Tech

Tim Culpan is a technology columnist for Bloomberg Gadfly. He previously covered technology for Bloomberg News.

Last month's Circles drama highlights the struggle Jack Ma's empire faces in expanding its financial services business.

To recap, Alibaba Group Holding Ltd. and its affiliate Zhejiang Ant Small & Micro Financial Services Group Co. added social features to Alipay's smartphone app to help promote engagement. In theory, more engagement should lead to greater use of its marquee function, which is sending money from user to user. Results weren't as expected and Ant was forced to issue an apology.

If you look at Ant's underlying goal -- growth -- there would seem an opportunity far more ripe for the taking, and that's in India.

Prime Minister Narendra Modi brought on a black swan moment in November when he announced that 500 rupee ($7.30) and 1,000 rupee banknotes would have to be exchanged for new currency. Those denominations accounted for 86 percent of all cash in circulation.

Big Money
More than 85 percent of the value of all Indian currency in circulation was in the form of 500 rupee and 1,000 rupee notes
Source: Reserve Bank of India
Note: Values as at March 31 of stated year.

As Bloomberg's Saritha Rai reported, the ban was the best thing that could have happened to Indian digital payments. Paytm is one of of the biggest beneficiaries, and the House That Jack Built is an investor.

More than 90 percent of Indian transactions are in cash and many citizens don't have a bank account, let alone ATM or credit cards. The simplest way for Alibaba and Ant (both investors in Paytm) to tap this sudden boom is to just sit back and watch Paytm grow.

An entrepreneurial outfit like Alibaba isn't likely to be satisfied with sitting on its hands, however. Alibaba can bring a lot to the table, and there's every indication Paytm could benefit.

For starters, Ant has years of experience building infrastructure that includes networks, software and authentication.

Cash Loses Its Crown
The value of currency in circulation plummeted 20 percent in 10 days
Source: Reserve Bank of India

That kind of experience could help Paytm get over some of its growing pains. For example: Paytm in late November introduced a feature that let shopkeepers turn their smartphones into point-of-sale terminals, allowing customers to use their debit or credit card to make a purchase. Just one day later, it put the function on hold amid security concerns. With a decade in the business -- including navigating regulatory minefields -- Alipay is the type of partner well-suited to help find a solution.

Then there's the future of Paytm. Not content with simply being a payments provider, Ant Financial branched out in areas including loans, money-market funds and credit profiling. Those are all products an expanding, wealthier India is going to be clamoring for in coming decades.

Building Stickiness
Ant Financial customers are finding more ways to use the company's suite of services
Source: Ant Financial

With Ant on hand to provide both the financial and technical resources to scale quickly, it shouldn't be hard for Paytm to up-sell these additional products once it gets to a critical mass of customers. India's cash crisis has done the perfect job of herding clients to digital payments and priming them for the next wave of financial services.

While Alibaba's attempts at going social are understandable, the Indian experience shows that to really expand business, Ma doesn't need Circles when he has Modi.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Tim Culpan in Taipei at tculpan1@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net