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Paytm tie-up gives chance for ailing Alibaba unit to lift its game

LiveMint logoLiveMint 25-07-2017 Tim Culpan

An announcement by two of Asia’s most important Internet firms late Monday could be instrumental in propelling the take-up of mobile payments in India. It may also help turn around an ailing company.

AGTech Holdings Ltd will form a joint venture with India’s Paytm group to develop mobile games and other entertainment products, the Hong Kong-based company said in an exchange filing.

If AGTech isn’t a familiar name, you’re not alone. Despite being listed in Hong Kong, the developer of gambling and lottery systems is overshadowed by its majority owners, Alibaba Group Holding Ltd and Ant Financial.

By the numbers, this is a small deal: AGTech is investing $7.2 million and Paytm $8.8 million, giving the Indian entity a 55% stake.

The potential for both parties, however, is huge.

With 225 million users, Paytm already has a significant foothold in the country’s electronics-payments business. The government’s sudden move to demonetize high-value banknotes in 2016 and introduction of the Aadhaar national-identity system caused the type of shocks that have played into its hands.

But Paytm could do with more help. Just 23% of Indians had made a purchase via their mobile phones at the end of 2016, trailing Vietnam and Indonesia.

Games offer the perfect way to usher in mobile payments by helping shape behaviour. Once users make their first game or in-app purchase, further transactions are likely to follow.

And if other markets are any guide, games will be a huge category on their own, so for Alibaba, having a strong local-payments provider on board from the start is an advantage.

It’s interesting to note that AGTech’s specialty isn’t games but gaming—as in gambling machines and systems. And it’s not very good at it: AGTech hasn’t posted an operating profit in the past 13 years. A net profit in 2016 came from the revaluation of some convertible bonds.

Perhaps this is a chance for AGTech to actually start making money. Mobile games aren’t a huge leap from virtual poker, after all.

The terms of the joint venture also include a three-year lock-up and non-compete clause, which may help explain why AGTech was Alibaba’s chosen vehicle instead of either Alibaba itself or Ant Financial, which owns 30% of Paytm Group. In theory, Alibaba and Ant are, therefore, free to pursue games opportunities elsewhere in India.

The other upside is that after missing the boat on games at home, Jack Ma now has the chance to learn from Tencent Holdings Ltd’s phenomenal user growth in China. It would make sense for this new Indian venture to morph from games into social media, the same way that Tencent did with QQ and then WeChat.

If that’s Ma’s ultimate end game, then this transaction looks like a better bet. Bloomberg Gadfly

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