Turmoil at Paytm: Indian fintech darling faces uncertain future after bank ban
Turmoil at Paytm: Indian fintech darling faces uncertain future after bank ban
Plus: Facebook is making bank from China—new trend or over-reliance on Shein, Temu and co?
Welcome back,
What a week it has been. I was sad to see that a number of close friends and former colleagues at TechCrunch got laid off this week—it’s been a week for media layoffs with others including WSJ shedding staff. My former colleague Danny Crichton has a sharp look at the business behind media organisations, focused on TechCrunch and in particular why its subscription product came undone.
There’s plenty of drama this week, especially from India where startup darling Paytm looks in real trouble after the Reserve Bank of India stepped in to hobble its bank due to apparent years of issues. Then there’s Byju’s, once the world’s highest valued edtech startups at $22B, it is now raising a panic round at a pre-money valuation of $50M.
In other stories, Facebook went public with how it is benefitting from China-related business despite being banned there, GoTo is matching Grab with the same ‘we are profitable’ game using strange terminology and, in Japan, floppy disks and CDs are no longer required for some government paperwork.
That’s all for this week—have a great one,
Jon
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News In Focus
Explaining the madness at Paytm
Paytm was one of India’s startup darlings until this week. It helped pioneer mobile money in the country, battling some real heavyweights including banks and e-commerce giants—all the while founder Vijay Shekhar Sharma has risen to become an icon who embodies the rise of startups in India. This week, though, it hit the buffers as some brutal rulings and developments cut deep into its business, wiping $2.1 billion from its market value.
What happened?
The Reserve Bank ordered Paytm Payments Bank to stop offering bank services, including accepting deposits, credit transactions or top-ups in accounts after February. Effectively that means its banking customers can do nothing from March.
Why?
The issue was around compliance, according to the Reserve Bank.
A technical audit by the Reserve Bank of India found money and data traffic flows between the tightly regulated Paytm Payments Bank and the rest of the Paytm universe that created accounting and supervisory problems. The regulator had warned Paytm about such issues before, but they remained unresolved.
The regulator also grew worried about management overlap between the bank and the rest of Paytm. They saw the same set of top officers and decision-makers acting on behalf of the bank and the broader fintech company, creating potential conflicts of interest.
It is claimed issues piled up over the last seven years, including complaints like violation of banking compliance norms on money laundering, conflict of interest, maintaining an arms length from the parent, lax processes allowing fraud and licensing agreement breaches.
What next?
The broader Paytm business—which includes mobile wallets and counts the bulk of its claimed 100M monthly users—will terminate its relationship with Paytm Payments Bank and look for other partnerships. It expects a worse case scenario impact of $60M lost from this year’s revenue from this episode.
There’s no immediate suggestion that Paytm’s wallet business is in danger. There’s some suggestion of a sale, but it isn’t clear what the future of that product is yet.
RBI hasn’t revoked Paytm Payments Bank’s bank license yet, but that might come next.
Keep an eye on the stock price, it opened Monday falling 10% in the first 10 minutes of trading, at the time of writing…
Is TikTok’s US data kept securely, we ask once again…
It seems like a weekly discussion but once again there are questions of whether TikTok has successfully walled off its the data of its 170M US users. The company is saying it has, but employees told the Wall Street Journal that it is still sometimes shared with the China-based parent company.
The US government, meanwhile, seemed obsessed as to whether its Singaporean CEO is in fact Chinese.
Elsewhere, TikTok is testing a feature that identifies objects in videos as it ramps up online shopping ambitions
TikTok CEO Shou Zi Chew sat down with Wired to claim “over time trust will come” and discuss the company’s moves in areas such as festivals and working with labels, as well as ongoing US security, moderation and his background link
Alibaba may offload department store and rethink hybrid commerce
The Chinese firm pioneered the concept of marrying online and offline commerce, but now it is said to be rethinking that union as part of broad restructuring. That could see it sell its InTime department store, and potentially others such as Freshippo and RT-Mart, as it figures out how to compete with pure online players like Temu, TikTok and Shein that have eaten its lunch in recent years.
Tech startup unable to ship chips to Australia
There are often regular references to TuSimple, an autonomous trucking startup, and the manner its business awkwardly straddles the US and China. The firm pulled out of the US—and it is delisting from the Nasdaq—last month. Now it has emerged that, as part of that process, its effort to ship 25 Nvidia chips overseas, apparently to a newly-established subsidiary in Australia, were held up as the US Commerce Department had held the shipment up to investigate whether they were headed to China, a violation of export controls.
It’s a left field story and just sums up the manner in which tech companies can surf the wave to success, or seem to get continually caught up in the wrong places, at the wrong time.
China
It was revealed last week that Alibaba co-founders Jack Ma and Joe Tsai have become its biggest shareholders as they look to modernise the struggling e-commerce giant—alongside similar lines, Meituan CEO Wang Xing is taking direct control of the meal delivery leader’s overseas businesses, part of a sweeping overhaul intended to counter a slowdown and intense competition at home link
Meta broke out its China revenue numbers for the first time, and they’re hugely impressive—the social network has been banned in China for some time but it remains a window into the world’s internet users and an important channel for advertisers/sellers
China-related revenue jumped to 10% of all revenue, or nearly $14B per year
That’s up from 6% two years ago and
A huge amount of that growth appears to come from fast-fashion players like Shein and Teemu, as Facebook enables them to reach Western audiences
That’s elicited a mixed reaction: media have suggested Facebook is over-reliant on those companies (ask Apple about the challenges of any reliance on China for business…) but industry experts have suggested this is a new opportunity: “Facebook ads + directly ship from China (and avoid duties to sell cheaper)”
Speaking of Temu, it launched a $3B US online ads blitz in challenge to Amazon link
Shein, meanwhile, has denied that it's under Chinese cybersecurity review as it prepares for its IPO in the US this year link
China’s driver-less car push, which is centred on Wuhan, is believed to be closing to the gap with the US link
The US has added more than a dozen Chinese firms to its list of “military companies” that pose a national security risk—those new additions include AI firms Yitu Technology and Beijing Megvii, drone maker Chengdu JOUAV, lidar maker Hesai Technology and tech company NetPosa (already a number have denied links to military) link
China has approved more than 40 AI models for public use in the first six months since authorities began the approval process link
Chinese AR glasses maker Xreal is raising $60M at a valuation that tops $1B as it looks to beat Apple, Meta and Google to market link
Tencent has struggled lately but its chairman Pony Ma is optimistic for this year, with WeChat and gaming bright prospects link
Despite that, Tencent is said to have axed Square Enix 'Nier' mobile game as it hunts for a new hit link
The US Justice Department confirmed it disrupted a botnet run by a prolific Chinese government hacking operation known as Volt Typhoon which had targeted critical infrastructure, including around military bases link
China’s chipmakers are ramping up production capacity despite concerns about oversupply—the goal is 60% in 3 years and double over 5 years with a focus on foundational processor chips, which are widely used in cars, household goods and consumer devices link
China's CXMT aims to build country's first advanced memory chips for AI link
British police have revealed they seized a trove of Bitcoin now worth £1.4B from a China investment fraud back in 2018 link
ByteDance launches its answer to OpenAI’s GPTs, accelerating a generative AI push amid ChatGPT frenzy link
As China-U.S. Relations Sour, Baidu’s VC Affiliate Tries to Sell Its U.S. Startup Stakes link
Some Chinese automakers have had to delay deliveries of flagship models due to production issues with a computing unit made by tech giant Huawei. The computing unit, called the MDC 810, powers advanced driver assistance systems and is central to Huawei's ambitions to become the dominant supplier of software and components for smart electric vehicles. Link
Nvidia's new China-focused AI chip set to be sold at similar price to Huawei product link
Bao Fan, the missing Chinese banker who disappeared in a shroud of uncertainty last year, has resigned after investigation for “health reasons and to spend more time on his family affairs” link
Xpeng is bringing its Tesla full-self driving (FSD) equivalent to overseas owners link
Geely launched 11 low-orbit satellites for autonomous cars link
India
Byju’s is in a real mess again—only Paytm’s rapid decline means we are putting this story down here rather than up the top in our news in focus segment:
Byju's US unit filed for Chapter 11 bankruptcy proceedings in Delaware, listing liabilities in the range of $1B-$10B—its Alpha unit listed its assets in the range of $500M-$1B, according to a court filing, which showed estimated creditors in the range of 100 to 199 link
Byju’s is seeking $200M in rights issue at $250M—that means it has reached out to existing investors for an immediate cash infusion to offset its deep cash crunch, and at a valuation that 99% lower than its highest of $22B link
But investors want Byju Raveendran following the rights issue—a group of backers called for an extraordinary general meeting to make their leadership change link
But Byju’s says the investors don’t have voting right to remove the founder link
Sony scrapped its $10B India merger with Zee as it had failed to meet financial terms link
Disney reached a preliminary agreement with Viacom18 to sell 60% of its Indian media business in a deal that values the overseas operation at $3.9B, dramatically less than what it was worth when Disney acquired it in 2019 link
Flipkart plans to launch its payment product within a month link
Uber-rival BluSmart has supersized its EV charging with a new $25M investment link
Tata and Pegatron are reportedly in talks to partner over an iPhone assembly in Tamil Nadu link
Suspected Indian state-sponsored hackers have used romance scams to lure victims in Pakistan into installing malicious apps, infecting their devices with malware link
Rario, the once-feted NFT marketplace backed by Dream Sports, has reversed its plan to shut down link
Southeast Asia
First it was Grab, now GoTo claims it has hit its profitability target—”positive adjusted earnings before interest, taxes, depreciation and amortization” rolls off the tongue...—after slashing jobs and cutting other costs link
Employees retrenched during Lazada's recent layoffs will get "an enhanced support package" following talks between the company and the workers' union link
Elsewhere in Asia
Pakistan’s aggressive EV goals hit a roadblock: An engineer shortage link
The Japanese semiconductor deal spooking rivals and investors: Tokyo’s $6.4B swoop for JSR has rekindled memories of heavy state intervention and cast doubt on corporate reforms link
The Japanese government is providing $305M in support for NTT and Korea’s SK Hynix to mass-produce next-generation semiconductors that claim to drastically reduce power consumption by utilizing optical technology link
South Korean fabless AI chip startup Rebellions closed $124M (165B KRW) in a Series B round of funding to develop its third AI chip, called Rebel—the deal valued the three-year-old startup at approximately $658M link
Worldcoin is under investigation in Hong Kong over data privacy concerns link
The crime bosses behind Myanmar cyber ‘fraud dens’ has been handed over to Chinese government link