PayTM (US$16 bn)

No longer just a payment company

PayTM was among the first few companies to drive digital wallet adoption at scale through its closed loop system. Over the
years, it has built a user base of ~450 mn and gained network effects. However, the
moat with new platforms Google Pay and PhonePe gained an 85%+ market share in UPI payments which has grown to
constitute 34% of total digital payments in India. PayTM has ~7.5% market share in UPI and has focussed on P2M (person-to-
merchant) given the lack of monetisation in UPI P2P (person-to-person) payments. It has on-boarded ~17 mn merchants, most
of which are QR code-based small merchants. Its enterprise and mid-large merchant acquisition business is gaining traction with
offerings, such as Paytm for Business, Soundbox, Business Khata, Payout services, as well as lending to merchants.

On the consumer side, PayTM has evolved into a diversified FinTech platform, offering investment (MF, FD, stock broking),
protection (insurance), and lending (BNPL, personal loans), with an aim to drive monetisation through cross-selling. It secured a
payment bank licence in 2017 and has raised Rs10 bn of deposits from ~60 mn accounts. Given the stricter regulation of
payment bank activities and the high cost of full Know Your Customer (KYC), payment bank scale-up has been relatively
slower. It has also been able to raise another Rs15 bn of fixed deposits for its partner, IndusInd Bank. Similarly, its wealth
management platform, PayTM Money, has 6.6 mn active users investing in gold, mutual funds and trading in stocks. In
consumer lending, it currently offers PayTM postpaid as a BNPL product to its 30 mn pre-approved customers and has also
recently launched personal consumer loans. It also offers insurance policies on its platform. Its consumer internet offerings
(travel, entertainment and shopping) help it attract new customers and increase engagement on the platform. These offerings
have 4-5 mn daily transactions.

PayTM has plans of being not just an originator but also to lend on its balance sheet. Indeed, it has applied for its own NBFC
licence and also plans to convert its payments bank into a small finance bank which would enable it to lend on its balance
sheet as well as build a liability franchise (the current payment bank licence restricts deposits to Rs0.1 mn per customer).

Payments: P2M is focus; P2P drives user engagement

PayTM has also adopted UPI for P2P payments and has ~7.5% market share in total UPI payments. Currently, UPI mainly
caters to P2P digital payments, with only a 16% share of P2M payments whose average ticket size is 70-80% lower than
debit and credit cards. PayTM has focussed on the P2M segment and on-boarded ~19 mn merchants. Its enterprise and
mid-large merchant acquisition business is gaining traction, with 0.2 mn merchants already on board.

Financial services: Platform approach to drive monetisation

Currently, it offers PayTM postpaid as a BNPL product to its 30 mn pre-approved customers as well as lending to its
merchant partners. Recently, it has also launched personal consumer loans. While it currently originates loans in partnership
with banks and NBFCs, it has plans to lend on its balance sheet.

Seeking small finance bank licence to expand product offerings

Currently, PayTM operates a payment bank which enables it to collect demand deposits (albeit up to Rs0.1 mn), issue
debit/ATM cards and distribute third-party products. However, the regulations expressly prohibit payment banks from lending or
issuing credit cards. PayTM has plans of being not just an originator but also wanting to lend on its balance sheet.
Consequently, it has applied to convert its payment bank into a small finance bank which would enable it to lend on its balance
sheet as well as build a liability franchise (the current payment bank licence restricts deposits to Rs0.1 mn per customer).

Consumer internet: Customer acquisition and increased engagement

PayTM has consumer internet offerings (travel, entertainment, gaming and shopping) that help it to attract new customers
and increase engagement on the platform. These offerings have 4-5 mn transactions on a daily basis. Prior to COVID-19, it
sold ~36 mn travel and entertainment tickets in the Sep-2019 quarter. Gaming is another vertical which has scaled up, with
monthly revenue of ~US$15 mn (in Sep-2019).

Management profile

Vijay Shekhar Sharma

He is the founder, MD and CEO of PayTM. He was listed as one of
youngest billionaire by Forbes in 2017. He also invests in early-stage internet start-
Fund. He has a bachelor's degree in electronics and communication engineering from the Delhi College of Engineering.

India FinTech Sector 33