Paytm is a digital payment platform and financial services company founded in 2010 by Vijay Shekhar Sharma. Paytm is India’s leading digital ecosystem for consumers and merchants, and has built the largest payments platform.
Paytm offers a wide range of services, including mobile recharges, bill payments, ticket booking, money transfer, and online shopping. Paytm has a mobile wallet that allows users to store money and use it to make payments and transactions. The platform also offers a Paytm Payments Bank account, which provides banking services such as savings accounts, debit cards, and online banking. In addition to its payment and banking services, Paytm has expanded into other areas such as insurance, wealth management, and e-commerce.
Industry Overview
In FY 2021, 650 - 700 million Indians had access to the internet and the number is expected to increase to over 950-1,000 million by FY 2026 representing more than 70% of the total population, this is primarily driven by increasing smartphone penetration, reducing data cost, new technology innovations and Government’s push towards digitization.
India’s digital payments market is at an inflection point and is expected to more than triple from US$3 trillion in FY21 to US$10 trillion by 2026. During the FY 2021-22, India’s volume of digital payments increased by 33% year on year (YoY). According to the Ministry of Electronics and Information Technology (MeitY), there were 7,422 Cr digital payment transactions in FY2021-22 up from 5,554 Cr in FY2020-21. UPI transactions share of online credit is estimated to grow 40% in FY22 to 70% by FY26, further digital merchant payments from US$ 0.3-0.4 trillion in FY22 to US$ 2.5-2.7 trillion by 2026.
India has more than 4 Cr merchants with a potential to reach 10 Cr. MSME credit is an underpenetrated market with various Banks, MFI, NBFC & financial institutions working towards increasing their credit to this segment, but insufficient data make credit extended to this segment low in comparison to need, Fintech & UPI are at forefront of changing this dynamic. Transaction data & history allows fintechs to extend credit to ones that won’t have cleared traditional banking metrics.
Business Model
Payment Services
Paytm's core business is digital payments and financial services; it offers a wide range of payment options, including mobile wallets, debit and credit cards, and net banking. To merchants it offers certain products and services such as Paytm Soundbox and Point of Sale (POS). Its GMV for FY23 stood at 13.2 Lakh Cr, as compared to 8.5 Lakh Cr in FY22. Paytm has a share of 13% in overall UPI payments. But it’s the peer-to-merchant segment (P2M) where it’s truly dominant with a 50% share. Company earns revenue from take rate it charges on GMV of payments made through its wallet
Financial Services
Under this segment Paytm uses its reach and size of payment services, data & history with users to distribute and develop financial products. Paytm's existing large base of active consumers and merchants provides a low cost of distribution network for loan origination. It acts as a platform between lenders and seekers of capital based on user’s transaction data. It provides merchant loans, personal loans & Buy-Now pay later (BNPL) loans to its customer base.
Company generates revenue by charging a take rate (2.5-3.5% for loan sourcing, 0.5-1.5% for loan collection) on different loans.
This segment provides huge revenue potential as it leverages existing user data, to process and create pool of credit worthy users. Giving Paytm an edge to service demand for credit for users who would have been denied loans in traditional banking sense.
Although currently Paytm doesn’t hold any risk on its balance sheet, this could change in future as competition rises.
Commerce and Cloud Services
Paytm provides a range of services & platform to merchants to help them connect with consumers, increase demand for their products and services, and improve their business operations. This includes targeted outreach to consumers for services such as ticketing, deals, loyalty programs, mini-apps, and advertising. Paytm earns take rate of around 6% of GMV under this segment.
Under software and cloud services it offers various aspects of their business, such as billing, vendor management, customer promotions, inventory management, and ledger management. To enterprises, telecom companies, and digital and fintech platforms, it provides services like tracking and enhancing customer engagement, building payment systems, unlocking customer insights, and driving higher conversion rates for commerce offerings. Company charges fees per month to merchants and advertising cost to enterprises.
Loss Leader Perspective
PayTm follows a loss leader game, where it losses or makes very little profits. This can be seen in payment services segment, as well sound box on boarding. But these losses have been able to provide Paytm with wide range of revenue streams from providing services to vendors, loan sourcing and cloud.
Business Performance
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FY23
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FY22
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FY21
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Revenue
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7,990
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4,974
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2,802
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|
Contribution Profit
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3,900
|
1,498
|
363
|
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EBITDA
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-1,632
|
-2,327
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-1,766
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PAT
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-1,776
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-2,396
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-1,655
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Competition
Paytm compete with Google Pay, PhonePe, BharatPe & other UPI platforms in payment services space. In loan origination & financial segment from various BNPL providers as well other UPI platforms in similar space.
Risks
Reduction in Wallet & UPI take rate can affect payment service revenue.
Decrease in take rate in lending segment, as well taking part in risk on loan disbursed.
Decline in ecommerce GMV and take rates.
ESOP dilution by promoters could mean that company will grow, but returns to shareholders might be negatively disproportionate.
Lower MDR charged to merchants, a reverse scenario could create an upside potential for Paytm as UPI transactions could start carrying a take rate.
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