Vijay Shekhar Sharma, founder and CEO, PayTm
Image: Amit Verma
Vijay Shekhar Sharma dreams of Paytm touching a billion lives. India’s largest mobile wallet provider by users is making a conscious pivot to financial services, thereby providing small and medium enterprises (MSMEs) with digital financial technology that will help them grow their business.
“Paytm is revolutionising access to digital payments and financial services in India. We hope to be India’s champion of new-age enterprises that is committed to proving the country's technology, product and scale on a global stage,” Sharma, founder and CEO of Paytm, tells Forbes India via email. “Our focus is to democratise wealth, insurance and lending products that can cater to half a billion Indians.”
Sharma’s rank on the 2020 Forbes India Rich List fell to 62 from 56 in 2019. His net worth, however, remained unchanged at $2.35 billion even as some of his peers from other sectors did better. The 42-year-old bespectacled billionaire started Paytm—short for ‘pay through mobile’— in 2010. He now aspires to build a large new-age financial services company offering banking, insurance, mutual funds, stockbroking and, of course, the payments platform not just to hundreds of millions of consumers, but also to millions of small businesses. He also operates ecommerce marketplace Paytm Mall, but that hasn’t taken off the way he would have liked it to.
On October 19, Paytm announced it wants to capture 10 percent of the country’s untapped credit card opportunity with a “next generation” product it was launching. A week prior to that, on its payment gateway operations, the company said it was offering “same-day settlement” to merchants who transacted on its platform.
A month earlier, the company claimed Paytm Money—its wealth management services unit—had served 6.6 million customers in two years of operation. Investments in mutual funds were soaring and Paytm’s stockbroking service was seeing hundreds of thousands of customer registrations, it added.
In August, Paytm Payments Bank offered customers an Aadhaar card-enabled service that could be availed with any banking correspondent. And in July, the company said it had acquired Raheja QBE, an insurance provider, strengthening Paytm’s operations in the segment.
By offering multiple and better payments services to its consumers and merchants, and adding new financial products and services, Sharma is trying to accelerate a pivot to financial services, which might have started way back in 2018, as the growth engine for his business.
Paytm has marquee investors, including early backers Elevation Capital (formerly SAIF Partners), Chinese ecommerce behemoth Alibaba Group Holding, Japan’s SoftBank Group and America’s Berkshire Hathaway. Sharma has raised about $3.5 billion in funding to date and his venture was last valued at $15.75 billion, according to Tracxn Technologies that tracks tech ventures and sectors in over 30 countries. The valuation makes Paytm India’s most-valued unicorn.
Need Of The Hour
Financial services becomes even more important today because Paytm’s pure-play marketplace for online retail is now a distant third after Flipkart (a Walmart unit) and Amazon. “In online retail, Paytm is small and it’s becoming smaller,” explains Satish Meena, senior forecast analyst at research firm and consultancy Forrester. “Most of the growth in the market is being captured by Amazon, Flipkart, Myntra and BigBasket.” Paytm has also “scaled down its ambitions” in online retail, and is not splurging anymore compared with the many cashback enticements it used to offer customers earlier, he says.
Paytm wanted to make a big bet on what it called ‘offline to online’—to get millions of local stores to list on Paytm Mall and see customers buying from their own local stores via the marketplace. “But it never picked up,” says Meena. The problem was not at the back-end, but at the front-end, meaning that while Paytm had the tech and the know-how to get the stores online, customers didn’t take to Paytm Mall. Amazon and Flipkart became the default options.
“Customer traction was happening as long as it was giving cashbacks… after that, they just went away from the platform,” adds Meena.
With Paytm Mall, Sharma wanted to build a pure-play marketplace where customers made purchases and the sellers also took the responsibility of shipping them. But that’s not how India’s ecommerce functions—Amazon and Flipkart are taking near-total ownership of delivering products from their own warehouses, providing customers a superior experience. That can’t be replicated by a pure-play marketplace model.
In June, Paytm Ecommerce, which operates Paytm Mall, moved the marketplace’s headquarters to Bengaluru and said the operation had reduced cash burn from $17 million a quarter to $2 million through the previous fiscal. “We would like to think of Paytm’s ecommerce business as a Series A startup,” newly appointed COO Abhishek Ranjan said in a press release at the time. It had $200 million in the bank to work with, he added.
Paytm raised a billion dollars last November, and Sharma may have more judicious plans for those funds—such as boosting financial services—than burning them to compete against entrenched players like Amazon and Flipkart. Paytm has established itself as a large player in the payments space, including customer-to-merchant payments, and offering the company’s payments platform to businesses. Payments remains one of its biggest bets for now, even as it adds new revenue streams with financial services.
According to RedSeer Consulting, a consultancy in Bengaluru, mobile-based payments in India will see a five-fold increase through 2025. And Paytm is likely to benefit. The payment gateway aggregator market in India currently stands at `9.5 trillion and is expected to grow by 2.4x driven by large value transactions. It is expected to grow at a compound annual growth rate of 19 percent in the next five years to reach `22.6 trillion in 2025.
In a press release on October 13, Paytm claimed it was the fastest growing payment gateway. It has grown from 40 million transactions per month in fiscal 2015 to between 400 million and 450 million monthly transactions in the fiscal year ended March 31, 2020, the company said.
Paytm claims to lead in the new-age business space and has built strong traction in enterprise business. In a blogpost in September, it said some 17 million merchants were using its payments and financial services. And about 200,000 units of its Android software-based all-in-one point-of-sale device were in use with retailers.
One way the company makes revenue is by taking a cut or a fee from merchants based on the transactions they make on its platform. Some of this got hit after the government, in early 2019, mandated zero MDR (merchant discount rate) charges for certain modes of payments. Second, if wallet users want to transfer money from their wallets to various bank accounts or if they are recharging their wallets using credit cards, then Paytm charges a fee. Other sources include fees from telecom network operators when wallet users top up their phone plans.
Paytm also makes money on interest by offering credit to merchants. In August, Sharma hired senior banker Bhavesh Gupta to run Paytm’s lending business vertical.
Over the last three years, Paytm has also built and grown the Paytm Payments Bank. In the long run, however, it will be looking for a full banking license, says Meena, as the payments bank license doesn’t give it the breadth of options to make serious money. For example, payment banks can’t offer loans or sell credit cards.
In December, Sharma told The Times of India that he was seeking regulatory approvals to convert Paytm Payments Bank into a small finance bank, which would give him more elbow room. For now, the Reserve Bank of India (RBI) hasn’t issued any fresh licenses. Given that many of the existing banks in the country aren’t in good shape, RBI may not be in a hurry to offer new licenses.
Overall, fighting back on the online retail front will be a tough ask, whereas banking and financial services hold promise, especially if Sharma succeeds in getting a full banking licence.
Payments is an area in which Paytm has to continue to build on the scale it has achieved. Competition has increased in the form of Google Pay and Flipkart’s PhonePe which have overtaken Paytm when it comes to payments based on the unified payments interface (UPI) that India introduced in 2016. And Facebook’s WhatsApp Pay—in the offing—could threaten Paytm’s payments-to-merchants market too. WhatsApp doesn’t have to put its QR codes in stores. Anyone who has WhatsApp can use it to make payments.
The Big Fight
Sharma, meanwhile, is fighting another battle. After the Paytm app was temporarily removed from Google’s Play Store in September for what Google said were violations of its store policies, Sharma said India needs its own app marketplace. Paytm subsequently launched a ‘mini app store’ that some startups have joined, which takes users to app-like web pages that they don’t have to download on their smartphones.
“There is a need to create a level playing field for Indian developers and startups,” Sharma tells Forbes India. “Currently, large international companies do not follow Indian laws and make their own rules to protect their dominant market position. Indian entrepreneurs, businesses and technology companies need active involvement from the government and other stakeholders to build infrastructure and an ecosystem that does not stifle homegrown innovation.”
This isn’t the first time Sharma has taken on a ‘Big Tech’ company and Google isn’t the only one he has criticised. In 2018, he had gone on a tirade on Twitter, arguing how Facebook unit WhatsApp Payments’ foray in India wasn’t taking place on a level playing field.
Sharma had understood that skirmishes between companies like Facebook or Google and up-and-coming challengers like Paytm were not about individual verticals such as payments. “This will be a fight among ecosystems,” he had told Forbes India in March 2018. So, whoever controlled large platforms that potentially hundreds of millions of consumers would rely on controlled the ecosystem, and benefitted enormously.
The company offers ‘same-day settlement’ to merchants who transact on its platformImage: Francis Mascarenhas/Reuters
Paytm’s own ecosystem is an evolving one. In 2017, the parent company, One97 Communications, restructured itself. The mobile wallet service became part of the then newly-formed Paytm Payments Bank, which leads the company’s financial services foray for consumers. Paytm Money, another independent unit like Paytm Mall, offers the wealth management services, and the company has a lending business vertical as well.
The ecommerce business—selling everything from train and movie tickets to travel bookings, smartphones, air purifiers and washing machines—became part of Paytm Ecommerce Pvt Ltd, a separate company that runs the Paytm Mall online marketplace and mobile app. And there is Paytm First Games, which offers fantasy sports, including cricket and kabaddi, and card games like rummy, among others.
Paytm’s revenue increased from about Rs 780 crore in the year ended March 31, 2017, to about Rs 3,310 crore in fiscal 2018 and Rs 3,580 crore in fiscal 2019. Losses for these years rose from about Rs 620 crore in FY17 to Rs 1,604 crore in FY18 and Rs 4,217 crore in FY19, according to Tracxn.
For FY20, revenue increased to Rs 3,629 crore and overall transactions have grown by over 50 percent, Paytm said in a blogpost in September. “As we expand our financial services with lending, wealth management and insurance offerings, new revenue streams have opened up for us,” the company said. “Optimising expenses has resulted in a 40 percent reduction in our losses as compared to last year and we are on the path to being profitable by 2022.”
“We are also investing heavily in building digital services for our merchant partners so that they can benefit from technology and financial inclusion,” Madhur Deora, Paytm’s president, said in the blogpost. “Our efforts have started reflecting in the strong adoption of more profitable services by our consumers and merchants.”
Sharma reiterates his vision for the company. “Our aspiration is to be a key contributor in building an Atmanirbhar Bharat and empower millions of MSMEs across India with digital financial technology that enables them to grow and expand their businesses,” he says.
Clearly, the pivot to financial services is on in full swing.
On September 18, Paytm’s mobile app was taken down from Google’s Play Store. Google’s reason, Paytm said, was that a cashback campaign the fintech startup was running on its app violated the Play Store’s policies on gambling. Paytm had to scramble to pull the campaign to get its app reinstated.
“This was the first time that Google was sending us a notification regarding our UPI (unified payments interface) cashback and scratch cards campaign. Contrary to accepted practice, we were not given any opportunity to respond to their concerns or put forth our views,” Paytm said on September 20.
Without referring to Paytm, Google issued a statement the following day: “Offering cashbacks and vouchers alone do not constitute a violation of our Google Play gambling policies.” It added that its policies didn’t allow online casinos or support any unregulated gambling apps that facilitate sports betting, including daily fantasy sports in India. “If an app leads consumers to an external website that allows them to participate in paid tournaments to win real money or cash prizes, it is a violation of our policies,” Google said.
That Paytm was promoting its gaming unit, Paytm First Games, which offers fantasy cricket, football and other games, was also something Google had objected to previously, on three occasions, according to Paytm’s post.
Paytm said it had stopped that promotion as well, and added: “Conveniently, Paytm First Games can do a paid promotion on YouTube (which is owned by Google), but it is not allowed to do the same advertisement on the Paytm app, as per Google policy.”
Other startups, including Zomato and Swiggy, have also received notices from Google.
A second issue that has raised not only Paytm’s but the Indian startup ecosystem’s ire is that Google recently announced it would enforce a policy that developers who sold in-app digital goods would have to necessarily use Google’s billing system. And Google would take a 30 percent cut on such sales. Paytm founder and CEO Vijay Shekhar Sharma and several other startup founders in India have joined up in an alliance to oppose this. Google subsequently said it would postpone enforcing this policy in India by six months, but still expects to implement it.
Paytm added in its blogpost: “As a startup, we are running law-abiding businesses and building for India. Google and its employees are making policies which are over and above the laws of our country, and are arbitrarily implementing them.”