Often heralded as India’s answer to PayPal, the Indian payments start-up Paytm is backed by some of the biggest names in tech.
Last month, it announced $2bn in fundraising, half in equity and half in debt, from stakeholders including Alibaba-backed fintech Ant Financial and Japan’s SoftBank, which together own about 60 per cent of the company. Vijay Shekhar Sharma, Paytm’s founder, declared that the company is now worth $16bn, making it India’s highest-valued start-up.
In an interview with the Financial Times, he said that everything was moving in the right direction, arguing that he had cut costs by 10 per cent in the past six months. “We see ourselves on a healthy path,” he added.
But to outsiders the narrative around Paytm is sounding less compelling, as the company burns through cash in the hope of clinging on to its share of the world’s fastest-growing cashless payments market.
In September, Paytm’s parent One97 Communications announced that its net losses for the year ending in March widened to Rs3,959 crore ($559m) from Rs1,490 crore ($210m) for the previous year, while revenues were up only slightly to Rs3,232 crore ($456m) from Rs3,052 crore ($430m).
The results come at a difficult time for SoftBank, which is still grappling with the aftermath of the failed public listing of WeWork, one of its most significant portfolio businesses.
“My prediction is that the next big problems for SoftBank will come from its Indian investments in Oyo and Paytm,” said Jeffrey Funk, a retired associate professor at the National University of Singapore, adding that his long-term concern over Paytm was that its losses “probably won’t go away”.
Indeed in a matter of months the company has spent nearly $600m on expanding its business — partly through an expensive strategy of generous cashback offers and discounts intended to entice customers.
“We don’t sell a dollar for 90 cents,” Mr Sharma insisted, “but as long as we continue to invest, we will need more funds.”
A crowded field
One of the biggest problems Paytm is facing is that the Indian payments market is becoming increasingly crowded. Three years ago, the government’s demonetisation initiative suddenly wiped out almost 90 per cent of the cash in circulation, giving a huge boost to the company’s user numbers.
But since then more players have entered the space, as the government-sponsored Unified Payments Interface, a platform that was rolled out in 2016 to allow immediate mobile payments directly between bank accounts, has become widely adopted.
India now hosts a variety of competing payments apps including deep-pocketed rivals such as Amazon Pay, Flipkart’s PhonePe and Google Pay, all looking to capitalise on the country’s 800m mobile phone users. The fight will only intensify when Facebook-owned WhatsApp Pay launches in the country.
“Paytm is stuck between a glorious past that was built on the back of digital payments and a future that doesn’t look anything like Jack Ma’s Alibaba,” wrote business journalist Ashish Mishra in an essay entitled “Paytm is Stuck”.
Some have argued that Paytm missed a key opportunity in not getting in ahead of the government and creating its own mini-UPI, which could have allowed it to develop the infrastructure underpinning the country’s payments system.
“What Paytm didn’t do right was to change [its] e-wallet business into UPI,” said the chief executive of an Asian start-up with a large financial services business, speaking on the basis of anonymity. “The company had this notion it could compete with UPI . . . and then PhonePe and Google Pay stormed the market. From a payment standpoint it is hard to see how [Paytm] can dominate now.”
Paytm eventually integrated with the UPI system in 2017, but by November of this year Google Pay and PhonePe commanded a bigger market share across UPI apps, with 57 per cent and 27 per cent respectively, versus Paytm’s 7 per cent, according to research from payments provider Razorpay.
Mr Sharma, however, argued that the numbers on the ground were better “than people believe”.
“We have more transactions and market share for Paytm and UPI than everyone else combined, including Walmart, Google, Amazon, all the banks and all the credit cards,” he said.
Paytm said it logged 700m digital transactions in June. UPI transactions hit 754m that same month, and leapt another 9 per cent in July to more than 800m, according to the National Payments Corporation of India (NPCI). That compares to 235m transactions one year earlier.
‘The superapp route’
Paytm is looking beyond payments to other viable revenue sources, for instance using its payments business as a springboard for bolting on other services, from selling gold to insurance to forex services.
“It is now a lot harder to make money after UPI . . . the superapp route is how providers can capture higher-margin transactions such as lending,” said Neha Singh, co-founder of Bangalore-based data analytics company Tracxn.
But even this approach carries risks. Traditionally banks in India, where only about 20 per cent of the Indian population has access to credit, have avoided customers with a score of less than 750 from the country’s Credit Information Bureau.
Recently, however, there has been a proliferation of fintech firms and non-banking financial companies offering personal loans to people with either low or non-existent traditional credit scores. Data from Bernstein in a report released earlier this year indicated that a large part of lending is now going to the 650-750 range.
The greatest risk, though, may be the growing protectionist thrust of Prime Minister Narendra Modi’s government. In 2018, regulators in the US barred Ant from investing in remittance firm MoneyGram on the basis that financial data constitutes national security data — an argument now being cited in India as a possible reason to force the Chinese-owned Ant to divest its stake in Paytm.
However, Mr Sharma claimed this was not a major concern. “We always believe in keeping data within borders, which is what India cares about,” he said.
It may be that the future of the India’s fintech sector, like that of Indonesia, lies in consolidation. For now, however, Mr Sharma said he has little interest either in making acquisitions or in selling his business to someone else.
In the past, he said, he has been approached to sell his company, including to an unnamed US buyer, but he would only consider such a move after going public.
“We have always chosen build over buy, but maybe that will change going forward,” he said.
Additional reporting Stephanie Findlay in New Delhi