(Bloomberg Markets) — Vijay Shekhar Sharma, 41, founded closely held One97 Communications and its brand Paytm (rhymes with ATM) almost two decades ago. It offered a variety of digital services before moving into payments in 2014, just as millions of urban Indians began shopping online.

Two years later, India’s banks created the Unified Payments Interface, a tech umbrella to help banks and fintech startups create services quickly, and the government eliminated high-value currency notes, turbocharging demand for Paytm’s services. Sharma, a self-described hippie who loves to sprinkle U2 and Pink Floyd lyrics into his conversation, now has backers including Alibaba’s Jack Ma, SoftBank’s Masayoshi Son, and Berkshire Hathaway’s Warren Buffett.

Paytm is the market leader in India, where KPMG sees digital payments growing at the fastest rate of any country, with transaction value rising at an estimated annual rate of 20.2% from 2019 to 2023. But competition is heating up as Google, Walmart, and Facebook jump into India, wielding cashback offers to lure customers. Meanwhile, the government has proposed scrapping fees on digital payments, Paytm’s core product. In an interview in Delhi, Sharma described his career and how Paytm is adapting to India’s changing market, cutting annual expenses 45% and preparing to raise new funds to accelerate the next phase of growth in smaller cities.

SARITHA RAI: What led you to digital payments and e-commerce?

VIJAY SHEKHAR SHARMA: I grew up in a small town called Aligarh where I studied in a very basic Hindi medium school [where Hindi is the medium of instruction]. I didn’t have fancy schooling. I was lucky to get into engineering college in Delhi at the age of 15. I taught myself English by memorizing rock songs and simultaneously reading translated textbooks in English and Hindi. When I graduated, I was the youngest teenage engineer out of the University of Delhi. As the Pink Floyd song Breathe goes,

Run, rabbit run.
Dig that hole, forget the sun,
And when at last the work is done
Don’t sit down it’s time to dig another one.
For long you live and high you fly
But only if you ride the tide
And balanced on the biggest wave
You race towards an early grave.

My early heroes were internet entrepreneurs Jerry Yang and Mark Andreessen. I started One97 Communications in 2000 and began by selling content to users through telecom operators. By 2010 the smartphone became the distribution channel. Payment became our thing, and destiny was in our hands. In 2014 we launched our licensed wallet product. By 2015, Ant Financial had invested in us, then Alibaba and then SoftBank.

A whole generation of internet entrepreneurs in India have small-town roots and hunger to build something significant and successful. My father was a schoolteacher. I had four siblings; there was no money to go around. I had to find ways to make money through weekend consulting jobs to set up computer networks for small businesses. At engineering college, I naively asked around [to find out] what the best-paying job is. Somebody said CEO. I didn’t even realize the person was being sarcastic. I knew the only way to get to be CEO was to build my own company. Looking back, I’ve never had a business card which said CEO. When I set up One97 Communications, my business card stated my title as EO. My engineering school buddy and one of my first employees, Harinder Takhar, also had the same title. We were both EOs.

I couldn’t get to Stanford or Silicon Valley. Somewhere there was the urge that I should do something worthwhile, but I would have to do it in the Silicon Alley called Delhi. I wanted to build a great company; I wanted to attract the best talent. The internet age was calling. Paytm began offering people searches and went from there into business services, payments, commerce, gaming, content, financial services, and banking.

SR: Are you satisfied with what you’ve built so far?

VSS: Many entrepreneurs are called “overnight success.” I say, “Yeah, my overnight was 19 years long.” We started in the dial-up internet era, where we ran up huge phone bills. We now carry the internet in our pockets. How far we have come! The last 20 years have been the most significant for India. It is an unprecedented kind of change the world hasn’t seen, not even in the U.S. or China. Nowhere else have such a large number of users come online in such a short period of time.

SR: How will India’s digital payment transformation be different from China’s?

VSS: China has two players. We will not have that kind of dominance. India will have four or five players, with a leader, which will have significant market share. Everybody can coexist. Payment is way too huge a problem for one or two players to control.

India is far more competitive. We have neither the best talent nor the best infrastructure, nor the required levels of capital. We have to be far more resourceful. To raise money we have to take a flight out of India and explain our market to investors. Neither the Chinese nor the Americans have had to describe their market to their investors.

SR: Is India changing?

VSS: With low mobile data tariffs, the internet is reaching the corners of India. That’s spawning a huge number of startups in payments, cloud, and even startups that help people file taxes. There is a large local market. Risk capital is available to win the market. We are now grade-A entrepreneurs, not Third World businesses. It is possible to build a business to serve this country and then take it to the rest of the world. These are phenomenal days. Ten years ago, there was no local market, no risk capital, no internet infrastructure, no customers. When we started, it was the very beginning of the internet era of the country. I feel tickled that I am now bracketed with today’s young entrepreneurs of India, like Ritesh Agarwal of OYO [Oravel Stays Pvt.] and Bhavish Aggarwal of Ola [Electric Mobility Pvt. and ANI Technologies Pvt.]. Nobody remembers that I started with old-generation internet businesses.

SR: Competition is building up in digital payments—Walmart, Google, and others whose launch is imminent.

VSS: Rivals are spending huge amounts of money, but none of them have dented our market share. India’s digital payments market share is expanding. In the next five years, India will be a much more digitized country. That’s a good thing. As for rivals spending money, the big giants with the deep pockets never win the war. Microsoft didn’t win the search war. Search didn’t win the social war. Social didn’t win the messaging war.

I can bet that none of the above is going to win the digital payments war. It’s a huge opportunity. There will be many players. This country could produce the payment player which will go on to dominate the world. It will be an Indian player, not a Chinese one. The payments leader of India will build a low-cost, highly scalable model in an extremely competitive environment. The winner here can go and win anywhere.

SR: Why is cash still king in India?

VSS: We’ve had the first phase of India’s digital payments journey with many world players as our rivals. We were the clear leader in the digital wallet phase.

The second phase began with the United Payments Interface, which is the tech backbone linking banks and digital payments players so they can create services quickly and cheaply. Our rivals are using that backbone for person-to-person money transfers rather than merchant payments. Our business model is in merchant payments, in the everyday experience of users paying businesses. That’s our journey now.

Less than 10% of payments made by users to businesses is through digital means. We believe merchants should provide their customers the whole range of options, and that’s what we offer through the Paytm wallet, which accepts cash, debit cards, credit cards, UPI-linked bank accounts, and other wallets. A digital wallet is far more inclusive. Even if a user doesn’t have a bank account, he can do digital payments.

SR: When UPI was introduced, it seemed that digital wallets were going to die.

VSS: In the early days, I had assumed that people would give up on the wallet after you could link a bank account and begin using UPI. But users are still uncomfortable with linking bank accounts. There is low penetration of digital money and low consumer trust. The pecking order in the country is: cash, followed by card, then wallet, and UPI.

We do more than 600 million merchant payments a month. All UPI payments together are not even as big as our wallet transaction numbers. The whole UPI universe has 110 million registered users, but less than 10% of them account for more than 80% of transactions. On UPI, all apps put together have a $150 million monthly payments volume. We have a total of $390 to $400 million volume via Paytm through UPI, other wallets, cards, and cash. After spending billions of dollars, Google Pay and Walmart’s PhonePe haven’t been able to touch us.

SR: How do you enlist merchants?

VSS: It takes time. Shopkeepers need a lot of hand-holding for digital payments, cloud services, and everything else. They are underserved by tech companies. We are currently at 13 million merchants and will reach 25 million by March 2020. It’s all about how many cities, how many shops, how many markets give consumers the chance to use digital payments. We are very visible in India’s main cities. We are now headed to Tier 3 and Tier 4 markets.

SR: To transition merchants to digital payments and other digital services can’t be easy.

VSS: We are offering software where they can create their own store and start selling online. They can build their business’s credit score and access our instant business loans. We have leapfrogged from being a payment company to a complete ecosystem for small and medium enterprises for their software and financial-services needs. Our “Business With Paytm” app is in 10 languages. In this era of zero-margin digital payments, as mandated by the government, we have to make money on additional services such as financial services and cloud services.

SR: Isn’t every digital payments service using cashbacks as a lure?

VSS: Cashbacks are a good thing. They incentivize users and merchants to try out digital payments. Our cashbacks, by the way, are not in cash. They are in the form of movie vouchers, flight vouchers, and so on. Cashback is a strategy for us. We have pushed the Paytm cashback logo a lot more in the last few months.

SR: How have you innovated for users in the smaller towns and semi-urban India?

VSS: We use a lot of data. Rich users don’t value the 20 rupee [28¢] cashback. Our engine understands who values the small sum of money. Our AI is built at Paytm Labs in Toronto. We started in 2014. We have the ecosystem advantage because we can be the one stop for many things. We introduced cancellation insurance for movie tickets. This is a global first. The cancellation value is extremely low, and our AI engine ensures that it’s an extra revenue earner.

Here’s another example: India saves in gold. We allow users to buy infinitesimal amounts of the metal. For example, a user can buy gold for 11 rupees and aggregate. Buying gold is a wealth service we offer everyone. Our gold product has more customers than all wealth management companies in India put together. We have 17 million users.

SR: What will it take to win India?

VSS: Some people still want to pay by card—card transactions are the highest by value. Others want to pay by wallet because they do not want to link their bank account to third-party apps for fear of digital theft. As the market matures, all use-cases as a combined offering makes sense rather than just one. In the countryside, there’s huge fear they’ll get defrauded of their money. Soon as one system grows, fraudsters walk into that system. That is why we have a large investment in setting up a lab in Canada building fraud detection systems. We have 110 people there. We have been lucky so far. We have been working hard. For a payment company like ours, competition does not come from another payment company. It comes from hackers.

SR: What’s the life of an Indian entrepreneur like? We had a tragic suicide recently of the founder of India’s largest cafe chain [V.G. Siddhartha], who described himself as a failed entrepreneur.

VSS: In India it is particularly tough. Entrepreneurship is looked down upon, unlike in the U.S. We are just above Africa markets in terms of per capita income. We have to build a business model for that. Then there are many rules and regulations, sentiments, behavior.

Siddhartha’s suicide is heartbreaking for entrepreneurs like me.

You have to be far more Zen to survive in this country. As I said, if you build in India, you can go build anywhere in the world. What do you think is the first thing an Indian kid learns? That the bus stop is not where the bus will stop.

SR: Is there an IPO round the corner? Some of the most high-profile companies backed by Masayoshi Son, such as Uber, have gone the IPO route.

VSS: Masa has never mentioned the word IPO to me. We will remain private for the next two or three years for sure. I look up to Warren Buffett, Masayoshi Son, and Jack Ma. Their ambition is to build huge impact on their markets, cities, countries, business domains. They are all market share-centric. What I take from them is: First, learn to do one thing really well. Then build the next level of business on top of it. That’s the common thread. We’re not even on the preparation journey for the IPO, which itself takes a couple of years.

SR: Then are you looking to raise funds?

VSS: There is a huge amount of incoming investor interest. People with large-dollar checks are knocking at our doors. Once we figure out the business requirement and get the necessary board OK, we will raise money. We are very well-capitalized for our business model.

SR: Where is Paytm headed in the next few years?

VSS: Paytm is [dominating] and will dominate India’s mobile payments ecosystem. Paytm Payments Bank has overtaken India’s No. 1 mobile bank, state-owned lender State Bank of India. Just like Ant Financial dominates payments in China, Paytm wants to dominate in India. We are getting into insurance and lending. We’ve created world-class tech that can be replicated both in emerging and developed markets. We built payments from the bottom up in Japan with Made in India technology. PayPay [a joint venture among Paytm, SoftBank, and Yahoo Japan] today has 10 million customers. We will go to the Americas and Europe.

Rai is a reporter covering technology for Bloomberg News in Bengaluru.