COVID-19 and growing competition in the Indian digital payments space have thrown new challenges at India’s most valued startup Paytm. The digital payments giant is locked in a fierce battle with the likes of Google Pay, Walmart-owned PhonePe, and the fight is only going to get tougher given the entry of Facebook’s WhatsApp.
The challenges don’t end there. Amid India’s border tiff with China, Paytm is trying to fend off allegations of being a Chinese company as it counts Alibaba and Ant Financial as its major investors.
Even so, Paytm is working on expanding its offerings in lending, wealth management, and insurance with an aim to become a one-stop solution in the financial services space.
“Anything that grows the payment ecosystem and increases the customer base is good for our business,” said founder Vijay Shekhar Sharma in a fireside chat at the Asia PE-VC Summit 2020, when asked about competition. “In the long term, customers choose a platform that offers more options. We want to win and be the champion of a market where everybody has played and then we are the outcome.”
On IPO plans, Sharma said, once Paytm is profitable or near-profitable in the next 12-18 months, the company would start discussing it. “Given a choice and based on what business we are looking at, it would be better to list in a foreign market than an Indian market,” Sharma said at the summit organised by DealStreetAsia.
Last November, Paytm secured $1 billion in its new financing round led by US-based asset management firm T Rowe Price taking its valuation to $16 billion.
Edited excerpts of the chat with Stephanie Findlay, South Asia Correspondent, Financial Times:
The Competition Commission of India (CCI) launched an investigation against Google Pay and Google Play for abusing market dominance, and this kicked off after Paytm was briefly removed from the Play Store. Subsequently, you launched your own mini app. Why did you feel the need to take on big tech?
It’s getting clearer that more and more people are going to be victims of big tech’s commercial ambitions. For as long as they are giving us an opportunity to distribute, and reach out to customers, they are a good platform. But a good platform doesn’t necessarily always remain good because there are commercial interests. We wanted to build a distribution, which would allow developers to build and deliver their services to a large number of customers, and we believe that Paytm has been able to create a large customer base, so why not use that as a rail to do it. We can’t build a mini app in a week’s time and launch it. So, it was well planned.
And what has been the interest in this?
We underestimated the interest. The very day when we did it we were surprised that 5,000 people registered. Post that, we are coping up with the traffic to make it more and more do-it-yourself (DIY). Earlier we thought that we will be able to help everybody get onboarded slowly and steadily. But, the number of developers or businesses who want to leverage and partner to deliver has become so large that we have now accelerated our plans for DIY. That is what we are rolling out soon.
We also rolled out a plan for incentivising, with a grant or investment, young developers who could build mini-apps and developers have applied for that.
What was the response of the Indian tech community to your comments against big tech in India? Did you receive support?
They were not just supportive but they were active and inclusive in moving forward together. So, our interest was to bring attention to it, and somehow the attention came from the United States also. They also opened an inquiry. It got acknowledged that what we are seeing and saying in India is not just necessarily a case with few companies in India. It was the case with many other countries. I got calls from people in other parts of the world saying that we are also looking to do something or we have something planned, would you help us understand how to do it? I told them that I run a business and this is a surprise activity that happened and we just came about to say that this is not correct.
In the acceleration of technology and advancement and acceptance of technology, big tech has been good to the world. At the same time, they have a big responsibility of making sure that their dominance and distribution are not stifling innovation.
Something else that has been making news is Whatsapp’s entry into payments in India. Do you see this as a threat?
Anything that grows the payment ecosystem and increases the customer base is good for our business. What we have seen is that when more players come into the market, it grows and becomes bigger. When the payments market becomes bigger, Paytm becomes bigger because we are an absolute favourite of customers when it comes to giving choices to customers who pay. We want to win and be the champion of a market where everybody has played. That would inspire us to go to the main market i.e. the United States one day and say that look we are coming from a place where we could fight everyone and here it is. I would rather be a champion of a market that is open and be a winner in that market.
What do you say to analysis coming out that show Paytm is losing market share to PhonePe and Google Pay?
People think Paytm is an app while Paytm is a bank. So a lot of transactions of ours, a lot of payments of ours happen using bank accounts, wallet accounts and systems, Immediate Mobile Payment Service (IMPS), and other payment modes which are applicable only for Paytm. Of a hundred payments that happen on Paytm, the percentage of payments that Paytm does using UPI is not that large. An overwhelmingly large number of our payments happen with the customer and merchant both on the Paytm platform.
On UPI, the regulator has said that they are going to cap one company’s payments to 30 per cent. Does that help you catch up?
As Paytm, we don’t have the ambition of dominating UPI. It is just one of the payment options for the customers and that’s a very decent payment option. I repeat that for a commercially viable company in payments industry, UPI is a market creator. UPI is not a market to dominate.
We have seen Reliance working on building its ecosystem, and now it has tied up with Facebook, Whatsapp. How do you plan on defending Paytm against their multipronged play into all areas of tech?
First of all, I am a big fan of what Reliance Jio has been able to bring into this country. We used to have data charges, which were very high, and the penetration of data network was not so deep. What we have been able to see in the last 4-5 years is that internet penetration has seen unprecedented growth. I see Reliance as an accelerator. We are very happy seeing more players coming into the market that accelerate and expand the market and that plays out to the strength of everyone.
What services are you looking to improve as a result of this increased competition? What are the growth areas that you are seeing in Paytm right now?
When we look at our payments business, we want to give more choices for the customers to pay from. That’s number one. And when we look at our bank product, it has been phenomenally scaled. We are talking of 60 million bank account customers in the last 2.5-3 years. And that number is only possible because we have a complete digital and a mobile bank. Bank is something where huge amount of innovation simply on deposit and payment is overdue.
Thirdly, we have been able to expand our payments business. Payments is a very low-margin business. Despite that, we have been able to expand and build on financial services. We have been able to build arguably India’s best wealth platform here. We account for more number of monthly SIPs generated and paid for. Last year, we accounted for more than 60 per cent of new customers who added to SIP generated on a single app. Again 6.5 million customers, huge number in a country where only 18 million have even gone into a stock market.
Paytm remains unprofitable. There were reports saying that you cut losses by 40 per cent. What is your path to profitability?
We are on the path of converting ourselves into profitability in typically 12-18 months. The pandemic has only accelerated that journey because we could reduce the costs, or we could focus on efficiencies. So, earlier if we were thinking 18 months, now we can call it one year. So in FY 2021, we should in the last quarter or last few months start to see very small loss, because we have been able to generate enough and optimum amount of revenues.
Where were you able to make the cuts?
The biggest cut that we were able to make was that we were acquiring certain customers and certain merchants who were not staying on our platform continuously. For example, if you acquire a customer or a merchant, those customers were staying for 3-6months. We then said that we want to acquire only the customers who stay for 9, 12, or 18 months to have a robust customer base.
Second, thanks to the pandemic and to the internet experience in India, people were searching for us on the internet and becoming merchants much faster. Last year, if a majority of merchants were being acquired by our sales team and executives on the street, this year it is the opposite. They are acquired by themselves on a DIY platform.
Another thing you have been talking about is the IPO. You said you are planning a listing by end-2021.
2022 is when I had said we will start planning for the IPO. Once we are profitable or near profit in the next 12-18 months, we would start discussing this as a topic. Right now, the plan remains that we would first convert ourselves into breakeven or near breakeven. There is no commercial obligation to be breakeven but the idea is that losses should narrow down to small levels that it is no more a loss to be bothered about in a balance sheet. So, the timeline to explore an IPO still remains somewhere in 2021 and 2022 beginning.
Given a choice and based on what business we are looking at, it would be better to list in a foreign market than an Indian market.
With China’s Alibaba as a major partner in Paytm, the government asked you to submit details on structure, tax regime, startup processing, and protection. Is the government asking for anything else?
We were invited before the parliament committee and our opinion is that Indians’ data must completely, unambiguously remain in India, and should be protected within Indian borders. RBI has given the freedom of processing it outside and bringing it back. I think there is no extra leeway required beyond that.
When it comes to taxation, we want an equal playing ground for everyone. We don’t want companies to build an Ireland subsidiary or some other country’s subsidiary so that it is billing in this country and you are not paying tax.
So you don’t think that you are facing any blow in India for being backed by Alibaba?
Our company is Indian, commercially owned and operated under Indian laws. Our board is majority-owned and controlled by the Indians. As a shareholder also, we have not given any extra rights to anyone. So, we are an Indian entity. Our shareholders can come from a New York-listed company or potentially as you know Ant could have been a listed company by now. That’s it. That does not make us a foreign company. Yes, our majority shareholders are foreigners. It includes influential shareholders like SoftBank and Berkshire Hathaway. You are talking about heavy duty, extremely corporate governance centric shareholders and then completely controlled and governed by Indian laws and the board that also majority comprise Indians.
On your e-commerce arm, how is that going, and again with Reliance entering the space, how do you feel about its prospects?
What we have done in e-commerce, I must say that I am not very happy with what we have done and where we have reached with that. But a bright spot in that is that we have been able to do some good amount of technology expansion for small stores, shops, and offline stores. For example, if you are a restaurant, or you are a fashion retailer, you now have a QR of Paytm Mall that has a store so you can sell contactless, you can sell from different store inventory and so on. As far as it comes to the online marketshare, I would say that we have lot more to do and like you said the competition has come in. As of now Reliance is in groceries primarily, but they have Ajio in fashion and so on. The market that we address is a different kind of market. Our market is more unstructured goods market and not typically a market which other big players are making.
As this competition is intensifying, do you expect to do another fundraising round?
We have money. We were lucky to raise money before the pandemic even sowed the seeds. Last year we raised money, and we have enough money for the next three years. About 12 months ago, I could have said four years. Looking at the prospects, our revenue engines have started kicking in making us reach much less requirement of incremental money.
Are you under pressure from any investors to pave exits?
They are all flushed with heavy-duty large money and they are all long-term shareholders. It’s a very interesting moment I would say that we are reaching profitability, and hopefully we would then give a public market exit. They haven’t reached out to us in a pro-active manner.
Last time we spoke, we were talking of Japan. How is it going there?
PayPay is right now probably the largest consumer payment platform in the country and it also is the largest merchants network in the country. We have been able to launch services like Bento pick-up, which means if you are in office, you can place an order and you can go self pick-up. It is not a food delivery service by the way. It’s a payment service because we allowed small stores to create a store on the PayPay app. I was in the United States for some event where I got to meet lot of investors and business people. They were interested in Paytm and they were always equally excited to hear about PayPay.
You want to be a stock broker, lender, and insurer, and a mutual fund distributor, but do you have the right users to sell these services to?
First of all, lending is not by us, we don’t have a lending licence. Lending is of someone else. Right now we are expanding the partners’ base, I am happier more than ever before with the number of partners that we have got onboarded. It includes SBI cards division, large banks, and large NBFCs. So, a phenomenally able and capable team.
Now with the correct kind of partners that we are adding, it would definitely scale when it comes to brokerage, when it comes to the insurance. The good thing is that the distribution business like Paytm Money is a distribution of mutual funds and stocks brokerage and similarly in insurance. These are traditionally money-making businesses so on an individual basis have started to make money in this financial year itself.