Paytm is India’s largest platform for mobile payments and commerce. The word is an abbreviation for “pay through mobile “. This digital payment system and fintech company have its base in Noida. It was founded in 2010 by Vijay Shekhar Sharma in Noida with an initial investment of $2 million.
Beginning as a prepaid mobile recharge platform it later expanded to be a single destination for all kinds of bill payments and much more by 2013. Today the platform operates in more than 11 Indian languages and is accepted across almost every grocery store, restaurant, pharmacy and whatnot. In 2020 the revenue of the company was increased by 10% to reach Rs.3629 crore.
This article will explore the business model of Paytm to understand how Paytm earns money.
The business model of Paytm is worth looking at due to its multipronged approach to ensure a seamless experience for both the company as well as the customers. Let’s look at the various components of the business model canvas of Paytm to further understand its details for generating revenue and constantly being at the forefront of innovation and providing the best possible online services to its clients.
Key partners of Paytm
With the kind of services that Paytm offers, it had partnered with a huge number of insurance companies, hotels, shopping centres, pharmacies, hospitals and every other institution where transactions through Paytm is accepted now.
This collaboration with a plethora of organisations to gather bills and payments for various services enabled Paytm to expand its partnership over time. It has also partnered with banks to provide escrow services.
Key Activities of Paytm
The major activity carried out by Paytm is to facilitate the transfer of funds from one place to another. They also ensured that the best possible security is provided for the millions of transactions that are taking place through their platform.
Another important activity of Paytm includes preventing scams and other cyber frauds in its platform. Apart from that they also strive to make Paytm a single stop for all kinds of payments that an Indian household should take care of.
Value Propositions of Paytm
The prepositions that augment value for Paytm begins with recharging business. Initially providing prepaid recharging services it later expanded to postpaid services as well. It further expanded to creating a Paytm wallet which served as a parallel bank account for the clients.
From there Paytm has devolved into curating the idea of digital gold where customers can store gold digitally and later use them to complete transactions or even exchange it for actual gold of the same value.
Paytm has also set up various e-commerce verticals wherein it serves as an important component in the completion of transactions.
Key Resources of Paytm
There is absolutely no doubt that a company cannot survive without having an inexhaustible resource domain. As far as Paytm is concerned its biggest resource is its partners. As the company started to grow it received support and funds from many resourceful entities like the Alibaba group and Soft Bank vision fund.
One cannot overlook the amount of support that these resources give to their company. Another key resource that drives Paytm is its RBI license that lets Paytm legally operate the system of Paytm wallets.
It has revolutionised the idea of digital currency, especially during the time of demonetisation. Its first-mover advantage in the technology platform is yet another key resource of the organisation.
Cost Structure of Paytm
Being a service-driven technological platform, most of the expenses that Paytm has to bear is related to its own platform and customer acquisition. Apart from that a large part of its budget also goes into improving the security of the platform and preventive measures to avoid any kind of fraudulent activities. It also invests in systems to avoid the risk of money laundering.
Customer Relationship of Paytm
Handling over 65 million customers is not an easy job. To cater to the concerns and complaints of its clients Paytm has a customer support service that is functional 24×7. The customer can make use of phone calls or chat services to voice their concerns and get them rectified.
In many cases, it also has clear-cut directions to navigate the customer to whatever service they need on their own. These are accessible directly from the website or the app in itself.
Customer Segments of Paytm
The wide variety of services offered by Paytm is reflected in its multilayered customer segments as well. The most important customer segment of Paytm is the users of its e-wallet. This is mainly because of the fact that the wallet is like a flagship service of the organisation.
Another segment is that of the users of the app which constitutes the middle class of the country. Paytm is also seeing a growing segment of customers in the older age group as well.
Channels of Paytm
Considering the big name that Paytm is in India, there is no doubt that the primary channel of distribution of the company is its website and app in itself. Apart from that Paytm also ties up with the sites of their clients, e-commerce platforms, vendors sites et cetera to promote the platform. Paytm also ensures that they attract customers through advertisements and constant follow-ups.
Main Products and Services of Paytm
Paytm makes money through various businesses like Paytm mall, recharge services, ticket booking, bill payment etc. By facilitating a gateway solution to every transaction, Paytm ensures a steady flow of money.
The launch of Paytm wallet in 2014 was revolutionary as far as the company was concerned. Since then it has evolved as a parallel bank account as far as the users are concerned. They have also released a digital gold service wherein it allows users to buy gold digitally.
In future, they are also planning to collaborate with various developers so that the customers can convert their digitally purchased gold into finished commodities.
The major revenue segment of Paytm is through commissions that it derives from customer transactions that take place on its platforms. As mentioned earlier they have collaborated with banks to create escrow accounts facilitated by Paytm wallets. The company generates revenue from these escrow accounts as well. With every transaction, both Paytm and the partner bank receives a predetermined interest that was mutually agreed upon between them.
Revenue of Paytm
The following are the various businesses through which Paytm earns money
MarketPlace (Paytm Mall)
Paytm Wallet
Recharge Services
Bill Payments & Ticket Bookings
Digital Gold
Coupon Codes/Voucher cards
Payment Gateway Solutions
Paytm Payments Bank
FAQs
How does paytm makes money?
The major source of revenue for Paytm is commissions, it charges merchants a small fee which is mutually agreed upon. It also takes commissions from the users.
Who is the founder of Paytm?
Paytm was founded by Vijay Shekar Sharma in 2010.
What is the revenue of Paytm?
The revenue of Paytm is around 3,187.6 crores INR as of 2021.
The intrinsic need of every human is to live a comfortable life. Leading a comfortable life is not easy if you don’t have some resources. It is important to note here that peace and comfort are not googleable. You need to do something to make your life a smooth sail. So that you have enough resources.
Speaking of resources, one of the most important resources is money. It is a battery for storing value. The more you have it, the more free you will(feel) be. And mark my words, “freedom” is the ultimate flex.
So to amass more of it, we people do many sorts of things. Some do business and others work for other businesses. If you look into the recent past you will notice how ‘investing’ as a domain has risen many folds. How people all over the internet are making portfolios. How stock market participants are rising. How everyone is hoping to get that IPO allotment. All these are examples of people trying to create some more income. Income leads to freedom. Not to mention how the “financial freedom” phrase gained momentum recently.
Getting into stock markets has been a fad for more than a year now. Chasing IPOs is another fad for some young investors. There is an intrinsic trait of IPOs that interests everyone. The hype of listing gains. Quick profits and the first come badge. A recent hot chase was the huge Paytm IPO. Which didn’t go well. This is the article about that failure and the behemoth PayTM. Read on to see through.
Have you heard this term before? Fin-tech is a word derived from amalgamation of finance and technology. This could be named as the word of the decade. You won’t ask the reason for this, because you probably know it already.
As the technology sector is rising, lines between companies are blurring. So much so that I would say that every company is a technological company now. With gaps blurring between sectors, the financial sector is the next most diffusing sector. It is hugely automated and also supported by countries’ governments. For example, in India the government is promoting digital payments after the demonetisation. This is a good boost for online digital payments companies, UPI (unified payments methods) and the like.
A Brief about Paytm
Paytm is a name that needs no introduction. The name is just enough. It is a leading digital payments company that is digitalizing India. Not to mention the immense support that the company is being provided by the government. Not only this, Paytm started the digital revolution in India.
From that, they became the leading payments app in the second most populous country in the world. Today, to the north of the 20 Million mark, merchants & businesses are powered by Paytm to Accept Payments digitally. This is because more than 300 million Indians use Paytm to pay at daily stores. That’s not all, the Paytm app is used to pay bills, Send money, do Recharges to friends & family, Travel tickets & Book movies.
The goal as the company mentions is to get unregulated businesses in the economy to the mainstream economy. Taking most of all the transactions happening in the country and enabling them digitally is an almost impossible thought. This is such a behemoth task but the digital payments provider is not looking backwards.
It recently was listed in the stock market. It was a huge IPO. Investors all around the world were excited. It is now the biggest IPO ever in the history of the stock market in India. Previously it was Coal India which raised about 15,000 crores. Paytm is now listing to raise 18,000 crores rupees.
Paytm has been a loss making startup for a long time now. It is not earning at all. The startup has losses of about 4000 crore in FY 2019. That went to 3000 in FY 2020 and then to 7000 crore.
Even though the losses are declining, this doesn’t hide the fact that the company is not earning at all. So why is that? Why a loss making company is valued so much. It is valued at over 16 billion dollars. Moreover it is able to raise money from big VCs. Asset management companies are pumping money into this loss making startup.
The reason why the company is left with such abundance of money is that it is a startup. An immensely successful startup. Which tries to get customers first, that is to capture a large market share.
After getting a good chunk of the market, they will monetise themselves and earn ridiculous amounts of real cash. This is how most startups model work. They hack growth and become big organisations. They try to establish a strong company and reduce the time that is required to build a strong company.
The startup has also already raised 8000 crores in its anchor round. Its initial public offering of Rs 18,300 crore. Top sovereign wealth funds around the world, financial investors such as Canada’s CPPIB, Singapore’s GIC, Alkeon Capital, BlackRock, Abu Dhabi Investment Authority are among those to have picked up stakes in this fintech.
The parent organisation of Paytm is One97 communications. Other than recent fundraising rounds, One97 communications has shareholdings by top capitalists and Asset management companies. It has a 2.8 percent stake by Berkshire Hathaway, the company of world’s best known investor Warren Buffet. It has Ant group as a shareholder, that is as a subsidiary of Alibaba, founded by China’s richest man, Jack Ma.
The promoter or the Chief executive officer of the company Vijay Shekhar Sharma has a stake of around 14 percent of the whole mammoth organisation. Other notable shareholders include Alibaba itself, Softbank, Elevation Capital. With all these big supporters this company recently filed for an IPO.
The IPO was huge and reportedly the biggest that Indian markets have ever seen. Unfortunately, The public offering of Paytm fell down immediately after the listing. In fact today is the second day of the shares trading in the market. They went as low as 37% since the IPO.
Let us discuss the whole public offering scenario in minute detail.
Paytm Initial Public Offering (IPO)
Initial public offering is the offering of shares to the general public. General public here means retail investors and big investors as well. When it happens for the first time, we call it the initial public offering. Accordingly it can happen second or third time also, in that case we will call it FPO or further public offering.
IPO or any public offering happens when a company decides to take money from general people and not raise more rounds of funding. The money is needed to fuel growth. It is needed to scale the enterprise and thus the money becomes the new capital.
In Paytm’s case, the company wanted to raise a little over 18,000 crores. This is the biggest amount ever raised in India. So the Paytm IPO is expected to be the biggest offering in Indian markets yet. The breakdown of the total money is that, 8000 something crores were new offering of shares. So, they were a fresh issue. And the remaining 10,000 crores were offered for sale, that is existing shareholders selling their share of stake. The price band of the shares ranged from 2080 to 2150 rupees per share. The valuation of the company at the time was about 1.5 lakh crores.
The RHP is a legal prospectus for every new listing company. The red herring prospectus (RHP) of this company said that it expects to incur losses for more years before it starts making profits. The opening IPO date was 8th of November and the last date to apply was 10th of November. Face value of the share was One rupee. So it was going to be listed at a premium.
Paytm Share Price
Paytm Listing Losses
The Paytm IPO was subscribed only 1.89 times on Nov 10, 2021 17:00. The public issue subscribed 1.66 in the retail category, 2.79 in the QIB category, and 0.24 in the NII category. It shows that investors weren’t much interested in it or the IPO was so big that it just covers up all the demand.
Paytm shares fell down by about 10.35% to Rs 1,402 against previous close of Rs 1,564.15 on BSE. Market cap of the company, which remained above the Rs 1 lakh crore mark on the listing day, faced down to about Rs 93,490 crore on the first listed day. This loss making startup is acting like a money guzzler.
Paytm IPO Reviews
Here are some reviews of the IPO from major and big fund coordinators and Asset management companies.
International Brokerage firm Macquarie published a report on Monday. A second report on Paytm, maintaining its earlier target price of Rs 1,200 and an ‘underperform’ rating after its first one on listing day, ruffled the feathers of investors. This means that they concluded that the price of the share should be Rs1200 and the listed price is well overvalued.
On the second day it went down to 40 percent. Exactly to the price what Macquarie anticipated but they released it after Paytm was listed on the stock market.
After the first day listing loss, investors panicked and tried selling this. This is a huge reminder that if you pick up a stock or an IPO to invest, do your own research. After an honest report only should you consider investing.
Mobikwik whose IPO was in the turn later in time also postponed their listing. Witnessing huge losses that investors incurred in Paytm’s IPO. Let us see some of the anticipated reasons that we all can see which led to the downfall of Paytm on the very first day of being listed.
Anticipated Reasons for the Downfall of Paytm IPO
Some of the most common seen and anticipated reasons for Paytm losing value are listed here. Let us figure out why this mega IPO is seen as a loser in the race for listing gains.
Overall Market Conditions
The current market conditions are also somewhat affecting the IPO listing. The current market trends show a downward trend. Today, you can see news of the market falling down 1170 marks. The day’s loss was the biggest for the index in over six months.
This downward trend of Sensex is mainly due to Reliance sliding down 4.4% after it announced reviewing of a recent deal. Outside India and around the globe, inflation tension is rising and so are the Covid cases in Europe. All these activities have also in some sense affected Paytm’s downward trend. It is at about 37% down now from the listing day.
Paytm’s Financial Situation
If you have invested in Paytm looking at the fundamentals then you know for a fact that Paytm is not going to make profit anytime soon the profitability game is slightly a long way ahead. We still don’t know when Paytm will become profitable.
Another fact is that the newly listed companies right now are also trying to be very smart because they know that there’s heavy retail participation in the market. A lot of people like me and you will go for listing gains so Paytm came out and did a mega IPO which was 18,000 crores.
Size of the IPO
Listing gains comes when supply is short and the demand is quite big. In layman language, when the offering is small, listing gains are expected. In Paytm’s case, the IPO is so big that it covers the overall demand and it leaves no space left for a force to push the price up.
The Paytm IPO was subscribed 1.89 times on Nov 10, 2021, 17:00. The public issue subscribed 1.66 in the retail category, 2.79 in the QIB category, and 0.24 in the NII category. So you see all the demand was covered with the hugeness of the IPO and less space was left to pump the price up.
What should you do if you have bought Paytm’s Share?
If you are someone or you know someone who is stuck with this stock. I would suggest two options. First is to just get rid of this stock as quickly as possible. Second, if you are an investor with a long term horizon then you can consider holding this stock. But keep this in mind that this stock will take a good amount of time to go profitable.
The reason is as we discussed earlier is that the company is making consistent losses for now. It also is forecasted that the company will only scale for now and it has no immediate plans to bring the profit perspective to the table.
As of now, the company is down to 30-40% and it is going to take time to take back these percentages of losses, only then one can expect some profits. Again if you are looking for quick listing gains, then maybe this might not be the probable right stock and time to stay invested in this stock.
For all the inventors who didn’t apply for this IPO this is the right moment to be aware of such scary situations. It is always best to research before you invest your money. It is really a scary situation when you invest in a big loss making startup, and you are stuck in it. Startups can be a blackhole for money for a very long time.
Conclusion
The reason for such a hype of this fintech company being listed is that, India is the second most populous country in the world. China, the top populous has already had their share of the fintech revolution. They are also harsh on regulations. Now it is India’s turn. India is the next hub for investors that may be domestic or foreign.
Digital payments are expected to grow up to 5% in the next five years. Digital commerce will likely move up to 3.3%. With these things in store, India becomes the next hot spot for investments.
Jio and digital revolution boosted the Paytm business. Demonetisation skyrocketed it. Their tagline “Paytm karo” became a household thing during these times. With the government promoting digital economy and cashless transactions, hope is high for fintech revolutionaries like Paytm.
The listing losses taught many people to do their own research before investing anywhere. The company is expected to take a long time to jump to profits.
Whether Paytm will change Indian payments face or it will dissolve, this is to be seen and only time will tell. One thing is for sure, it has massively added to the cashless economy that the world is striving towards.
FAQ
What is Paytm IPO?
Paytm is a digital payment system, the company lunched its IPO in Bombay Stock Exchange with largest initial public offering (IPO) with the value of Rs 18,300 crores.
Why did Paytm IPO flopped?
Some of the common reasons why Paytm IPO flopped was Overall Market Conditions, Size of the IPO, and Paytm’s Financial Situation.
Parnas Ghosh
