Paytm: India’s First Fintech Unicorn and Largest IPO

 By Sonali Munda

Hello and welcome back to my blog. As you have already made out through the title, today, I will be discussing the next unicorn of my series, “Paytm”, India’s first fintech company to raise the largest IPO in India. 

About the Company and the Founders:

Paytm (an abbreviation for pay through mobile) is a fintech company of India which was founded in August 2010 by Vijay Shekhar Sharma. He is the MD and CEO of the company. Paytm provides digital money transactions (mobile payments) along with other facilities like gaming, e-commerce, consumer lending, insurance and also booking reservations. Its headquarters are in Noida, Uttar Pradesh. The parent company of Paytm, “One97 Communications Limited” (OCL), listed itself in Indian Stock Exchange on November 18, 2021 and it made a history by raising India’s largest IPO of about $2.4 billion. Its consolidated revenue has grown from $129 million to $204 million over FY21-FY22. 

Investors and their Investments in the Company:

Paytm has a number of big investors in it. They provide huge financial support and investments in the company. Its investors along with their part of stakes are as follows:

• Ant Group- 24.90%

• SoftBank Vision Fund- 17.47%

• SAIF Partners- 15.10%

• Vijay Shekhar Sharma (founder)- 8.90%

• Alibaba Group Holding Ltd.- 6.27%

• Axis Trustee- 4.78%

• Berkshire Hathaway- 2.41%

Acquisitions of The Company:

Paytm has not got great acquisitions but it has got a number of acquisitions and following are companies that it acquired:

• Plustxt in 2013 for under $2 million

• Jugnoo in 2015 for $5 million

• Shifu (Delhi-based consumer behaviour prediction platform)

• Near.in (local services startup)

• LogiNext and XpressBees in 2016 

• QorQL in April 2017 (healthcare startup)

• Insider.in in July 2017

• Only Much Louder (event management company)

• MobiQuest (mobile loyalty startup 

• Little

• Cube26 in June 2018

• NightStay in January 2019 (hotel booking platform)

• CreditMate in October 2021 (digital lending company)

Competitors of the Company:

Paytm can be the first to launch a leading digital platform in India but, its business model is quite replicable, the reason why a lot of companies are in a cut-throat competition with it today and those are as follows:  

• PayPal

• Flipkart

• State Bank of India

• RazorPay

• GPay

• PhonePay

History of The Company:

Paytm was founded by Vijay Sekhar Sharma in 2010 with an initial funding of $2 million. It was initially a DTH recharge platform and a prepaid mobile platform. Later, it expanded its business to the leading fintech company in the country offering a range of services including financial services through Paytm Money, e-commerce through Paytm Mall and online gaming through Paytm first games. 

In 2014, it revolutionised the digital payment system by introducing its new line of services called Paytm Wallet. It became India’s first ever online payment app to cross over 10 crore downloads. It also launched a “Paytm for Business” app for the merchants that allowed the merchants to track their payments and day-to-day settlement. Another revolutionary change was bought by it when in 2018, it allowed merchants to accept Paytm, card payments and UPI directly into their bank accounts at 0% charge. In the same year, it diversified in “consumer lending” business in partnership with marquee lenders, then further expanded its business with “Paytm Postpaid” to instant personal loans and merchant/business loans. In the next year, it launched a loyalty program called “Paytm First” which worked on a subscription basis. Later in the year, Paytm First launched its credit card after its partnership with Citibank.  

The parent company called “One97 Communications” of Paytm filed a DRHP (draft red herring prospectus) with the Securities and Exchange Board of India to launch its IPO and hence went public. In November 2021, the company launched its first IPO raising $2.4 billion at a valuation of $20 billion. By this time, it turned up to be the largest ever IPO in India providing it a position as a unicorn company. 

SWOT Analysis of the Company:

SWOT is an acronym for Strengths, Weaknesses, Opportunities and Threats. For the ones who do not know what a SWOT analysis is, go check my previous unicorn series. 

Strength-

• Paytm took the first mover advantage of online payments and wallets, which led it to stand out as the first platform to serve online financial transactions. The founder played a wise game by introducing such a technology at the high time when smartphone sale and usage started booming in the market.

• One of the prime reasons for Paytm to attain the boom stage, both in the urban and rural populations was Paytm made the entire payment ecosystem much easier. One could easily transfer funds from anywhere, anytime without any extra charge.

• Its user’s and merchant’s base is so strong that there are over 20 million merchants and businesses which are powered by Paytm for digital transactions of money. This count is then followed by the 300 million Indian users using this platform to pay merchants. 

• Paytm’s increment in its market valuation is due to its big investors like Tata, Ant Group, Alibaba Group, SoftBank etc., who have huge stake in the company. The company gets huge funding and great financial support from these investors.

• The reason why Paytm is able to compete with platforms like Flipkart is because of its diversity. It is basically a user-friendly service application. One would not just get the facility of financial services but also one can recharge mobile, trade and invest in stocks, go for insurance, book flight or train tickets or even movie and event tickets. Also, Paytm has launched “Paytm FASTag”. It can be placed on the vehicle's windscreen that allows automatic deduction of toll charges.   

• Paytm uses never ending offers designed according to the Indian market’s mindset to grab the customer’s attention . 

• Paytm’s big acquisitions of Plustxt, XpressBees, LogiNext has made it a strong brand in the market.

• Paytm provides its services not only on a national level but also overseas like in Japan and Canada. In 2017, Paytm started serving the Canadian market then in 2018, it launched a joint venture with SoftBank and Yahoo Japan to operate in the Japanese market.

• Paytm acquires the title sponsorship rights for both, the Indian domestic like for BCCI, IPL etc., and for international cricket too. Paytm’s recognition is increased through these title sponsorships.

  

Weaknesses-

• The typical Indian mindsets who still transact money in cash have the fear of losing money online. 

• Paytm users experience lack of proper customer service. Several customers’ concerns include no helpline number and FIRC filing delays. Even the call centre executives are rude to their customers and unable to solve their customers’ issues.

• Using Paytm requires a stable internet connection. Under-developed or developing economies where an internet connection is a major connection, Paytm would not be able to function in those places.

• Paytm’s TDR rates for payment gateways are comparatively higher than the other companies. It is one more drawback of this company.

• Payments in rural areas and even in tier 2 cities can be an issue due to internet issues. 

Opportunities-

• Paytm can open its services for crypto users and companies. The emergence of cryptos has gained a great customer base. Freelancers and internet users are increasingly using digital cryptocurrencies such as bitcoins,  tether etc. 

• Paytm can capitalise on going from cash economy to cashless or digital economy as India is now looking forward to promoting a cashless economy and reducing the reliance of physical currency.

Threats-

• Strong economies or strict policies of countries like Japan, China etc makes it difficult for Paytm to set up a shop there. 

• Paytm has always been at risk with its strong competitors like PayPal, RazorPay etc., as they are all vying for the same market share as Paytm. 

• Paytm holds a significant security risk from hackers worldwide as it operates in three nations. 

Future of the Company:

Paytm has mostly been a loss making company since before its first IPO. So, the myth of a unicorn company always flourishes well in the market is broken with Paytm’s example.  Paytm instead of diversifying itself, it couldn’t attract many investors. As to investors, these don’t look like a proper business model, rather it seems more desperate attempts of Paytm as if it is trying to throw things at the wall and see what sticks. According to the report of Macquarie Paytm spends an amount of $34.5 to acquire each new customer and earns only $7.35 from these customers. Paytm after raising its largest IPO in 2021 with a valuation of $20 Bn, has dipped to a quarter of that now owing to poor market performance over the last ten months. Looking at such numbers, its sustainability seems quite challenging in the long-run. However, Paytm’s huge amount of financial support from Tata, Ant Group, Alibaba Group, SoftBank and other such big investors allows Paytm to establish its position as a leading company in the market. Also, one of Paytm’s business lines, “Paytm Payments Bank” has constantly been growing for the last three years. In FY21, it earned a revenue of $291 million. 

The company is expected to grow more as it has already got a number of strengths and a good hold of the market, all it requires to do is improve its business model and be a little specific about their goals. Fortune India has given the recognition of the “Employer of the future” to Paytm. Paytm believes that the success of the company relies on the success of its employees. According to the reports, its monthly user base is likely to double up to 117 million over FY22 -FY26.