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Indian payments spat heats up

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Competition in India’s digital payments market was already fierce, but over the past month the rivalry between two leading groups has escalated into a more serious spat.

Paytm, India’s most valuable start-up worth an estimated $16bn, has bumped up against Google in a wide ranging dispute spanning everything from fantasy gaming to app building.

The conflict escalated when Google briefly removed Paytm’s app from its Play Store last month, alleging that it had violated Google’s gambling policies with a real-money cricket promotion.

Google then sparked outrage from start-ups by pushing a Play Store policy that would give the internet giant a hefty cut of in-app transactions, prompting a backlash that led Paytm to promote its own app store as a homegrown alternative.

Central to their rivalry, however, is digital money. Patym was an early darling of consumers and investors in the world’s fastest-growing cashless payments market, raising billions from the likes of Ant Financial and SoftBank.

But the arrival of deep-pocketed competitors including Google piled pressure on Paytm, which alleges that the tech giant used its dominant Android mobile operating system — which has a market share of over 90 per cent — to tilt the payments playing field in its favour.

Google “clearly see[s] no hesitation in using their dominant market position to push payments,” Madhur Deora, Paytm’s president, told the Financial Times. “That’s pretty much the definition of anti-competitive behaviour.”

Google has pushed back against Paytm’s claims, emphasising that users of its Play Store can access a range of payments services, and that there is no requirement for Google Pay to come pre-installed on Android devices.

“India’s digital payment space continues to evolve and is expanding at a very healthy rate with many new entrants, and a growing number of established players in the industry,” Google Pay said. “We work hard to innovate and to create optimal experience in order to compete in the space.”

While Paytm says it has 150m monthly active users, Google’s app leads in the share of transactions made over the fast-growing Unified Payments Interface, a government-backed system that allows easy, instant bank-to-bank transfers.

But the squabble highlights how payments are ultimately a means to an end. While digital money is not always lucrative in itself, it is a springboard to pile on a range of other financial and digital services.

While Google already has leading businesses in areas such as digital advertising, diversifying beyond payments is more important for Paytm. It has laid out plans to become a “super app”, offering consumers a full suite of services in one place, and has branched into everything from banking to gaming to ecommerce.

Patym presented its new mini app store as an alternative for developers unhappy with Google’s fees, but this could also prove to be a powerful new business tool as it looks for a new way to bring, retain and monetise customers.

Paytm says 300 apps are already participating — including Domino’s Pizza and Ola Cabs — and that 5,000 more are coming.

Mr Deora outlined Paytm’s ambitious vision:

“What if the consumer can discover ‘everything’ on Paytm?” he said. “Clearly we’re not going to build the product for everything . . . [but] we can help them with what we can be good at: Helping find customers, the checkout experience, the log-in experience.”

Quick Fire Q&A

Company name: Tractable

When founded: 2014

Where based: London

CEO: Alex Dalyac

What do you sell, and who do you sell it to: We develop artificial intelligence to aid recovery from accidents and disasters. Customers include insurers Tokio Marine, Covéa and Ageas.

How did you get started: With accidents and disasters, every recovery starts with a visual appraisal. We realised artificial intelligence could accelerate this at scale.

Amount of money raised so far: $55m

Valuation at latest fundraising: Between $180m and $250m

Major shareholders: Georgian, Insight Partners, Ignition Partners, Zetta

There are lots of fintechs out there — what makes you so special: Our artificial intelligence accelerates claims, creating efficiencies for the insurer, and a better experience for the customer.

Further fintech fascination

Follow the money: Ant Group’s much-anticipated IPO is fast approaching. The Financial Times has taken a look at the Chinese company’s overseas ambitions, with 10 per cent of the IPO proceeds earmarked for international expansion. It is not all plain sailing though. Ant is under scrutiny for the way it has marketed the IPO to retail investors.

Crypto chronicles: The Financial Times reports that OKEx, one of the world’s biggest cryptocurrency exchanges, halted withdrawals after it lost touch with an employee who is “co-operating” with a Chinese government investigation. The official is a holder of private keys that enable the authentication of transactions.

Dealmakers: Stripe has bought Paystack, a Nigeria-based payments company which has 60,000 customers, says TechCrunch. According to TechCrunch, sources close to the deal say that it is worth over $200m, although the companies have not disclosed the terms. Stripe raised $600m earlier this year, partly to fund international expansion.

Trendwatch: Sifted reports on the new fintech “mafias” — the people that helped to start the likes of Klarna, Revolut and Monzo and have now become founders themselves. Ten former Klarna employees have gone on to start new ventures, including Kevin Albrecht, who used to work in the Klarna product team and went on to found PFC, a Swedish neobank.

AOB: The chairman of the US Securities and Exchange Commission said that it was working on rules that could permit the creation of crypto ETFs, reports the Financial Times; Clair, an American payday lending start-up, has raised $4.5m of seed funding, according to Finextra; Wealthsimple, a Canadian robo-adviser, has reached a $1.5bn valuation in its latest fundraising, reports Fintextra; the Financial Times has produced a special report on payments that features insights into Wirecard, the Turkish payments scene and the impact of the pandemic.



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Earnings beats: lukewarm reaction shows prices are stretched

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Investors are picking over first-quarter results for signs of economic recovery and proof that record market highs can continue. Stock markets have only been this richly valued twice before — in 1929 and 2000. Bulls hope strong corporate earnings and rising inflation can pull prices higher still. But pricing for perfection means even good results can be met with indifference.

L’Oreal illustrated this trend on Friday. The French cosmetics group stated that sales in the first quarter of the year rose 10.2 per cent. This was a better performance than expected. Yet the announcement sent shares down by around 2 per cent. Weak cosmetics sales were seen as a veiled warning that consumers emerging from lockdowns might not spend as freely as hoped.

Online white goods retailer AO World, a big winner from pandemic home upgrades, also offered a positive update this week. In the quarter that marked the end of its financial year, sales were £30m ahead of forecasts. But even upbeat commentary from boss John Roberts could not stop shares slipping 3 per cent.

Banks are not immune. Their stocks have outperformed the market by 7 per cent in Europe and 12 per cent in the US this year. But stellar Wall Street results were not enough to satisfy investors this week.

JPMorgan Chase, the biggest US bank, smashed expectations for the first quarter. Even adjusting for the release of large loan loss reserves, earnings per share beat expectations by 12 per cent because of higher investment banking revenues. Bank of America earnings also rose thanks to the release of loan loss reserves. Yet shares in both banks ended the week down. Goldman Sachs had to pull out its best quarterly performance since 2006 to hold investor interest.

On multiple metrics, stock valuations look steep. On price to book, banks are now back to the pre-crisis levels recorded at the start of 2020. Living up to the expectation implicit in such valuations is becoming increasingly hard.

Lex recommends the FT’s Due Diligence newsletter, a curated briefing on the world of mergers and acquisitions. Click here to sign up.



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Barclays criticised for underwriting US private prison deal

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Barclays has attracted criticism for underwriting a bond offering by the US company CoreCivic to fund the building of two new private prisons, in a new dispute over Wall Street’s relationship with the controversial sector.

The UK-based bank said two years ago that it would stop financing private prison companies, but the commitment did not extend to helping them obtain financing from public and private markets.

About 30 activists and investors, among them managers at AllianceBernstein and Pax World Funds, have signed a letter opposing the $840m fundraising for two new prisons in Alabama, which was due to be priced on Thursday.

The signatories said the bond sale brings financial and reputational risk to those involved and urged “banks and investors to refuse to purchase securities . . . whose purpose is to perpetuate mass incarceration”.

Activists and investors who pay attention to environmental, social and governance issues have sought to cut off companies that profit from a US criminal justice system that disproportionately incarcerates people of colour. As well as raising ethical issues, many also say such financing may be a bad investment because legislators are increasingly calling for an end to the use of private players in the prison system.

While Barclays is not lending to CoreCivic, activists and investors attacked its decision to underwrite the deal, which is split between private placements and public issuance of taxable municipal bonds. The arrangement is “in direct conflict with statements made two years ago” when the bank announced it would no longer finance private prison operators, according to the letter.

Barclays said its commitment to not finance private prisons “remains in place”, adding it had worked alongside representatives from the state of Alabama to finance prisons “that will be leased and operated by the Alabama Department of Corrections for the entire term of the financing”.

CoreCivic said the Alabama facilities will be “managed and operated by the state — not CoreCivic. These are not private prisons. Frankly, we believe it is reckless and irresponsible that activists who claim to represent the interests of incarcerated people are in effect advocating for outdated facilities, less rehabilitation space, and potentially dangerous conditions for correctional staff and inmates alike.”

Barclays’ 2019 commitment to limit its work with private prison companies came as other banks, including Wells Fargo, JPMorgan Chase and Bank of America, also said they would stop financing the sector.

Critics said they were not sure why Barclays is differentiating between lending and underwriting.

“You’ve already taken the stance, the right stance, that private prisons and profiting from a legacy of slavery is bad,” said Renee Morgan, a social justice strategist with asset manager Adasina Social Capital, one of the signatories of the letter. “But then you’re finding this odd loophole in which to give a platform to a company to continue to do business.”



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Hedge funds post best start to year since before financial crisis

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Hedge funds have navigated the GameStop short squeeze and the collapse of family office Archegos Capital to post their best first quarter of performance since before the global financial crisis.

Funds generated returns of just under 1 per cent last month to take gains in the first three months of the year to 4.8 per cent, the best first quarter since 2006, according to data group Eurekahedge. Recent data from HFR, meanwhile, show funds made 6.1 per cent in the first three months of the year, the strongest first-quarter gain since 2000.

Hedge fund managers, who often bet on rising and falling prices of individual securities rather than following broader indices, have profited this year from a rebound in the cheap, beaten-down so-called “value” stocks and areas of the credit market that many of them favour. Some have also been able to profit from bouts of volatility, such as the surge in GameStop shares, which turbocharged some of their holdings and provided opportunities to bet against overpriced stocks.

“We’re going into a market environment that is going to be more fertile for most active trading strategies, whereas for most of the past decade buying and holding the index was the best thing to do,” said Aaron Smith, founder of hedge fund Pecora Capital, whose Liquid Equity Alpha strategy has gained around 10.8 per cent this year.

The gains are a marked contrast to the first three months of 2020, when funds slumped by around 11.6 per cent as the onset of the pandemic sent equity and other risky markets tumbling. However, funds later recovered strongly to post their best year of returns since 2009.

This year, managers have been helped by a tailwind in stocks and, despite high-profile losses at Melvin Capital and family office Archegos Capital, have largely survived short bursts of market volatility.

It’s a “good market for active management”, said Pictet Wealth Management chief investment officer César Perez Ruiz, pointing to a fall in correlations between stocks. When stocks move in tandem, it makes it more difficult for money managers to pick winners and losers.

Among some of the biggest winners is technology specialist Lee Ainslie’s Maverick Capital, which late last year switched into value stocks. Maverick has also profited from a longstanding holding in SoftBank-backed ecommerce firm Coupang, which floated last month, and a timely position in GameStop. It has gained around 36 per cent. New York-based Senvest, which began buying GameStop shares in September, has gained 67 per cent.

Also profiting is Crispin Odey’s Odey European fund, which rose nearly 60 per cent, having lost around 30 per cent last year, according to numbers sent to investors.

Odey’s James Hanbury has gained 7.3 per cent in his LF Brook Absolute Return fund, helped by positions in stocks such as pub group JD Wetherspoon and Wagamama owner The Restaurant Group. Such stocks have been helped by the UK’s progress on the rollout of the coronavirus vaccine, which has raised hopes of an economic rebound.

“We continue to believe that growth and inflation will come through higher than expectations,” wrote Hanbury, whose fund is betting on value and cyclical stocks, in a letter to investors seen by the Financial Times.

Additional reporting by Katie Martin

laurence.fletcher@ft.com



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