Paytm to acquire ONDC startup Bitsila amid payments bank crisis

Paytm founder Vijay Shekhar Sharma

At a time when the future of Paytm's payments business is being questioned due to a regulatory crisis, sources say that the fintech major is putting the finishing touches to a deal to acquire Bitsila, an interoperable e-commerce startup.

Bengaluru-based Bitsila is currently the third largest seller side platform by transactions on the Open Network for Digital Commerce (ONDC), sources said. The deal is in advanced stages and will likely close in the coming week, according to two people in the know.

Moneycontrol could not confirm the deal size and whether it is for cash or stock.

Bitsila, founded by Dasharatham Bitla and Sooryah Pokkali in 2020, has previously raised a pre-seed round from Antler India and Redbus founder Phanindra Sama.

The company's role in ONDC as a seller-side app is B2B as it helps onboard small merchants to the network.

Paytm is already a buyer app on the ONDC and was among the first large companies to integrate with the open network in 2022. With the Bitsila acquisition, it will be able to deepen its reach within ONDC by getting on the seller-side of the network as well.

"I think it makes sense for Bitsila to sell as it's tough when some of the bigger players with big ticket venture capital backing come and decide to offer sevices as zero prices," said a third source.

"It makes sense for Paytm to buy Bitsila as they get a tried and tested seller side app ready-made," he added.

In response to Moneycontrol's queries, One97 Communications said, "We firmly deny the news of Paytm's proposed acquisition of Bitsila. The said news is entirely misleading."

Sources told Moneycontrol that Paytm e-commerce, an entity where Sharma and others are investors in their individual capacity, has renamed itself to Pai Platforms and acquired Bitsila. One97 Communications, the listed entity, is not a shareholder in Paytm e-commerce, now Pai Platforms.

However, the ONDC page on Paytm's app still shows the name 'Paytm E-commerce Private Limited' for the entity that orchestrates the network's transactions on the platform.

The developments have come at a time when Paytm is under the Reserve Bank of India’s scrutiny for several reasons, ranging from foreign exchange violations to know your customer (KYC) lapses.

The regulator has reportedly found major irregularities in KYC, which exposed the customers, depositors, and wallet holders to serious risks. In its probe, the RBI found that in thousands of cases, the same PAN was linked to more than 100 customers and in some cases to more than 1,000 customers. The total value of transactions, running into crores of rupees, much beyond regulatory limits in minimum KYC pre-paid instruments, raising money-laundering concerns.

Paytm was trading at Rs 447 apiece at market close on Thursday, falling 10 percent during the day.

Paytm's ONDC ambitions

Paytm will onboard 10 million of its merchants to ONDC by the end of 2025, the fintech unicorn's founder and chief executive officer Vijay Shekhar Sharma had said on December 4.

"Commerce is a natural extension for us. We are committing to sign up at least 10 million merchants on ONDC before 2025 ends," he said at an ONDC hackathon in Delhi last year.

Sharma said that 11.8 million users had already shopped on ONDC through Paytm.

"This means that ONDC has already become a significant player in e-commerce. There are around 50 million e-commerce users in India and over a fifth are already on ONDC," he added.

The Paytm founder said that ONDC will open up the e-commerce opportunity for a lot of players as it breaks down different parts of a transaction such as seller, logistics, and payment into separate parts. In effect, a single player doesn’t need large amounts of funding to build all the parts to break into the ecosystem.

For the first time, ONDC crossed 3 million retail purchases in a month in January which means an average of over 100,000 such transactions per day, we reported earlier.

For comparison, the number of retail purchases on ONDC in January 2023 was around 1,281.

Further, ONDC clocked 3.5 million mobility (ride-hailing) bookings during the month, taking the network's total transactions across categories to over 6.5 million in January. This shows a month-on-month growth of 18 percent, compared to the 5.5 million transactions seen by the network in December.