The year that was for India’s second most valuable startup, Paytm

One of India’s biggest payments players started the fiscal asking the public to ‘Paytm Karo’.

With digital payments in the spotlight after demonetisation of high-value currency notes in November 2016, Paytm enjoyed the fruits of the digital revolution and is now well on its way to further consolidate its position as it enters the new fiscal.

FY 2017-18 was the year of reckoning for Paytm with the payment major doubling up from just a wallet to a full stack financial services and commerce player.

This led to some important changes in parent One 97 Communications as well. The year 2016-17 saw One 97 Communications Limited hiving off its ecommerce arm, Paytm E-Commerce Private Limited, and further created a new entity called Paytm Payments Bank Ltd in August 2016.

The company received clearance from the Reserve Bank of India (RBI) to kickstart operations of its Payments Bank, last year.

Paytm, however, is not resting on its success. It’s back at the starting line, looking at new verticals like travel, movie and event ticketing, and doubling its presence in vehicles.

Financial performance

According to media reports, One 97 Communications reported revenue of Rs 814 crore for FY17, while RoC filings showed that in FY15 and FY16, its consolidated revenue stood at Rs 337 crore and Rs 994 crore, respectively.

Consolidated losses for FY15 and FY16 stood at Rs 372 crore and Rs 1534 crore, respectively. Media reports suggest standalone losses for One 97 Communications fell to Rs 900 crore in FY17.

In a recent interview with YourStory, Vijay Shekhar Sharma, Founder and CEO of Paytm said,

“I have always said profitability is a choice we have today. We have profitability at a contribution level, and at an EBITDA (earnings before interest, tax, depreciation and amortisation) level, and we'll always be investing.”

He also pointed out that the major cost for Paytm is employee cost. Paytm Ecommerce Ltd spent close to Rs 12.49 crore in employee benefit expenses alone in FY17, according to ROC filings.

In FY17, Paytm Ecommerce posted revenue of Rs 7.34 crore and losses of Rs 13 crore. While on the other end, Paytm Payments Bank posted revenue of approximately Rs 2.4 crore, with losses of Rs 30 crore.

More money in the bank

This Fiscal, Paytm announced it had raised $1.4 billion from Softbank, one of the largest rounds raised by a single investor. The deal valued the company at $7 billion.

The fund-raise gave Paytm the impetus for its expansion plans. Vijay recently stated, “We have money for the next four years, spending the way we are now.”

Earlier this year, current and former employees of Paytm sold their ESOPs, which bolstered the Noida-based company’s valuation to almost $10 billion. This is interesting considering the valuation of Paytm stood at close to $5 billion in 2016.

Early last year, Paytm Mall raised an internal funding of $200 million from Alibaba, Ant Financial and SAIF Partners. There are speculations that the Softbank group is in talks to invest close to another $600 million in Paytm Mall at a valuation of $2 billion.

Diversification and structural changes

Vijay had told YourStory earlier this month,

“The presentation from Day One, when we wanted to build Paytm, had three components – Commerce, Advertising and Content. That is where the journey will lead.”

And that seems to be more and more evident as Paytm started to diversify and structurally arrange its businesses.

Over the course of last year, Paytm has incorporated six new entities, giving wings to some its much-spoken plans.

Paytm Financial Services Ltd 

Paytm’s foray into financial services came with the incorporation of Paytm Financial Services Ltd. with which rests Paytm Gold.

Paytm Gold was the company’s foray into wealth management which allowed users to buy gold for as less as Re 1 and even get cashbacks in their Gold account.

In July, the company said it already had transacted 175 kg of the precious metal on the Paytm Gold platform.

Paytm Entertainment Ltd

Paytm also incorporated Paytm Entertainment, which essentially is Paytm’s content division. In an effort diversify its content offering, earlier this year, Paytm launched GamePind, a 55:45 joint venture between Paytm and China-based AGTech Holdings Ltd.

The idea was to enhance the experience of Paytm customers through games and entertainment content.

Paytm Money Ltd

In January, Paytm launched Paytm Money, its wealth management division to market Mutual Funds. It has received an advisory licence from SEBI.

On this development, Vijay said:

“There is no secret that financial services are not an aggressive market today, so (it) makes a lot of sense for us to expand in it. It is not an extremely competitive category, where we need to challenge the profitability or the market share.”

Paytm General Insurance Corporation Ltd and Paytm Life Insurance Corporation Ltd

Last month, Paytm incorporated its insurance businesses, with the paid-up capital of around Rs 10 lakh in each of the entities.

The Paytm app already has more than 20 insurers on the platform.

In November last year, Paytm entered lending. In partnership with ICICI Bank, it launched ‘Paytm-ICICI Bank Postpaid’, its interest-free, short-term digital credit product.

Based on the credit score of the customer, the bank offers up to 45 days interest-free credit limit.

Not just financial services, but India’s internet major 

This fiscal proved that Paytm didn’t just want a piece of India’s $299 billion mutual funds industry pie or the $200 billion digital payments industry.

With its deep pockets, it took on top players like BookMyShow and MakeMyTrip, entering the movie, travel and event ticketing sector.

Vijay said, “Today, we sell about 10 million travel services in a quarter. In the entertainment category, we are reaching the size of the market leader. So, at an industry level, I feel these platforms will grow further. These were by-product businesses but are now becoming huge.”

Over the course of the year, it became clear that Paytm planned to build most internet verticals internally.

Apart from the most obvious downside of burning capital in building these categories, Paytm might also be burning capital on cashbacks to increase retention of customers on its platform, taking the attention away from its competitors.

The UPI debacle 

Apart from launching new categories, Paytm also set about reinventing the wheel of its biggest value proposition - Payments.

In a recent report, the company said its annual gross transaction value (GTV) crossed $20 billion (about Rs 1.3 lakh crore) in February, a fourfold increase from March 2017.

After launching features like automatic wallet reload Paytm turned to Unified Payments Interface (UPI) and launched its Beta in December. It claimed to have registered close to 68 million UPI transactions in February 2018. This was almost 40 percent of the total market share.

Earlier this month, Flipkart-owned PhonePe challenged these claims. The Bengaluru-based payments container said 21 million transactions out of Paytm’s total 68 million transactions were money transfers made by Paytm customers sending money to PhonePe customers (with a @YBL VPA handle).

Using that logic, it accused Paytm saying that 40,000 unique consumers did 500+ transactions each in February on Paytm.

Well, but one thing is certain. The payments fight will be played on the UPI turf in the future, especially when the industry is grappling with the new guidelines on interoperability.

In October, RBI made it mandatory for PPIs, including mobile-wallet operators, to make all accounts fully KYC-compliant by December 31. The deadline was later extended to February 28.

This particular move has affected players across the board, resulting in 30-40 percent reduction in wallet usage. To give an example, it was recently reported that Amazon Pay has seen its new customer adoption rate decline by 30 percent due to the requirement of officially valid document numbers mandated by the new regulations.

What does the future hold? 

Vijay is optimistic.

“It will always be a horizontal versus vertical expansion as a choice. In 2018, we will be growing vertically rather than horizontally and would definitely go deeper into everything instead of starting something new… And this is a cycle that Paytm follows all the time. Grow horizontally, and then go deeper in each of these categories.”

However, the founder implied Paytm will add more commerce categories in the year ahead. With a strong focus on Paytm Mall and active talks of fundraising, there will definitely be a lot to look forward to the ecommerce end.

However, Paytm would like to win the perception battle around UPI as it did for mobile wallets. And with new ‘Interoperability’ guidelines, there will be some changes and innovation we will see around the same.

And for those dismissing Paytm’s messaging foray ‘Inbox’, that was launched in November last year, there is more. According to the product roadmap, Inbox might also have features like local discovery to enhance the experience of the product.

Rather than speculating, we will leave it at how Vijay looks at the future,

“The best way to discover the future is to come really near to it, and then see it.”