“Don’t lose territory to PhonePe”. At least two sources said that was the message its board had for Paytm, India’s leading digital payments company.
But a senior company official was adamant that the board’s missive had been exactly the reverse: “Ignore PhonePe, instead focus on Google Pay.”
Regardless of which version is true, this much is certain—after years of arduously building its infrastructure, ecosystem and offerings, Paytm must now defend them against newer players who did not have to do that heavy-lifting. Because both PhonePe and Google Pay rode successive waves of growth atop free, government-promoted payment rails called UPI (unified payments interface). Those rails allowed PhonePe, owned by e-commerce major Flipkart (in turn, owned by Walmart), to announce in May that it had processed two billion payment transactions on its app—something only Paytm could boast about two years ago.
The success of UPI-powered competitors has apparently alarmed Paytm’s board, which is comprised of key investors like the Alibaba Group, its financial services affiliate Ant Financial, Berkshire Hathaway, and SoftBank.
This, in spite of Paytm growing from 2.8 billion transactions in 2017-18 to 5.5 billion transactions this year. With plans to nearly double that to 12 billion by March 2020. It’s also turned “contribution positive” in the most recent July-September quarter to boot, with a contribution margin of $7 million. (This excludes expenses such as marketing costs, people costs, etc.)
But Paytm’s founder Vijay Shekhar Sharma* probably realises that standalone growth metrics and revenue alone aren’t enough to survive in the tough world of hyper-funded fintech unicorns. Instead, there’s also the battle of perception. That the three-year-old PhonePe is reportedly demanding a $10 billion valuation for itself when it took Paytm nine years to get to $15 billion is a game of perception and wits.
One that Sharma, whose audacious goal is to make Paytm India’s first $100-billion company, must play, whether he likes it or not.
A (closed) loopy start
Paytm started out as a digital wallet into which customers could “load” money from their debit cards and credit cards and then spend within an ecosystem of merchants who accepted its digital cash. To make this two-sided marketplace work, Paytm had to offer customers more and more options to spend their stored digital cash—from paying for recharges to movie tickets to Uber rides. On the merchant side, it touted the convenience and speed of its payments to sign on online and offline businesses, who paid it around 1.6% of each transaction. Over time, the two sides of this model came to represent 350 million registered users and 14 million merchants.