PayTM

CASE STUDY

Introduction to Economics (HS-411)

Mayuri Dutta | Kushagra Singhal | Manvi Jha

Biochemical Engineering
University School of Chemical Technology,
Guru Gobind Singh Indraprastha University
Introduction
PayTM, as its abbreviation states, Pay Through Mobile was launched in 2010 by One97
communications as a prepaid mobile and DTH recharge company. However, now it is has
established itself as among one of the 7 top e-commerce companies in India, offering
multiple services from primary mobile recharges to buying apparels or electronics enabling
customers to get everything at one place. Thus, over a period of time, it has become both a
payment platform as well as the marketplace. This strategy not only enables PayTM to serve
multiple needs of the customers, giving them a holistic experience by saving their time and
efforts but is also expected to be helpful in cross-selling and up-selling and thus increasing
the overall profitability of the organization. It has even obtained the license from Reserve
Bank of India to run a Payments Bank, and as a result has achieved a billion-dollar valuation
and transformed the business model of PayTM from a recharge web site to a payment cum
e-commerce marketplace. It has 100 million Paytm Wallet users that carry out over 75
million transactions every month.

PayTM revenue model

PayTM Revenue Model can be divided into following categories.

 PayTM Market place

PayTM was the first company who took the step of being a mobile-only marketplace
in India. Today, with over 100 million buyers and 2 million daily transactions (and
90% prepaid offers), PayTM is the most beneficial marketplace for sellers.
Revenue from this subcategory is generated as fees and commissions from the
sellers, which differ for different category of products.

 Recharge Services
There was a time when Paytm Business Model consisted just mobile recharge and
bill payment services. Times have changed and online recharge services for mobile
subscriptions, TV channels subscriptions, data-card, and metro card, etc have been
added to the revenue model of Paytm. The company, just like other recharge
services providers, charge commissions from these operators.

 Bill Payments
In addition to the recharge facilities, the customers can even pay their electricity,
telephone, water, mobile, broadband, gas, etc. bills on Paytm. Apart from these,
Paytm has also partnered with several education and financial organizations and act
as a portal to accept education fees and insurance instalments.

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  Payment Solutions
Paytm offers smart payment solutions for online businesses. The payment solutions
allow them to accept online payments through Paytm. The payment option comes
with no setup fee and maintenance charges. However, the company charges a
commission of 1.99% on every transaction.

 PayTM Wallet
Paytm wallet is a semi-closed wallet (approved by RBI) used to store currency in
digital form which can be used to buy goods and services (including financial
services) at identified merchant locations or establishments (like petrol pumps, a
supermarket, your barber’s shop, movie hall, etc.) which have a specific contract
with the company to accept these payment instruments. Paytm wallet doesn’t
permit cash withdrawal

 Digital Gold
Paytm has partnered with gold refiner MMTC-PAMP to launch ‘Digital Gold’ that
will allow its users to buy, sell, and store gold digitally without any additional cost.
Users can also get the gold delivered to their house with just paying a minimal
delivery charge. Paytm also has plans to connect the customers with the jewelers at
a later stage. This will let the customers get their stored gold converted to finished
jewellery and will let Paytm make money by being an affiliate.

 PayTM Bank
Paytm wallet is no more just a semi-closed wallet. The company has revamped itself
as a payments bank. A payments bank is a digital bank which can accept deposits
and give out interests on the deposits but can’t offer loans to its customers. Just like
the Paytm wallet, users operate Paytm bank using their smartphones. Paytm also
issues debit cards with QR codes which can be scanned at various points.

Growth and Expansion of PayTM

How did PayTM expand so fast?
PayTM had a phase by phase market acquisition approach. Like many other successful
companies, PayTM started with doing one thing and perfected in only that, Online Bill
Payments. Every great company has started with one thing, pioneered in that, become a
market leader with more that 60% market share and then expand.

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This competitive advantage is very much needed for company for 3 reasons:

1. Their core business will act as a cash flow.

2. The core business will attract continuous traffic which will save cost to market
other products
3. Since the consumers already like to core business and admire the brand, they will
overlook any mistakes that are made by company while it tries to reinvent.
This is true for Google (They pioneered in search engine and then ventured to mail and
maps. Consumers have forgiven them for G+), Microsoft (They pioneered in OS, then
ventured to XBox and cloud. Consumers have forgiven them for Zune, Surface and Mobiles).
Other examples include WhatsApp, Facebook, Uber and many more.

PayTM in India’s development

The e-commerce has seen an outstanding growth in 2014 - 2016. The growth was because of
the high rate of technology adoption led by the increasing use of devices such as
smartphones, tablets and notebooks, and access to the internet. Because of ecommerce
companies like PayTM this sector in India has grown by a compound annual growth rate
(CAGR) of 34% since 2009. That is why to get the maximum benefit, public sector firms like
"Delhi Jal Board", "South Bihar Power Distribution, "BSNL", etc, have adopted e-commerce
by partnering themselves with PayTM.

A company like PayTM is making India a digital nation with an approach towards
corruption less society. The number of middlemen involved when you buy a product is
reduced as companies like PayTM have a transparent system of knowing the seller.
Government can ensure right taxes on every product. It becomes difficult for one to evade
taxes with all the transaction data available online. The ecommerce sector comes under the
Information Technology sector. The sector has increased its contribution to India's GDP
from 1.2% in 1998 to 7.5% in 2012. According to NASSCOM, the sector aggregated revenues
of US$147 billion in 2015, where export revenue stood at US$99 billion and domestic at
US$48 billion, growing by over 13%, since PayTM is the largest e-commerce company in
India, it makes a significant impact in the Indian economy.

Post Demonetisation effect

PayTM growth had almost stagnated in the middle of 2016, the use of its e-wallet was
growing but not at a very swift rate. On 8th Nov'16, the Government of India ceased the
legal tender of INR 500 and INR 1000 notes. As Reserve Bank of India(RBI) was not able to
supply this huge amount of currency in a short time the following months witnessed a huge
gap between the demand and supply of new currency notes, in wake of this people were
forced to resort to e-wallets and other methods for transactions. Shopkeepers, roadside
vendors all resorted to e- transactions during this time.

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PayTM’s advertisement campaign "PayTM Karo" resonated with the minds of the people
and helped it take full advantage of the opportunity that presented itself. A lot of investment
by the company following demonetisation helped it become the most used wallet in the
country. In 2016, the company had also invested a huge sum in becoming the title sponsor
of the Indian cricket team and this played off quite well as the timing of a many cricket
matches coincided with demonetisation.

To cope up with the increased demand the company hired 1500 employees in December
2016.Post demonetisation users were adding INR 150 crores daily this figure increased
almost four-fold when compared to pre-demonetisation when people were adding about
INR 40 Crores on a daily basis. The average money in the wallet soared from INR 65 to INR
228. In November 2016 the company added 0.15 million merchants in its 1 million merchant
network.

Post demonetisation PayTM daily transactions increased to 5 million a week which is

roughly equal to the combined average of a number of transactions by credit and debit cards
daily. To expand its reach PayTM hired 20,000 sales people in 650 districts in the months of
December 2016 and January 2017. To administer the increase in the number of daily
transactions PayTM bought 1,300 new servers to build a network that could support 10
million transactions a day, that would help it virtually double its capacity. However, by
March 2017 RBI had pumped back about 85% of the currency that had been brought out of
commission, as a result of the use of e-wallets and also PayTM in the country has shown a
decline.

Expansion plans in related Markets

Paytm is convinced and pursuing to change the e-commerce landscape in India. It
appreciates that the world is cluttered with websites that recharge prepaid mobiles. In India
there are currently more than 999.6 million active mobile users (KK,2019) and about 90%
use prepaid mobile connections. This is a ready to exploit opportunity. In the bargain of
competitiveness, Firms offer exorbitant discounts in attracting and retaining customers,
and being trapped into a discount war. Paytm has entered the market with a clear
differentiation on the basis of user experience, quality of service and execution.

Last year PayTM’s market share among the e-payment companies was 26%. Paytm is now
planning to explore new avenues. By 2020, Paytm plans to tap the loan market and disburse
small loans to 500 million people. The Paytm Payment Bank was launched in May 2017. A
5-member board committee has been formed to expand the physical presence of the
Payment Banks. Paytm is also planning to give WhatsApp a run for their money by
launching a chat app with more sophisticated features. Paytm acquired Shifu and Near.in
to improve and strengthen its offline and online platform and enhance customer
experience.

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