Will Paytm mirror Alibaba-backed digital insurance major Zhong An in India?

Paytm has finally expressed its interest to get into wealth management and insurance segments. This seems like an obvious choice for the Alibaba-backed company as it’s trying to mirror several successful business models from its largest stakeholder Alibaba and affiliates

Paytm has already incorporated three new entities - Paytm Money, Paytm Life Insurance Ltd, and Paytm General Insurance Corporation Ltd. While the first entity was announced a month ago with an initial investment of about $10 million, the last two companies incorporated this week, as per a Mint report.

Vijay Shekhar Sharma, Paytm’s senior vice president Shankar Nath and CFO Madhur Deora are directors in the recently established entities. 

Certainly, it’s a big move inspired by the playbook of Alibaba. Now the question you might be pondering over is - how Paytm is following Alibaba footstep by getting into insurance space.

Let us explain.

In a rare instance of collaboration, arch rivals Alibaba and Tencent joined hands with Ping An to launch Zhong An Online, China’s first truly digital insurer.

Ping An is a Chinese conglomerate, whose subsidiaries essentially deal with insurance, banking, and financial services. The joint venture has underwritten over 630 million insurance policies and serviced 150 million clients in its first year of operations.

Alibaba and Tencent had to join traditional insurance company (Ping An) to form the digital insurance platform Zhong An Online, given hard regulatory frameworks dictated by the government in China. However, Paytm has no such policy challenges as Indian economy boasts liberalism.

Unlike Alibaba, the SoftBank-backed company is likely to go solo in developing insurance products. But, it may soon make some strategic investments or strike partnership to drive quick scale.

How Paytm debut will make difference to fledgeling fintech space

“Undoubtedly, it's an obvious and meaningful move by Paym as it has access to capital and resources to disrupt financial services sector including insurance. The debut of the payment major in wealth management, insurance, and other financial services will bring exposure and spotlight to many startups working in these verticals,” says Satyen V Kothari.

Kothari was one of the co-founders of Citrus Payment (acquired by PayU) and now runs mobile banking app Cube.

Paytm has a lot of data on consumer payment behaviour and transaction patterns. It will leverage the power of data in cross-selling insurance. For instance, if you buy expensive iPhone using Paytm Mall or any other stores (but paid via Paytm wallet or UPI) it realises that you are likely to insure it.

Notably, Paytm has been selling high ticketsize and insurable products such as bikes for over two years.

In fact, such early decision to sell bikes was in tune with company’s likely foray into insurance space.

Meanwhile, insurance penetration in India is dismal. According to an Economic Survey 2018 survey, the ratio of premium underwritten in FY17 to the gross domestic product (GDP) -- in India is 3.49 per cent. However, it registered about 15-20 per cent rise over previous fiscal.

The under-penetration of insurance in India is a massive opportunity for fintech startups. “This is a big opportunity for Paytm. It could be a sustainable revenue generator for the company which made multiple bets such as Payments Bank,” says Satish Meena, Senior Analyst at Forrester India.

However, getting into plays like insurance and wealth management won’t be easy for the company. “Developing innovative insurance products require time, capital and technology prowess,” says a partner of one of the big four auditing firms on condition of anonymity.

He also outlines that Paytm will have to develop differentiated product offerings from existing players including banks and large groups that sell and operate own insurance brands.

Unlike traditional insurance companies, Zhong An in China sells insurance covering various areas, including the internet-based business and household property insurance, cargo, liability, and credit insurance. Paytm would also likely to take some leaves out of  Zhong An Online playbook to scale its insurance business.