Welcome to this week's edition of Three Point Five.
How often have you said or heard the phrase "Paytm karo"?
Paytm is one of the few Indian companies that can be used synonymously as a verb.
In the past 5 years, companies like Paytm and Google Pay have transformed our lives and how India makes payments.
So, today I will tell you more about Paytm – its business and its journey of ups and downs.
It's safe to say that Paytm was one of India's first companies to start the digital payments revolution.
A short form for Pay Through Mobile – Paytm was launched in 2010 as a mobile-first digital payment platform to enable cash payments. The aim was to be a prepaid mobile and DTH (direct-to-home) recharge platform.
However, over the past 12 years, the company has slowly and steadily transformed into a one-stop payment platform.
Today Paytm offers a host of services, a few of which are depicted here –
With the launch of its own wallet in 2014, Paytm became one of the most used digital wallets across India.
But the turning point was the year 2016.
When Indians grappled with demonetisation, Paytm stepped into the spotlight.
Due to the sudden lack of cash in the system, a platform that enabled cashless transactions became a household name. 'Paytm karo' was the choice of payment for a majority of the population.
On the day of the announcement of demonetisation, Paytm saw a 200% increase in downloads and 10 fold increase in the addition of money in the wallet.
Within a year of demonetisation, the user base catapulted from 140 million to 270 million.
This meteoric rise was further bolstered by the marketing and branding initiatives taken by the company to capitalise on the need for cashless payments.
In 2021, with the aim of raising Rs 18,300 crore, Paytm scripted history with the biggest IPO in Indian history.
Its listing on the stock market was even more memorable – the stock closed over 27% lower at Rs 1,564 per share compared to its issue price of Rs 2,150.
In March 2002, barely 5 months after its IPO, the Reserve Bank of India (RBI) barred Paytm Payments Bank from onboarding new customers because of supervisory concerns.
The following week, global brokerage firm Macquarie slashed Paytm's target price to Rs 450 from Rs 700.
The stock price hit an all-time low in March 2022 and wiped out more than Rs 1.03 lakh crore in market capitalisation.
Today, the Paytm stock is trading at Rs 532, 75% below its issue price – reflecting one of the biggest slumps in IPO history.
Are you wondering what led to such a significant fall in the stock price of Paytm?
Here are a few reasons the confidence of investors was shaken –
Offloading of companies' shares by major investors such as Jack Ma's Ant Financials, Alibaba Group, and SoftBank Group
Cash-guzzling nature of the business coupled with heavy losses
Lack of clarity on core business and business model – one of the biggest hindrances in the company's growth has been that it has diversified into too many offerings. In fact, while analysing the business and its prospects, Macquarie Capital released a report titled – "too Many Fingers In Too Many Pies", explaining how "Paytm's business model lacks focus and direction”
Disruption by UPI – while Google Pay, Phonepe and Paytm have become household names in making payments, in reality, Paytm is facing stiff competition from the big players
This can be attributed to the UPI (Unified Payments Interface) revolution that has transformed the payment landscape in India.
Other players have focused on UPI payments to grow. However, for Paytm, UPI is just one of the options on its platform for customers to pay, apart from QR Code, and its own Paytm Wallet. It prefers its own platform for payments as it can charge a transaction fee on its platform, compared to UPI, where there is no revenue.
While Paytm and its management constantly reiterated that UPI is not the sole focus for the company, the popularity and preference towards UPI payments by Indians have impacted Paytm's market share.
Payments and financial services is a highly competitive space with large banks investing heavily in payment and digital lending services. Coupled with the prominent players in the UPI space, it all comes down to the service and interface rather than volumes. The real winner will be the one that provides a fast and quick transaction experience.
While Paytm has its hands full with multiple business verticals ranging from payment gateway, consumer lending, and financial services, amongst others, it now has to focus on profitability.
With increasing smartphone penetration and access to internet connectivity, India's digital ecosystem is touted to grow exponentially.
Digital commerce in India is expected to grow to US$300 billion by FY26, and it remains to see if Paytm will leverage this conducive environment.