Overview
Imagine you are enjoying your weekend out and had an amazing meal in a restaurant and while making payment you find that you forgot to bring your wallet. Now, thanks to technology, you can easily make payments to any restaurant for your dining and even for your cab charges. Therefore, online payment platforms have afforded a great deal of convenience and comfort for people, and for the same reason, they have become a popular alternative for payments and are widely used. Though Paytm was founded in the year 2010, it got a real boost after the advent of demonetization in the year 2016 and in the Covid-19 lockdowns where digital payments were encouraged and preferred over in-cash payments.
Paytm is a digital payment and fin-tech start-up headquartered in Noida, this start-up specializes in various domains such as digital payments for bill payments, ticket bookings, mobile recharges, and in-store payments for groceries, fruits and vegetables, pharmacies, restaurants, etc. through its QR code facility, e-retail for online shopping and more lately in e-finance services such as Paytm loans, financial investments and trading and banking facilities for its customers across the country in more than 11 languages.
With the tagline “Paytm Karo! Paytm has become a trusted name for secured and reliable payments and has played an integral role in shaping the online retail industry and revolutionizing the payments-related approach towards online shopping being the first digital payment application. After raising funding from Softbank Vision funds in the year 2018, it became one of the earliest start-ups to attain a unicorn status and helped its founder Vijay Shekhar Sharma the title of “Youngest Billionaire Entrepreneur” in the year 2017. Since then, it has been funded by investors such as Alibaba and Ant Capital of China, and Softbank Vision of Japan. It plans to further expand its online e-retail as well as e-commerce store in order to expand its consumer base and facilitate its consumers better.
Founder & Team
The story of the inception of Paytm is a real inspiration for who those belief in the fact that hard work may find struggles, but it ultimately leads you to success. Vijay Shekhar Sharma came from a lower-middle-class family in Aligarh, Uttar Pradesh. Despite completing his education from a Hindi-medium school, he self-learned English and completed his education at Delhi College of Engineering. He came to know about bigger IT-based companies like Apple, HP, Microsoft, etc. through magazines and felt the urge to create something of his own. With this very basis, he started a company namely, at One97 Communications in the year 2000 that offered mobile content such as news, cricket scores, ringtones, jokes, and exam results for its customers having a similar business ideology as to that of Yahoo.com. But, after some time, he identified two problems-
- Rather than maintaining the business profitability, it was more important to manage cash flow in the business;
- As the client’s payments delayed, it was being difficult for him to manage cash flow in the business.
Thus, around the year 2010, he decides to start a new company, namely Paytm under its parent company One97 Communications after observing the phenomenally increasing use of mobile phones and internet consumption in India. Paytm is a short name for “Pay through Mobile”. With an initial investment of $2 million. it targeted smaller transactions like mobile recharges and DTH cable payments, and later moved towards easier facilitation of monthly payments like electricity bill, water bill, and gas bill facility and finally towards bank transfers. It reached a tally of two lakh fifty thousand customers within two years of inception and became a household name among consumers. Today, it boasts of having more than 400 million users who make 25 million transactions daily. In 2020, it became one of the most valuable Indian start-ups possessing a valuation of $16 billion.
With India turning into a bigger economy, Paytm in a true sense encouraged financial inclusion and financial education by offering Paytm zero account facility by Paytm bank for its customers. Paytm proved itself to be a choice of every common man and opened doors of financial inclusion due to its keen focus towards simplifying the day-to-day difficulties faced by a common man in the ground and offered the convenience of payments without having to stand in long lines and making payments from anywhere anytime. In the beginning, Indian railways and Uber partnered with Paytm to accept payments through its platform in 2014, and slowly others follow it. Not only digital payments, today Paytm offers multiple products for consumers including-Paytm money, Paytm Gamepad, Paytm smart retail and Paytm post-paid, and Paytm Mall. Paytm Money is regarded as one of the biggest investment platforms in the country along with a special contribution in Systematic Investment Plans (SIP) to the Mutual Funds Industry in the county and is further planning to expand the platform towards other services such as Stock Broking, Demat, and National Pension System (NPS) and has already received regulatory approvals for the same.
Paytm Business Model
Paytm runs on B2B as well as B2C business model due to the variety of its services offered to its customers. Rather than sticking to a business model, it works on a parallel approach to ensure a smooth experience for both the business merchants as well as its customers. From digital payments for almost every type of transaction, it has reached a lot of subsidiary services such as Paytm retail, Paytm Bank, and Investments and trading and finally digital gold services that have led to a large customer base. It has entered strategic partnerships and various tie-ups to provide these services including escrow services to its clients.
Unique Value Propositions of Paytm
- Paytm started with smaller payments like prepaid mobile recharges or telephone bills and has expanded to offering Paytm post-paid services to the customers as well. It also introduced Paytm zero balance account and mobile wallet to offer an alternative for bank accounts to its customers.
- It has devised the idea of digital gold where customers can invest smaller amounts and store gold digitally for saving purposes and later use such amount worth of gold to complete a transaction or even exchange such amount for actual gold of the value.
- It has diversified business in form of various e-commerce verticals wherein it serves as an important component in the completion of different types of transactions, which makes it only one of its kind.
- It is the only digital payments platform that offers even up to a 50-100% cashback in pretty much all the payment transactions undertaken by the user and other rewards in form of coupons that help businesses to execute their daily requirements effortlessly.
Paytm Revenue Model
Paytm’s two-sided ecosystem between the merchant business and the consumer enables commerce as it offers access to financial services to its customers by leveraging technology through its financial institution partners which could afford convenience to the customers and help merchants to grow their businesses. Paytm generates its revenue from a whole host of services offered by it through the platform and it could be categorized into the following categories-
i. Payment & Financial Services;
For its payment services, Paytm primarily generate revenues that may vary with the type of instruments chosen by the customer and the category of merchants, including-
- The transaction fee is charged from the merchant based on a percentage based on the Gross Merchandise Value (GMV).
- A Consumer convenience fee is charged from the customer for allowing a certain category of transactions only;
- Charges for recurring natured transactions from merchants for certain products and services including- Paytm Soundbox and POS.
Financial Services-
Paytm has entered partnerships with various financial institutions and offers various products and services to its customers (including lending funds, insurance, and wealth management) and the revenue charged depends upon the products being offered, nature of partnerships, level of distribution, product creation, and collections. For the lending part, Paytm receives a sourcing fee from financial institution partners which is received at the time of loan disbursal based on a certain percentage of the loan amount and a collection fee from the concerned financial institution partner for a certain percentage of the loan amount for the collection services performed by Paytm.
Paytm charges a fee for the issue and distribution of credit cards from different financial institutions known as “an upfront distribution fee” that is charged on a per-card basis and a percentage of the total annual amount spent on the card. Paytm also receives incentives from the credit card networks for credit card promotions through its platform.
It earns commissions from its insurance provider partners based on a certain percentage of the total insurance premiums for the insurance products sold through its online platform. Similarly, in the case of equity trading, it earns consumer fees (similar to upfront account opening fee & transaction fee), conditional on the type of transactions and volume of transactions, and an annual subscription fee.
According to Paytm, the total amount of revenues generated from the Payments & Financials services in total contribute to 75% of the total revenue generated through its platform in FY 21.
ii. Commerce and Cloud Services
The commercial services such as travel, entertainment, ticketing, e-retail, and other commercial businesses help Paytm to generate revenues by charging a transaction fee for each such transaction from the respective merchant dealer and a convenience fee from the customer depending upon the total value of the transaction.
Apart from all these, Paytm also offers software and cloud services to businesses helping them to store customer data locally in servers located in India in conformity with the security and privacy standards and charges a subscription fee from businesses depending upon the volume of activity on the Paytm platform.
Finally, Paytm also manages and runs advertising and marketing campaigns for various merchants and businesses and earns marketing revenue for the same. All these services constituted a total of 25% of the total business revenue in the year 2021.
Paytm Business Marketing Strategy
i. Cashless transaction schemes-Though Paytm was in existence since the year 2010, events like demonetization and Covid lockdowns gave it an edge in the fin-tech business due to the special emphasis on cashless transactions. Thus, the company has been able to gain consumer trust & loyalty due to the secure nature of the transaction and the convenience involved in the process.
ii. Rewards & Offers- For increasing literacy related to online payments, Paytm launched its ‘Each one, teach one’ programs under which it offered Rs. 2100 worth of scholarship for 10,000 users to assist in the process of digital inclusion and adoption of Paytm and literacy certificates for one lakh consumers across India. It also announced several prizes and incentives such as Rs. One crore grand prize along with additional prizes like motorcycles, smartphones, laptops, and other exciting gifts for users making transactions between 1st December 2016 and 31st March 2017 to decide eligibility for rewards.
‘Scan any QR to pay using Paytm’ scheme was launched in 2018 in several languages including Bengali, Marathi, Gujarati, Tamil, Telugu, Kannada, and Malayalam.
iii. Cobranding & Partnerships – To attract consumer attention and brand trust, Paytm has done co-branding with multiple businesses such as Indian Railways, Uber & Meru Cabs and ensured brand cooperation. Similarly, a lot of businesses have helped Paytm to acquire new customers through co-branding.
iv. Promotional Content- Paytm has adopted a robust marketing strategy for promotional ads through means such as offline as well as online networks such as TV, print media as well as social media marketing, and you-tube marketing. Over time, it has become a household name for the population in India with its slogan & tagline – “Cash Nahi, Paytm Karo”!
v. Events Marketing- Again for promotional purposes, Paytm is involved in the sponsorship of various events such as college fests, official sports tournaments such as IPR which gives it worldwide recognition and immense exposure. It allows 120 seconds of airtime for each match played on the IPL tournament and the popularity has increased during the World Cup that has resulting in the TV ads launch during the eighth season of IPL.
- xRunning Ad Campaigns- Ad Campaigns like “Paytm Karo” have been targeted through the social media channels (Facebook) and Twitter handle. It rolls out the convenience.
- The Soldier Mobile Game- This has been made to target the attention of technology-friendly customers and has become hugely popular among consumers. The match shows a battle against dishonest militias of Spartan Paytm troops and the game tries to show the company’s goal to protect the consumer interests on the Paytm platform.
- Partnership with Tiffin Hawkers (Dabbawallas) – Paytm has entered a tie-up with Mumbai Dabbawallas and facilitates easier payments to the hawkers by its customers through Paytm mobile wallets only.
Paytm Funding & Financials
Presently, Paytm enjoys more than 14% of the total market share in the fin-tech industry through more than 55 crore transactions worth a sum of more than Rs 60,094 crores in the year 2021. Also, the Gross Merchandise payments were worth more than Rs. 4 lakh crores for the year 2021.
Paytm has been careful in raising funds and using them wisely in its business operations and acquiring business start-ups that could be helpful to expand its business segments and reduce business risks. To date, Paytm has raised a total of $4.64 billion from the investors with the latest being raised in Nov 2021 in Series H round for a sum of $1.1 billion. Some of the major investors include Alibaba, Softbank Vision, and Berkshire Hathaway’s Inc.(co. of Warren Buffet). It has acquired a total of 12 firms including the e-lending start-up CreditMate (Oct 2021) in which it has acquired a 100% stake and has made investments in 19 businesses in total.
Paytm IPO
Paytm launched its initial public offer (IPO) in Nov 2021 for raising a total value of Rs. 18300 Crores at a market valuation of Rs. 150,000 Crores. The IPO was launched between 8th Nov 2021-10th Nov 2021 and became one of the largest IPO ever launched in India. On the date of closure, the IPO was oversubscribed by 1.89 times the total issue size and was listed at an initial price of Rs. 1950 on NSE. Despite all of this, the price of shares was dropped by 9.3 % for the first day and got closed at Rs 1560, which was a significant drop in its listing price and was heavily criticized by analysts and investors. However, Vijay Shekhar Sharma, the founder & CEO of Paytm was quoted saying “Paytm is not focused in a sole aspect of business and doesn’t aim to be recognized for the limited focus on any one item of business. It should have multiple flavors and colors of various businesses as one business supports the other for expanding its presence. In a data-oriented world, numbers speak more than anything, thus, Paytm is making its efforts and banking upon the same to prove its mettle”.
Conclusion- What lies ahead for Paytm?
Although Paytm is a business with a complex business model compared to its other popular competitors like UPI, PayPal, Mobikwik, Freecharge, etc. it has its bigger plans and wants to prove itself as a “Super app” in coming years by overcoming all its present challenges. It has truly revolutionized the modes of digital payments in India and opened multiple doors for the common masses for services like borrowing, savings, and financial investments, which is the primary reason for its popularity and increasing consumer base daily. Thus, the platform has its dynamic plans for the succeeding years that lay a strong foundation to give its users a holistic experience. It may be possible for Paytm to sell the user data notifying the customer priorities and preferences to the concerned vendors and merchants for understanding consumers and optimizing their sales in the future if required however with no compromise on data security for sensitive information like banking details or passwords.
Despite all the criticism regarding the IPO, the founder & CEO of Paytm, doesn’t seem to be demotivated in his business plans as he states that despite the situation, Paytm has managed to raise the necessary capital for the business, and it is keen to create a strong internet ecosystem in India as in case of UK & China. The capital so raised will allow the business to offer a whole host of financial services better starting from banking & credit activities on the platform in the future.
