Japan's SoftBank invests $1.4 billion in Paytm

By Sankalp Phartiyal

MUMBAI (Reuters) - Japan's SoftBank Group has invested $1.4 billion in the parent of Paytm, giving the digital payments start-up a boost as it looks to expand its user base and maintain its market lead in Asia's third-largest economy.

A source familiar with the matter said SoftBank had bought $1 billion of new shares in Paytm parent One97 Communications, equivalent to a 14.2 percent stake, and a further $400 million of existing shares. SoftBank and Paytm declined to give details.

Solar-to-telecoms conglomerate SoftBank will also get a board seat in Paytm, the Indian firm said in a statement.

Paytm, which runs India's biggest digital payments system with more than 220 million users, said it planned to spend 100 billion rupees ($1.5 billion) over the next three to five years to expand its services.

For SoftBank, the bet is part of its growing commitment to India's e-commerce sector, where it has already invested about $2 billion, mainly in minority stakes. China's Alibaba, which counts SoftBank as its biggest investor, already has a stake in Paytm.

SoftBank is also pushing to engineer a merger between Snapdeal, India's No.3 e-commerce player and one of the Japanese group's biggest investments in India to date, and market leader Flipkart.

"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," said Masayoshi Son, SoftBank's Chairman and CEO in a statement.

Paytm founder Vijay Shekhar Sharma owned nearly 21 percent of One97, while Alibaba held a 40 percent stake, according to latest regulatory documents accessed by business research platform Paper.vc.

Digital payments in India got a big lift last year after India's shock move to remove higher-value currency from circulation boosted the attractiveness of non-cash alternatives.

Analysts said SoftBank was seeking to emulate in India its strategy in China, where Alibaba runs its own digital payments provider Alipay.

"SoftBank is essentially trying to build an Alipay kind of platform with Paytm," said Satish Meena, senior forecast analyst at Forrester Research.

In addition to seeking to solidify its lead in digital payments, Paytm, founded in 2010, is aiming to launch a payments bank, an institution that can take deposits and remittances but cannot lend.

Payment banks are seen as a growing opportunity in a country with plenty of smartphones but with millions of Indians who lack formal access to banking services.

($1 = 64.8450 rupees)

(Editing by Rafael Nam and Mark Potter)