Chinese online retail giant Alibaba, along with its financial services arm Ant Financial, has now become the largest shareholder in Indian mobile commerce startup Paytm. In February, Ant Financial invested about $500 million in Paytm for 25% stake. On Tuesday, Alibaba announced that it has directly made another investment in the Indian startup.

Alibaba Group Holding Ltd Invests $680 Million In India's Paytm

Alibaba, Ant Financial control 40% of Paytm

Alibaba did not disclose how much it invested in Paytm. Inside sources familiar with the negotiations told the Economic Times that the Chinese company poured in $680 million for 20% stake, valuing Paytm at $3.4 billion. Following Alibaba’s investment, Ant Financial’s equity stake has been diluted from 25% to 20%. The Hangzhou-based company and its affiliate now own 40% of Paytm. By comparison, SAIF Partners holds 30% stake and Paytm founder Vijay Shekhar Sharma owns 21% of the company.

Paytm said the fresh funds will be used to expand its operations, increase the workforce, develop technology, and build expertise in the online-to-offline model. The investment will allow Alibaba to make further inroads into India’s rapidly-growing e-commerce and digital payment sector. Paytm boasts of 100 million active users and at least 80,000 merchants. Its online marketplace is expected to surpass $4 billion in GMV this year.

Alibaba has already invested in Paytm rival Snapdeal

Citigroup acted as financial adviser to Paytm for the transaction. The move comes about a month after Alibaba, Foxconn and SoftBank invested $500 million in Snapdeal. Alibaba’s direct investment in Paytm may raise questions about potential conflicts of interest because Snapdeal competes directly with Paytm. Recently, Snapdeal-owned Freecharge also launched a digital wallet to directly take on Paytm Wallet.

However, Alibaba’s larger shareholding in Paytm indicates that it is betting on the Noida-based mobile wallet company to become a major player in the Indian market. Alibaba is looking to expand its international business as growth in the Chinese e-commerce market cools. The Hangzhou-based company is also facing stiff competition from JD.com in China.

Alibaba shares inched up 1.12% to $58.50 in pre-market trading Wednesday.