landscape as an upcoming battle for supremacy, Rajiv Dingra, Founder and CEO, WATConsult, said, “Paytm is entering with Alibaba backing at a time when the Indian e-commerce players are at their weakest in terms of market and investor sentiment. Clearly, Paytm will be able to take away some market share given Alibaba’s backing as well as brand recall post demonetisation. But e-commerce is a tough business in India given how large Amazon is and how committed it is to winning the e-commerce space in India and it will be a long battle for supremacy."