[Reader-list] Mondato: Is Paytm the new DFC poster child

[Patrice Riemens]

Aloha,

In our serie 'The new Maharajas in the making' ...

http://blog.mondato.com/paytm/ for pics & graphics

If you follow developments in the Digital Finance and Commerce (DFC) 
space, you get no prize for knowing who Travis Kalanick, Jack Ma or 
Narendra Modi are. But if you are outside India, it is likely that you 
aren’t familiar with the name Vijay Shekha Sharma. That seems likely to 
change, however. As the founder of Paytm, India’s biggest mobile wallet 
operator, Vijay Sharma seems set to join the rostrum of digital payment 
champions who are actively changing how the world transacts in the 
mobile age.

Somewhat ironically, if any three individuals outside of Paytm (and its 
parent company One97 Ltd.) deserve a share of the credit for the 
explosive growth in Paytm’s mobile wallet in India, one wouldn’t need to 
look much further than the triumvirate of Kalanick-Ma-Modi. Between them 
they represent the three prongs that have so successfully catapulted 
Paytm from relative obscurity into the DFC stratosphere: embedded 
payments; offline m-payments; and proactive government policy.

Über Successful

The Paytm story can, perhaps, be best understood if examined through the 
roles of Vijay Sharma, and the three digital deities (of both good and 
ill) mentioned above. Sharma, the company’s gregarious CEO, is well on 
his way to becoming a household name in India, such is the growing 
popularity of Paytm and his propensity to putting his name and face in 
front of a camera. Paytm’s parent company, One97, was founded by Sharma 
in 2000, initially providing horoscopes by SMS. In 2010, One97 launch 
Paytm (standing for ‘Pay through mobile’) after Sharma observed the 
success of mobile wallets being used for mobile top-ups.

It was only three years ago, in 2014, that Paytm’s exponential growth 
into the big time began, with a move that revealed the scale of the 
company’s ambitions. Paytm’s first CEO, Harinder Takhar, moved to 
Toronto to found the company’s R&D off-shoot, Paytm Labs. The timing was 
fortunate, for the behemoth of embedded payments, Uber, was fighting to 
get a toehold in India, and was struggling with the lack of digital 
payment options (to the point where it had, revolutionarily, started 
accepting cash).

Takhar successfully brokered a partnership between Paytm and Uber that 
set up the Indian mobile wallet as Uber’s exclusive digital wallet 
partner in India until this year. For the next three years, Uber’s 
growth in its largest operating market, and Kalanick’s ambitions to 
conquer the taxi world, would be inextricably tied to the Paytm brand.

Open Sesame!

Having spun Alipay off from Alibaba and into Ant Financial (but still 
under the Alibaba Group umbrella), Alibaba Group’s founder Jack Ma saw 
in Paytm a kindred spirit, two synergistic companies whose two home 
markets between them contained half the consumers in the entire world.

Consequently, early 2015 saw a strategic alliance between One97 and 
Alibaba Group, in which the Chinese DFC behemoth took a stake in One97 
for US$575 million. Around the same time, Indian industrialist 
billionaire Ratan Tata, of Tata Group fame, also took a rare personal 
stake in One97, flagging to the Who’s Who of India (if they weren’t 
already aware) that Paytm was now a big-league player.

All the while, Paytm was expanding the suite of services that it offered 
within its wallet, careful from the start to avoid being identified as 
simply a P2P service. In addition to mobile top-ups, bill pay and the 
ability to buy movie and travel tickets proved to be hits with consumers 
(booking over one million train tickets per month!), with the result 
that by the end of 2016, Paytm had 177 million users, 45% of whom had 
been active in the month of December. With seven million transactions 
per day, the company claimed to be processing more daily transactions 
than India's credit and debit cards combined.

Crucially, however, 2016 saw Paytm take a leaf from the Alipay playbook 
and strengthen its offline presence, so that by the end of the third 
quarter it had one million merchants signed up and ready to accept Paytm 
as a means of payment. But it was the intervention of India's Prime 
Minister, Narendra Modi, and his "demonetization" policy that really set 
a fire under Paytm's offline demand.

     Shopkeepers, vegetable sellers, petrol pumps and even sex workers 
lapped it up. Paytm’s traffic increased by 435%, app downloads grew 
200%, and there was 250% rise in overall transactions and transaction 
value.
     The Hindustan Times

Struggling to accept non-cash payments, merchants flocked to the mobile 
platform. Within days of the early November demonetization announcement, 
Paytm announced it was hiring 10,000 agents to do merchant onboarding, 
in an attempt to double its merchant numbers to two million by year's 
end. According to the company's narrative, they were successful in this 
remarkable feat.

Taking It To The Bank

All of the above would be enough to make Paytm a global DFC phenomenon. 
But thanks to another plank of the Modi government's banking and 
economic policy platform, Paytm stands on the verge of making a 
transformation that no other player in the world has been able to 
achieve: become a bank.

As Mondato Insight noted when it examined the background to India's 
special-purpose 'payment banks',

     Payments Banks are intended to further financial inclusion by 
providing small savings accounts as well as bill payment and P2P 
remittance services to migrant workers, low-income households and small 
businesses “by enabling high volume-low value transactions in deposits 
and payments / remittance services in a secured technology-driven 
environment.”

Payments Banks cannot issue credit or credit cards, or permit customers 
to hold balances balances of more than 100,000 rupees (approximately 
US$1,500), but they can issue debit cards and check books, and, of 
course, be used to fund Paytm wallets.

The transition to Payments Bank, therefore, was obvious, given that 
Paytm was already offering bill payments and P2P remittances. While 
Paytm Payments Bank (51% owned by Sharma personally) launched a few 
weeks ago, it remains to be seen whether the company can live up to its 
promise and achieve the holy grail of recycling funds within the digital 
payments ecosystem, and avoiding the dreaded cash-out. The new bank 
promises to keep savers' money "absolutely safe" by investing it only in 
Indian government bonds, and paying 4% interest (RBI's benchmark rate is 
currently 6.25%).

And while Paytm didn't need another vote of confidence from a major 
player, if it is going to make good on its plans to boost its user 
numbers to half a billion, it is certainly going to need plenty of cash 
-- some US$1.4 billion of which was provided by Japan's SoftBank just a 
few weeks before Paytm Payments Bank went live. Significantly, not only 
is SoftBank one of the few DFC players with the resources to be able to 
make that sort of investment, the Japanese cash injection ties Paytm 
even more closely into the Alibaba orbit. SoftBank was an early 
investor, and largest shareholder, in Alibaba. SoftBank Chairman 
Masayoshi Son and Alibaba founder Jack Ma sit on each other's boards.

It is hard, therefore, to imagine a DFC platform, headed by the 
tenacious Sharma and with a sprinkling of Uber, Alibaba and Modi magic, 
that is better placed than Paytm to bolster an ecosystem in which funds 
remain digital. The regulatory environment is pretty much as enabling as 
they come, and the company has cash and significant strategic investors 
and an enormous market to which to cater.

Close attention, therefore, should be paid to Paytm's next evolution, 
because if they can't bring customers with them to the sunny uplands of 
digital payments, then perhaps no-one can, and it is time for everyone 
in the DFC space to re-examine the fundamentals of what they are 
offering the consumer, and how they are going about it. Until then, 
expect to hear a lot more about Vijay Sharma and Paytm in the years 
ahead.

© Mondato 2017