But with the RBI’s sledgehammer move banning Paytm’s payments bank for regulatory violations, there is a risk of the noun-that-became-verb being replaced by other nouns such as PhonePe of Walmart and GooglePay, two giant rivals of the company built by a boy from Aligarh in Uttar Pradesh who could not speak English properly and had to give up his dream of studying at Stanford University, the start-up and innovation hub of the Silicon Valley. Instead, Sharma had to make do with what he once called “the Silicon Alley called Delhi”, where he would buy used American magazines in Daryaganj and read avidly about the happenings in the Silicon Valley.
In 15 years, Sharma had leapt from Daryaganj to Omaha when legendary investor Warren Buffett’s company Berkshire Hathaway invested in Paytm. That was when, like his friend Jack Ma of China’s e-commerce giant Alibaba, another entrepreneur who rose from the bottom, Sharma was dreaming to build a company as prized as a Nobel prize. “Ma tells us we should build a company that is worth a Nobel Prize,” Sharma had told ET..
Today, Sharma stares down into an abyss of uncertainty. Many think he has run into a regulatory road bump for focusing more on stacking up big numbers at the cost of diligent compliance as well as profitability, a common flaw many succumb to in the startup sector where growth means impressing investors with big numbers. But in Sharma’s case, thinking big was not a flaw but a fundamental approach that took him from dusty streets of a small town near Aligarh to glittering corporate stardom.
The making of Vijay Shekhar Sharma
For his stupendous success in building India’s biggest mobile payments company, Sharma is often clubbed with wonder boys such as Bhavish Agrawal of Ola and Ritesh Agarwal of OYO, the very young founder who got overnight success. Sharma’s overnight was very long, running into nearly two decades. His story started in 2001 when he set up One97 Communications.Sharma had started his entrepreneurial journey while still in college. After schooling in Aligarh, Sharma joined the Delhi College of Engineering to study electronics and communications. He would appear for jobs of website designer which annoyed employers because the jobs were for graduates. But he would persuade them to give him outsourced work instead of a job, thus bypassing the qualification condition. He built online platforms and content management systems for several businesses while still in college.As a final-year student, Sharma founded indiasite.net, an Indian web directory which quickly got noticed. At the height of the dotcom boom in 1999, the teenager who had never seen a computer just five years back, sold his startup to a New Jersey-based company for nearly a crore of rupees.
With that kind of money and a successful venture behind him, it was but a natural next step for Sharma to try his hand at another venture. “I started a broadband ISP (Internet Service Provider) firm,” he had told ET, “but I quickly realised that the BSNL monopoly and the inherent complexities of the business made things difficult for small players like me.” Despite his parents’ remonstrations to “quit fooling around and join a well-paying MNC”, Sharma doggedly continued exploring new opportunities. “Then it hit me like a brick that telecom applications as a field was a great opportunity and I had to be a part of it,” he says.
One97 Communication, so named because it was the national phone directory helpline number, was born in 2001 with a nervous Sharma at the helm. “Bharti Airtel was our first client in March 2001 and we sold them a package consisting of astrology services, SMS-based auctions and music-related applications. For a while, we were depending entirely on referrals and hard work to grow,” he said.
It was Sharma’s passion for learning new technologies and his insistence on hiring experienced people that saw One97 through to achieving $5 million in revenues in the first four years. “I became a paper millionaire the first year itself, but getting customers to actually pay on time was a pain,” he said.
Within seven years, services by One97 were reaching 97% of the country’s mobile subscribers, and it had a market share of 25-30%.
The fact that Sharma started his entrepreneurial ventures in the age of feature phones and not only survived the smartphone revolution in the telecom sector but also found new ways to get immensely more successful speaks of the surprising store of gumption and grit he must have.
“A whole generation of internet entrepreneurs in India have small-town roots and hunger to build something significant and successful,” Sharma had told Bloomberg in an interview. “My father was a schoolteacher. I had four siblings; there was no money to go around. I had to find ways to make money through weekend consulting jobs to set up computer networks for small businesses. At engineering college, I naively asked around [to find out] what the best-paying job is. Somebody said ‘CEO’. I didn’t even realize the person was being sarcastic. I knew the only way to get to be CEO was to build my own company.”
The king of no-cash
Sharma, who is fond of rock music and often quotes from songs of the Beatles, Jim Morrison, Pink Floyd, etc., knew that he would rock India’s fintech sector. Like his friend and mentor Jack Ma, he was looking to take on the big guys like Amazon and Flipkart. This became obvious when Paytm, which he had launched in 2009 as a prepaid mobile and DTH recharge platform (the name Paytm was short for Pay Through Mobile) went on to add bill payments, ticketing and e-commerce. He was obviously trying to build the Alibaba of India.
Inside his four-storey office in Noida’s Sector 5, Sharma used to have a sign on the glass wall of a conference room — “Go big, or go home,” it said, adding, “One million orders a day will happen here first. That’s our vow. That’s our game.”
Paytm grew phenomenally when it stepped into the wallet business in 2015. Its registered user base grew from 1.18 crore in August 2014 to 10.4 crore in August 2015. That was also when he met Jack Ma the first time and an Alibaba subsidiary Ant Financial bought a stake in Paytm. Ma was later followed by other legendary investors Warren Buffett and Masayoshi Son and our very own Ratan Tata who too backed Sharma’s Paytm.
One 97 Communication had earlier raised money from SAP Ventures, the investment arm of the world’s largest maker of business management software SAP AG, and marquee investors such as Intel Capital, SAIF Partners and Silicon Valley Bank.
Sharma did not just run a payments business along with a marketplace, he also came to start a bank, a new-age innovation called payments bank which was not allowed to loan money and could only take deposits.
Ab ATM nahin, Paytm karo
If a regulatory action now has plunged Paytm into crisis, it was a government action that had suddenly propped up Paytm to an amazing height. Sharma’s moment under the sun was demonetisation which shook India’s financial system and opened up a vast opportunity for Paytm to grow as cash became scarce and everyone was willing to try digital payments. In 2016, when demonetisation happened, Paytm was already the leading mobile payments company. Demonetisation propelled it to become the very base of India’s digital payments architecture. Today, Paytm has 33 crore wallet accounts. It is the way money moves on phones in India.
Days after Prime Minister Narendra Modi announced demonetisation, Paytm issued a full-page ad in newspapers, which said, “Ab ATM nahin, Paytm karo.” That;s when the noun had turned into a verb as millions of Indians took to Paytm to beat the cash crunch. “Paytm congratulates Honorable Prime Minister Sh Narendra Modi on taking the boldest decision in the financial history of independent India,” the ad said, and went on to add, “Make India a cashless country”.
It’s wrong to say that the company that has been devastated by a regulatory decision is the same company that had reached the heights it did on the back of a government decision. When demonetisation happened, luckily for Sharma, Paytm was already the dominant mobile payments company. By then, Sharma had crossed the corporate success barrier by getting loud recommendations from global investors such as Warren Buffett.
Sharma’s success is significant because he had come up in the times when entrepreneurship had little supportive climate in India. “There was no local market, no risk capital, no internet infrastructure, no customers. When we started, it was the very beginning of the internet era of the country. I feel tickled that I am now bracketed with today’s young entrepreneurs of India, like Ritesh Agarwal of OYO and Bhavish Aggarwal of Ola. Nobody remembers that I started with old-generation internet businesses,” he had told Bloomberg.
How the slide began
In 2021, Sharma took One97 Communications Ltd, Paytm’s parent company, to the market with what became India’s biggest IPO, raising $2.4 billion. It valued the company at around $20 billion. India’s biggest-ever IPO, however, also saw the biggest-ever crash on a listing day with the shares closing down more than 27%. Investors had questioned lofty valuations despite lack of profit. Ever since the IPO fiasco, Paytm has been struggling with one issue or the other.
Unlike its traditional peers, the banks proper, which would move with alacrity and great deliberation, new-age fintech companies like Paytm were less strictly regulated and were driven by a desire for phenomenal growth instead of meticulously following regulations. Piling up big numbers is necessary to impress investors while profitability can wait. Growth in the startup universe often means attracting big investors instead of charting a clear path to profitability. Sharma’s Paytm was not too isolated from the prevailing trends.
In 2022, three proxy advisory firms — Institutional Investor Advisory Services India (IIAS), InGovern and Stakeholders Empowerment Services — had advised shareholders to vote against the reappointment of Sharma as the CEO and managing director. “Vijay Shekhar Sharma has made several commitments in the past to make the company profitable. However these have not played out. We believe the board must consider professionalising the management,” IIAS had said in its note to shareholders.
Though 99.67% of its shareholders approved the resolution to reappoint Sharma as managing director of the company for five years from December 19, 2022 until December 18, 2027, concerns over profitability did not go away. That was also the beginning of regulatory problems for Paytm. The RBI’s recent restrictions on Paytm payments bank have come after years of warnings. Two years ago, in March 2022, after months of engagement and Paytm’s inability to take remedial action, the regulator had barred the payments bank from onboarding new customers.
Can Sharma rock again?
The regulatory sledgehammer that has fallen on Paytm Payments Bank is likely to erode the company’s business as well as credibility. In response to the RBI’s clampdown, Paytm has assured compliance with the directives and is shifting its focus away from Paytm Payments Bank towards collaborating with other banking partners. The company plans to integrate with various banks for its payments and financial services offerings, moving away from its reliance on Paytm Payments Bank. But after serious concerns such as faulty KYCs, and even money-laundering, which could be probed by the Enforcement Directorate, many banks might not be too forthcoming in collaborating with Paytm.
The RBI’s stringent measures are expected to have a substantial impact on Paytm, with an estimated annual operational profit hit of Rs 300-500 crore, Sharma has said. This would mean the company’s path to sustainable profitability would become longer and even more arduous. Most importantly, he might be identified as the one who brought a bad name to the whole fintech sector because investors will now be wary of all other companies.
Sharma started building his business at a time when entrepreneurship wasn’t easy for a fresh college passout who could not speak fluently in English and had no financial backing. In an interview to Bloomberg in 2019, he had said, “If you build in India, you can go build anywhere in the world. What do you think is the first thing an Indian kid learns? That the bus stop is not where the bus will stop.” Sharma was right because he was talking about the old India where pretty much nothing worked the way it was supposed to. But today, when the regulator has clamped down on Paytm after a long period of warnings and discussions, the bus seems to have stopped where it is supposed to stop.
Yet, Paytm might survive, after all, without its payments bank. You can’t discount Sharma’s small-town resilience and his rage of a rock star.
(With inputs from TOI and agencies)
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