PayMate Closes $9 million Round Of Funding From Mayfield, KPCB And Sherpalo Ventures

Mobile payments company Paymate announced (BS, ET) today that they had raised a second round of funding of $9 million. The funding has been led by Mayfield Fund, and Kleiner Perkins Caulfield and Byers (KPCB) and Ram Shriram’s Sherpalo Ventures have also returned as investors. Coruscant Tec co-founders Ajay Adiseshann and Probir Roy will retain majority stake. There are a couple of things to note here:

The timing of the announcement: There have been reports that the RBI will release guidelines for mobile payments on the 15th of June, and I’m told that there was a seminar in Mumbai last week focused on the implications of these yet-to-be released guidelines. KPCB and Sherpalo have a history of investing in companies, and announcing the funding the time is right, so it’s possible that Paymate received funding a while back, but with all the expected buzz around mobile payments, it’s a timely press release.
Where’s Citibank? Paymate had launched initially with Citibank on board, but if you go through their redesigned website, you’ll notice that Citibank isn’t a partner bank anymore. So while they added ABN Amro last month, and are in talks with SBI (India’s largest public sector bank), Paymate appears to have lost their first big banking partner. 11 banking partners are still on board, including Standard Chartered, Canara Bank, Cosmos Bank, HDFC (among India’s largest private sector banks), South Indian Bank, etc. Paymate also has operations in Sri Lanka, and a tie-up with Bank of Ceylon.
The Burn Rate: KPCB had put in $5 million in July 2006. Assuming that Paymate closed the second round of funding in May 2008 and would have finished off the first round by August 2008, that’s an approximate burn rate of $200,000 (around Rs. 80,00,000) per month. This appears to be set to go up – this round, says co-founder Probir Roy, is going to last them 18-24 months. That’s serious money – a burn rate of $375,000-$500,000 (1.5 crores – 2crores) per month. I wonder where Paymate intends to deploy it.

There has been talk before of mobile payments as means of banking the unbanked, but concerns have been raised about KYC (Know Your Customer) norms, since the scrutiny on mobile subscription is not as stringent as in case of banks. But mobile operators have not been keen on working independently of financial institutions because then the money would be shown in their accounts as revenue. Since operators pay a share of their revenue to the government as license fees – 10 to 12 percent – these transactions would lead to a significant increase in their payments. Hence, financial institutions need to be a part of the deal.

Paymate primarily focuses on SMS based payments, which is accessible to a larger number of users. Others in this space include Obopay, MChek, NGPay (from Jigrahak). Earlier this year Tyfone was funded by Ojas Venture Partners. What interests me more right now is the role that cash card companys will play in the mobile space, since they’re not connected with banks – Itz Cash is funded Matrix Partners and Intel Capital.

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