Paytm, a leading digital payment platform plans to launch stockbroking services in the coming weeks. Companies that have entered the insurance and banking industries announced this decision at the Global Fintech Festival.
Founder Vijay Shekhar Sharma stated in a business report that the company derives most of its revenue from payments and has begun working on a financial service stack after establishing an e-commerce business.
Paytm began with the payment business, commencing with the wallet, after then UPI, then point of sale (POS) machines. The payment transaction is a full-stack business. Sharma also stated that it even covers payout businesses, such as companies that look to pay their employees, customers, etc.
Payment business is Paytm’s largest source of income or revenue. Sharma said: “Hundreds of millions of dollars in form of revenue comes from payments only.” He said that its ticketing and booking business (for travel, events, movies) is its second-largest source of revenue, while e-commerce through Paytm Mall ranks in third place.
The company is now establishing its financial service stack. I don’t think of banks as an independent financial services system; I think of them as part of the payment, Sharma stated.
Sharma stated in the report that we are doing well in mutual funds, and we hope to start stock brokering as soon as possible, which will be launching in the next 3-4 weeks.
This year in January, Paytm company obtained an endorsement for stockbroking from SEBI. The company further said in a statement that they are expected to become a full-stack wealth management platform and hope to bring wealth creation opportunities for millions of Indians.
At the same time, this conversation gradually shifted to growing and developing Financial technology space. When asked where aspiring fintech start-ups should commence, Sharma responded: I will move towards a huge addressable market with a substantial profit pool, but perhaps fewer competitors.
On top of my head is a cross-border foreign exchange(Forex). Few companies are strictly regulated, inefficient, and costly. I mean, 17 billion dollars comes in India with 5% of fees, as compared to 0.2% fee for a 100 million euro gateway, is better. He appended that the payment has been transferred from the bank account to the online bank, then to the wallet, and then to the token, but the foreign exchange transactions are still lying in the bank account.
Second, I would like to say that there are niches or small markets that do not exist in the market, such as two-wheeler loans or self-service groups. I mean, in India, it is not a sin to provide loans to people who have not received services. The fact that my dad was a schoolteacher and his income was not earmarked by the bank to pay the extra money for EMI, the bank told us that a better model is needed. Therefore, if you can come up with a fintech model to grant loans to people who think they are not wealthy or do not meet the standards of other banks, I think this is a great opportunity, he said.
Sharma’s third idea for fintech business depends on the idea of economic growth in India.
If we believe that we will see economic growth, growing at the rate of what we are talking about, adjusted for 10% to 12% inflation, then you have to have certain percentage inflation for upward lending. If you are talking about lending 1-2 trillion US dollars in five years. I don’t think our current financial institutions can provide a trillion dollars in loans. Therefore, if you can take away 1 to 20 billion dollars of cake from it, it will be a huge business.
The stock brokerage portfolio will be determined under Paytm’s wealth feature. Through this step, the company will compete with other financial services companies such as Zerodha, which has more than 2.8 million retail customers.
Despite the elimination of cashback, the growth of Paytm’s user base
Mr. Sharma also explained that Paytm uses cashback to obtain price-conscious Indian users to use digital payments. He said that unlike the reward points provided on credit cards, the meaning of reward points varies among card providers. He said Cashback allows Indian users to see the actual money in their bank accounts.
As an experiment, the company discontinued offering cashback in the past six months and found that the user base is growing. Sharma stated: We made money three times that we made last year and spent a third of the money as compared to the money we spent a last year in the same month, Sharma said. Paytm is now in the monetization phase.
When asked why only one-third of India’s 521 million Internet users use digital payments, Sheikhar said that this is due to two factors: Trust and Comfort. He stated that in second and third-tier cities, people are still comfortable using cash. He said: Digital payments are still facing enormous resistance from patrons. Ordinary, a typical tradesman does five to seven Paytm transactions per month.
We get Revenue from being a bank, not a PSP
Sharma told that although UPI cannot help application providers make money, NPCI makes money from UPI because there are switching costs within the system. He said that Paytm is also a bank, so it has floating income, transaction income, etc. He further said: Being a bank we generate revenue without having to be a PSP (payment service provider)
Paytm in numbers
Paytm has 352 million users and has used its payment platform at least once through a wallet, UPI, or card, and has almost 17.2 million merchants. In Paytm, more than 50 million users use “card or wallet independent products” every month. In terms of merchant payments, whether it is an online merchant such as Zomato or an offline merchant such as BigBazaar or a Kirana store, Sharma claims that Paytm has the largest market share and is larger than anyone else’s combined.
Insurance Business Portfolio
Paytm also expanded its insurance business portfolio with the acquisition of Raheja QBE, a private sector general insurance company based in Mumbai. If we are to become a big company in 15 years, then we should become an incredible insurer. The largest outlay is held with an insurance company. In India or globally, life insurance companies can act as a rescue machine whenever there is a capital requirement, Berkshire Hathaway to AIA carries a large amount of capital available to be deployed,” he added.
People ask us for our choice of top-up, payment banking, and insurance business. I see Paytm as a business with 10 to 20 years of development prospects, not like a business where we have to flip the cart, he said in a fireside chat with Rajan Anandan, Managing Director of Sequoia Capital India. In addition to this, the company claims that COVID-19 has set a new transaction volume. In other words, it experienced a high volume of new transactions.
Now, the average transaction volume of Paytm active users has increased by 3.5 times to 4.5 times, they make two transactions on the platform every week on average, he added. This is an important milestone in Paytm’s financial services journey and we are very delighted to welcome Raheja QBE General Insurance to the Paytm family.
Paytm President Amit Nayyar said in a statement that its powerful management team will help us accelerate our journey to take insurance to India’s large population with the aim to create a technology-driven multi-channel general insurance company.
Indian start-ups have improved the unit economy
In response to a question from Sharma about the budget scenario for starting Indian start-ups after 2020, the managing director at Sequoia Capital, Rajan Anandan said that the health of the Indian startup ecosystem will increase tenfold by the end of 2021.
Indian startups require less capital because the world is full of capital, so they can easily get investment. He said that the world currently has $21 trillion in negative interest rates and is looking for high-quality businesses to invest. India has more than 45,000 start-ups, of which only 12% have raised venture capital,92% of which are simply unprofitable.
Among the companies that have not yet raised [venture capital], only 40% are profitable. Anandan stated that due to the COVID-19 pandemic, many start-ups have closed their doors, but in the past three months, we have seen that every Indian start-up has substantially improved its core unit economy.
He stated that the uncertainty surrounding the eroding consumer base and the reduction of demand to zero have freed startups from additional burdens and restructuring costs. He said that in the past four months, products have become better and distribution has improved and become smarter.
Sharma said in the report that we hope to get a good response when we’ll start stockbroking services.