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Paytm or Payment through mobile is India’s leading payment processing, commerce, and digital wallet application. It’s a brand of the parent company One97 Communications and was launched by Vijay Sharma in 2010. The app allows you to carry out various transactions from paying your local vendor to paying your electricity bill and much more. It started as an online payment and recharge service and transformed into a virtual and marketplace bank model providing several services like mobile banking, recharge, online marketplace, etc. Paytm has catered to more than 250 million users in the last 8 years. It has the capacity of handling more than 5000 transactions per second.
Headquarters: Noida, India
Notable Investors: Temasek Holdings, Berkshire Hathaway, Ant Group, The Goldman Sachs Group, T. Rowe Price
Last Funding Round: Series G (Nov 2019)
Amount: $ 1.6 Bn
Valuation: $16.66 Bn
Founder: Vijay Shekhar Sharma
How does Paytm make money and its revenue stream?
Paytm was initially launched as a bill payment and mobile recharge platform, later it introduced several other services on its platform and came up with the concept of Paytm Wallet, Payments Bank, and online marketplace.
Paytm doesn’t charge money directly from its customers, but has different service offerings such as Recharge Services, Bill Payments, Paytm Mall, Paytm Wallet, Paytm Payments Bank, Online Travel Agency Bookings (OTA), Digital Gold, and others, from where it earns revenue in the form of commission, interest and other relevant fees and listing charges.
Paytm serves a large number of users, which is why it is so cost-driven. Its platform and customer acquisition account for the majority of its costs. This is a common expense faced by many organizations around the world where the cost of acquiring new customers is very substantial. The amount of money spent on this process is more than the returns earned.
Broadly classifying the cost structure of Paytm, the majority of its costs can be attributed to 4 major factors:
· Customer Acquisition Activities
· Skillfully Channelizing the Paytm Platform
· Security and Fraud detection controls on its platforms to reduce risk
· Compensation to its employees
Valuation and funding history
Paytm is backed by some of the most prominent investors such as Berkshire Hathaway, Ant Group, Hana Financial Group, etc. Paytm raised approximately $1.7 Bn in its latest funding round Series G (Nov 2019) which increased its market valuation to $16.7 Bn.
Paytm’s most prominent competitors namely Klarna and Razorpay have an average Enterprise Value to Revenue Multiple close to 45% which is higher than what Paytm’s 32.6%, which shows Paytm is currently undervalued as compared to its competitors. Keeping in mind all the positives we can say that in the long run, Paytm’s valuation will rise to attain the industry standards of approximately 40x-45x NTM.
Global peer comparison
Talking about the global positioning of Paytm in comparison to its prominent rivals such as Razorpay, Klarna, and Bharat Pe, Paytm facilitates the highest number of transactions per day followed by BharatPe and Klarna. Paytm has nearly 10,000 employees which is fairly higher when compared to Klarna and Razorpay who have around 4300 and 1300 employees respectively.
The story so far
According to data released by the National Payment Corporation of India (NCPI) number of digital payments per capita currently is 22.42 per month. The cumulative value of transactions made through payment gateways stood at INR 29.5 Tn ($40 Bn). Also, the payments sector has the highest number of fintech startups. According to IBEF Digital payments in India are expected to increase over three-folds to INR7092 Tn ($100.61 Tn) by 2025 on account of government policies. Mobile payments will drive around 3.5%of total digital payments of INR7092 Tn (US$ 100.61 Tn) by the financial year 2025, up from the current one percent.
India had always been a cash-obsessed economy and now it’s one of the leading countries adopting technology and digitization across its industries. The digital payment market, though adolescent is exciting. Both the public and private sectors are going through rapid digital transformation driven by the increasing use of mobile internet and progressive regulatory policies. The sector has been evolving since demonetization and the pandemic has accelerated the digital shift. A coming couple of years will witness a completely new way of how money moves within the Indian economy.
Impact of e-commerce
The growth of e-commerce along with the emergence of digital wallets played the role of catalyst for digital payments. The e-commerce payments market historically dominated by cash is evolving to meet the demands of its increasingly smartphone-led online shopping culture, with cards and digital wallets rising in prominence. Cards are the most commonly used online payment method despite the fact that credit card penetration per capita is 0.02 and debit card penetration is 0.64. Digital wallet is the fastest growing method and accounts for more than a quarter of all e-commerce payments. To lure the consumers, the digital wallets doled out lucrative offers and cashback to get consumers on board using the payment channel.
The market is a highly competitive one with that the NCPI of India has set out new guidelines for digital payment apps limiting their share in the overall volume of transactions on the unified payment interface at 30%. The UPI segment is dominated by PhonePe and Google Pay who have a combined share of more than 80%. The digital wallet segment is completely dominated by Paytm with close to 50% market share. Paytm has taken an integrated route by adding multiple services in its portfolio such as lending, Insurtech, Weathtech, payments bank along with EDC terminals, gateway aggregator & e-commerce. Similarly, PhonePe is offering Insurtech and Weathtech, and Google Pay will be entering into lending and Insurtech.
Paytm offers a variety of services some of the prominent offerings are recharge, top-ups, tickets, hotels and etc. It then diversified into new services like the digital wallet with a match-making model. The two customer groups of the company are the individual account holders that deposit money in the wallet and the merchants who accept the payment. To increase the attractiveness and adoption of various new lines of services targeting the two customer bases were started:
· Paytm payments bank: operated for retail customers, however, Paytm has pricing plans for businesses of all sizes.
· Paytm Money: wealth management division of Paytm, a platform with multiple products in one easy app with high stability and resilience.
Companies are benefitted from the ability to receive a wide range of digital payment methods, both online and in-store. Along with the more traditional ways like debit and credit cards, this also includes a few nascent innovations such as QR codes, Paytm’s own digital wallet service, and United Payments Interface.
Unlike the population of western countries, Indian people are not that much accustomed to using cards. That’s where Paytm steps in and provides the ease of cashless transactions without the hassles of a physical card or complicated bank processes.
Future plans, innovations, and alliances
Paytm is en route to becoming a full-stack financial services provider. Setting up the digital bank and venturing into Weathtech and Insurtech, the company has entered into quite a few key strategic partnerships. To forward their Insurtech plan the company acquired Raheja QBE General Insurance Company, a provider of general insurance plans. Paytm also strengthened up its credit offerings by tying up with SBI Cards to provide contactless credit cards. Paytm Payments Bank was proactive in entering into a partnership with ride-hailing companies like Ola and Uber. This will empower more than 1 lakh driver-partners to conveniently use Paytm FASTags and seamlessly commute across the country, according to Paytm.
Owing to the digitization of the Indian gold market in recent times, Paytm has collaborated with MMTC-PAMP (a well-known gold refiner), to provide a safe platform for its users to purchase, sell and store digital gold. Paytm claims to facilitate the purchase of 99.99% pure gold for as low as Re.1 and store them at an insured vault for no cost.
Paytm aims to create a Gold Bank account that will allow customers to buy gold and keep it digitally, as well as utilize the gold to pay for other Paytm services, such as recharging, paying utility bills, and buying shoes and garments from the Paytm Mall. As a result, this Digital Gold is a step toward the main goal of establishing a Gold Bank Account.
Paytm is well aware of the amount of gold invested in India and is ready to capitalize on the opportunity. The company has announced significant plans to encourage its users to open their own Gold Bank Accounts.
A mobile wallet’s value proposition includes not only the payment services but also the value-added services that can be provided in a mobile-enabled environment. In a fast-changing and extremely competitive world, no one wants to be left behind in the fight for customer acquisition. Paytm has evolved rapidly and has earned a name for itself in the Indian financial and business sectors. The fact that it grew from a small startup to a massive corporation in such a short period of time demonstrates the further opportunities for growth in the digital space and how innovation is being used effectively in India.