BEFORE YOU START-UP

Individual Assignment
Theme: Analysis the idea of an existing firm in detail using a
canvas and identification of issues if any
 Individual Assignment
The Project examines two existing businesses in the FinTech space drawing out comparisons
between them along with the critical analysis of their Business model Canvas and identification
of the issues. The two start-ups the project deals with are; Paytm and FreeCharge, both started
at the same time (Aug 2010) Paytm went on to become more popular and successful whereas
this Freecharge got laid back. This project examines the reasoning for the failure of one and the
success of another.

Submitted to
Prof. Sachidananda Benegal

Date
20th December 2020

Submitted by
Atul Yadav (2019PGP478)
Background

E-commerce in India was in the very nascent stage in the year 2010, just two years later after the
subprime crisis which had thrown the world economy in jitters. Ironically, the only not so known
brand was the Flipkart at that time in India. However, there were emerging many unknown small
e-commerce fintech players. And two such players were Paytm and Freecharge!

Both these fintech players started their journey at the same time with the same business model
of trying to tap in the retail recharging customers. Both the players offered lucrative discounts so
much so that they were more than the margins earned by the retail vendor for the recharges.
However, Paytm took a big leap in terms of its business growth and popularity leaving its twin
brother behind.

So, in this case study we would be closely analysing both the twins and understand their business
model canvas, core issues and strengths, differences in their growth story and evolutions over
the year that made a difference.

Paytm:

Paytm brand is the brainchild of an Indian engineer from DTU, then Delhi College of Engineering,
Mr. Vijay Shekhar Sharma. It was launched in August 2010 under the brand name Paytm and
registered as One97 Communications Limited in Noida Uttar Pradesh.

Paytm is an Indian e-commerce payment system and a fintech company, currently available in 11
languages. The company offers online recharging services, payment of utility bills services,
booking of tickets for railways, busses and flights, movies and events booking and is used for
payments across a universe of 7 million merchants registered under Paytm for groceries, tolls,
pharmacies, restaurants, parking, educational institutions etc.
Paytm was founded with an initial corpus of USD 2MN as prepaid mobile and Direct to Home
(DTH) recharge platform. It later on went on to add data card, postpaid mobile and landline bill
payments, electricity bill payment. The current product portfolio of Paytm comprises of Paytm
Mall, Paytm Payments Bank, Paytm Money, Gamepind, Paytm Smart Retail rendering the services
in the space of digital wallets, payment systems, mobile payments, banking and online shopping
and entertainment.

Paytm has grown to become the most valued Indian startup clocking a revenue of USD 500 million
in the year 2019. This Indian Fintech has become the part of the management case study framed
by the Harvard Business School.

The Exhibit 1.1 lays down the shareholding pattern for the One97 Communications.

Exhibit 1.1: Shareholding pattern Source: Wikipedia

TimeLine of events for Paytm

2010: Paytm was founded

2013: Datacard, electricity, postpaid and DTH bill payments were added to the platform
2014: Launch of Paytm wallets promoting the booking of tickets on Uber and Indian Railways

2015: Record userbase of 104 million. Investment by Mr. Ratan Tata. Launch of Paytm for
Business and sanction by the Reserve bank of India for in principal approval for Paytm Bank.

2016: Launch of Paytm QR code along with Paytm Gift cards. Extending booking facility to movies,
event bookings, amusement park tickets and flight tickets.

2017: Record download of more than 100 million times, India’s first ever payment app to do so.
Launch of Paytm Gold, Paytm Payments Bank, Inbox: an inchat customer support service. And
launch of Paytm in Canada.

2018: Investment by Berkshire Hathway to the tune of USD 300 Million for 2.76% stake extending
the Paytm valuation to cross USD 10 billion.

2019: Collaboration with CITI banks for the launch of credit cards

Investments and Acquisitions made by Paytm

2013: Acquisition of Plustxt for USD 2 million which allowed instant messaging in any Indian
language.

2015: Investment of USD 5million in auto rikshaw aggregator Jugnoo. Acquisition of consumer
behavior prediction platform Shifu and a local startup in services Near.in

2016: Investment in logistics startup LogiNext and Xpressbees

2017: Investment in healthcare startup QorQL which uses artificial intelligence and big data in
the healthcare field. It also acquired MobiQuest.

2018: Acquisition of Cube26 startup.

Business Model canvas of Paytm

Freecharge

Kunal Shah and Sandeep Tandon developed a new startup under the brand name of Freecharge
registered as Freecharge Payment Technologies Private Limited. Freecharge was an evolved
product after a failed try at Paisaback by Kunal Shah who was an employee at Sandeep Tandon’s
BPO.

Freecharge was launched in August 2010 along with its brother Paytm. Freecharge was launched
with a clear focus to tap the recharge market at the time where 95% of the invoices of a mobile
store comprised of the mobile recharges. Freecharge partnered with McDonald initially and
finally launched it on 15th August 2010. The product idea was very enterprising and Kunal and
Sandeep had received a seed funding from Tandon Group and Sequoia Capital. Freecharge
advanced with a great pace, thanks to its tie up with McDonalds and it was able to receive series
A funding in the very next year for USD 3 Million.

Again in 2014 they received a Series B funding of USD 33 million from Sequoia and an additional
80 million USD from Tybourne Capital Management, a Hong Kong based firm. In 2015 Freecharge
was acquired by Snapdeal for USD 400 million which was the biggest startup takeover in the
Indian history of startups.

The company focused on to create an ecosystem of innovative products and features which
enables and fosters the digital India leading to cashless transactions thus leading the company to
launch wide arena of services through its app ranging from the recharging of the phone to DTH,
paying of utility bills, purchase of Mutual funds, apply for savings bank account, apply for credit
card, seek another vendor membership etc.

Timeline of events for Freecharge:

2011: Named as one of the most promising technology startups of India by Pluggd.in

2014: USD 33 million Series B funding receipt from Sequoia Capital.

2015: Freecharge raised another USD 80 million from Hong Kong based firmTybourne Capital
Management.

2015: Snapdeal acquired Freecharge for USD 400 million

2016: Freecharge rolled out “Chat and Pay” option

2017: Axis Bank bought freecharge for USD 60 Million

2018: Freecharge enable BHIM Upi on its application

2019: Freecharge launched digital credit cards on its platform

Business Model Canvas for Freecharge

Analysis of the Business Model Canvas of Paytm and Freecharge:

Customers:

They include the Indian internet users on the smartphone majorly and the vendors at the street
and malls and shops. However, for freecharge it was retail mobile smartphone users.

Value Propositions:

One of the early value propositions were to make easy and quick recharges possible. However,
with time it went on to run a parallel banking system making it easy to move money between
friends and families, customers and vendors. It is into making of a closed ecosystem with the start
of the Paytm mall for shopping needs of the consumers.

For freecharge, the main motto was to promote easy and seamless free recharging experience,
building trust through the ecommerce transactions. It aimed for providing value for money
recharges. The value proposition has shifted recently on similar line to that of Paytm.

Channels:

Paytm has always believed in increasing its presence visually to educate and persuade customers
about the new payment system. As a result, it had tied up with mobile software providers like
android to provide its app inbuilt in the phone. Paytm has also invested heavily in garnering
sponsorship for cricket events to increase the visibility.

Freecharge on the contrary has relied more on word-of-mouth promotions and it believes in the
idea of gaining consumer through their seamless recharge and user experience on their app.

Customer Relations:

Paytm manages this their inbuilt chat functionality addressing many of the concerns of the
customers through standard FAQs and an email functionality available for specific queries not
mentioned or covered.

Freecharge has its own customer care number along with inbuilt bot to answer consumer
queries. Customers can also write to support@freecharge.com
Revenue Models:

Both the entities primary source of revenue is the commission earned on the transactions done
through their platform. Paytm had diversified by expanding its customer base as explained earlier
unlike Freecharge.

Key Resources:

Freecharge and Paytm both continue to invest heavily in their IT security since they are at a high
risk. Also, both have obtained RBI license to operate as small payments bank.

Key Partners:

They are banks that provide escrow services to both the firms. Also, Paytm has partnerships with
many organizations which collect payments from customers through the scan of their QR code,
along with their vendor partners listed for carrying out transactions.

Costs:

Both firms face a huge IT cost in maintaining and upgrading their application platform to handle
the user rush. Also, the customer acquisition cost is too high to lure the customers into using
their platform for payments. In the days to come, there would be an added cost of compliance
required since they operate in vulnerable space prone to cyber-attacks.

The Issue:

Both Freecharge and Paytm started at the same time. While Freecharge advanced at a greater
pace than Paytm initially, however, Paytm picked up pace in terms of popularity in terms of the
brand amongst the masses. Freecharge had a good strategy, thanks to its initial tie-up with
McDonalds’. The app interface was better and sophisticated in comparison to the Paytm. Not
only that, the deals and discount offering was more lucrative with Freecharge than the Paytm’s
offerings in terms of the frequency of discounts and the number of discounts. Also, freecharge
distributed vouchers with the respective tied up partners initially equivalent to the amount of
the recharges done, thus going with the brand name of actually recharging for free. But inspite
of a great start, freecharge tend to lose ground and Paytm kept moving at a steady pace. The
freecharge which was valued at 400 Million USD by the Snapdeal’s acquisition of the company
lost 340million USD in a matter of two years when finally, Axis Bank took over in 2017 at merely
60 million USD.

Both the companies started as a revolutionizing FinTech E-commerce company with e-payments
as their core business but one chose diversification and the other did not. The two represent
strikingly different business ideology when it comes to strategy and marketing. Paytm focused
on brand building by making it brand more visible while Freecharge focused on retaining the
customer engagement by giving them more cashbacks and user experience of hassle free and
easy payments

Paytm over the years has added multiple products and diversified its revenue earning businesses
and as a result has an upper hand in comparison to its rival. Freecharge has kept it simple initially
to not add products and dilute its positioning. But now Freecharge after losing a considerable
ground has decided to offer a mix of variety of services. However, Freecharge has still not
ventured into the shopping space launchings its own new platform like Paytm did under the
Paytm Mall brand name.

Paytm launched its QR scan code partnering with all the vendors ranging from street hawkers, to
shops and malls. Thus, the customer segment was extended for the Paytm apart from the retail
Indian consumer. This fetched them increased revenue from the interest earned on the escrow
account. This new diversified Paytm product was very well received and was able to tap the
untapped market during demonetization which unwillingly made opt for the Paytm wallet. This
proved to be one of the major difference makers in the growth story of Paytm and Freecharge
apart from their different strategy.

Exhibit 1.2 Paytm and Freecharge share if both constituted the market
Exhibit 1.3: Highest Valued Startups of India