Paytm's Fintech Gameplan
Let’s be frank. Paytm is one of the first Indian Startups to have accomplished the dream that is shown to every foreign VC: Acquisition of a massive user base. Paytm has 450 million registered users in its platform, which is 100Mn+ the entire US population. So what’s the next logical step?
-Leverage your core competencies to develop more products and cross-sell them through the Paytm platform: 1 platform, unlimited possibilities-
And since they know the business more than we do, they’re doing exactly that. Let’s take you to their Fintech wing:
1. Paytm Payments Bank:
How it started: Well we all know that Paytm started its journey with Paytm wallet. It was new and fascinating then and it’s much more evolved and more convenient than ever now.
How’s it going:
Paytm recorded 1.2 Bn monthly transactions in February, 2021 across its unified payments interface (UPI), wallet, cards, and net-banking payment methods.
It claims that it witnessed a 15% month-on-month (MoM) growth in transactions and over 50% of its merchant partners have an account with Paytm Payments Bank.
Paytm Payment business forms the bulk of the Company’s operations (Revenue: 75% and Assets 73%).
RBI has capped the market share of UPI apps at 30% (Ps. There’s no restriction on the amount of transactions processed but only on the amount of customers onboarded onto the platform, which cannot be more than 30% of the total market size).
There’s no earnings on UPI transactions as of now because of the Zero-MDR rule.
Paytm has reportedly approached the Reserve Bank of India (RBI), seeking in-principle approval for becoming a small finance bank (SFB), which will enable it to extend loans.
In a recent move, RBI has increased the maximum balance per customer for payments banks to INR 2 lakh per individual from INR 1 lakh. (It’s opening up!).
RBI has also allowed RTGS and NEFT connectivity with non-bank payment system operators, paving way for UPI interoperability. (Big boost for Paytm merchants community).
Paytm has recently collaborated with other BFSI Companies to apply for license for a New Umbrella Entity (NUE) with the RBI. The exact structure and purpose of this NUE is fast developing. We’ll tell you more with time.
2. Paytm Money:
How it started: Paytm launched Paytm Money in 2018, providing WealthTech offerings in Mutual Funds and Digital Gold. In 2020, Paytm said let me cross-sell equity shares too on my platform, going head to head against Zerodha, that pioneered zero brokerage in India (Started in 2010), and Upsotx.
How’s it going:
As of March'21 Paytm had only 2.08 Lakh equity trading accounts. Zerodha's userbase was 16x and Upstox's userbase was 9.4x of Paytm's.
It claims to have 40% market share in digital gold.
3. Paytm Soundbox
(An IoT based voice-activated PoS device for Small and Medium Businesses)
How it started:
It was launched in Feb’20 and we covered it here and subsequently here
How’s it going:
Paytm already has 0.9Mn merchants using its offline devices.
The New Soundbox 2.0 is an Internet of Things enabled PoS machine, launched in March’21, available over 5+ local languages in 150+ Indian cities with an upfront device fee of ₹750 ONLY and a monthly subscription fee of ₹150.
Paytm aims to deploy upto 50 lakh of such devices in year 1 which adds up to INR 1,275 crore of additional revenue for the company.
Paytm is going to get into everything Fintech! It's InsureTech arm - Paytm Insuretech Pvt. Ltd. acquired Raheja QBE Insurance for INR 586 Crore in July'20. The deal is currently awaiting approval from IRDAI. It has skin in the game because:
It can sell lifestyle insurance to its premium customers via Paytm First (which has an annual subscription-based model, similar to Amazon Prime).
Pioneering FASTag in the fintech industry, it can cross-sell motor insurance to its customers – all it has to do is crunch some data and offer “pay-as-you-drive” insurance to its users.
E-commerce insurance (stock, goods-in-transit, and credit) is a Greenfield for Paytm as it has a truckload of merchant data.
Fact: The insurance market in India is thoroughly underserved compared to global
markets. According to IRDAI, India’s insurance penetration was 3.7% in FY 18-19 as
against the global penetration at 6%.
5. Other Fintech products
Paytm Postpaid: Micro credit scheme
To add Fintech to e-commerce, Paytm launched Paytm Postpaid in 2020, allowing users to make online purchases now and pay the bills in a month or simply convert them into EMIs. As of April’21, Paytm Postpaid has 0.8Mn + active users.
Paytm Credit Card: Launched in Nov’20
It is interesting to note that most of the major product lines of Paytm are clearly demarcated by separate entities like Paytm Payments Bank Ltd, Paytm General Insurance Ltd, Paytm Life Insurance Ltd, Paytm Services Ltd, Paytm Financial Services Ltd, Paytm Entertainment Ltd and Paytm Money Ltd.
Apart from this, most of its geographical segments are also clearly demarcated by way of separate entities. That’s how we know that it already has a presence or is already exploring opportunities in Nigeria, Rwanda, Tanzania, Ivory Coast, Benin, Uganda, Singapore, Malaysia, Bangladesh, Nepal, and the USA.
Why the need for an elaborate structure which increases headache and compliance cost, you ask?
1st, the BFSI (Banking and Finance Sector of India) is a heavily guarded sector with many regulatory authorities having regulations at every step of the process. Therefore, every niche business needs to be carved out as a separate entity to ease the compliance to the extent possible. If Paytm Payments Bank and Paytm General Insurance were a single entity, for example, it would create a clash between RBI regulations and IRDA regulations. Similarly, Paytm Entertainment which is into Online Gaming cannot be clubbed with the insurance business because of strict regulatory norms.
2nd, In order to penetrate into different countries, it is always advisable to establish a separate entity in the country of operations due to local laws, taxation and operational convenience.
This article is a part of the April'21 edition of our Startup Newsletter. Here's the complete publication: