Paytm’s payment instruments have helped the company

 Paytm’s payment instruments have helped the company 

build a multi-stack payment architecture and bring it revenue

 

 

India’s leading digital payments and financial services player Paytm filed its Draft Red Herring Prospectus for its $2.2 billion Initial Public Offering on 15^th July 2021. The prospectus gives an insight into the business model of the company and how Vijay Shekhar Sharma has envisioned building India’s largest financial services giant. 

 

One of the interesting aspects is how Paytm has built its flywheels to create a complete network effect and a multi-stack payment architecture. 

 

Paytm has built a strong base in India, with multiple payment instruments. These instruments include prepaid payment instruments such as Paytm Wallet, sub wallets and prepaid card; Savings account, current account, debit cards, FASTag, National Common Mobility Card, and Unified Payments Interface (“UPI”) handle, which are issued or opened by Paytm Payments Bank, and Paytm Postpaid, equated monthly instalment, credit cards, amongst others, issued by our financial partners. The company has listed the same in its competitive strengths, as it said, “Our payments platform, with a wide selection of daily life use cases and payment instruments, provides us with large scale and reach.”

 

It is the only payments company in India, along with its affiliates who own each layer of the payment stack. The power of these payment instruments is that it gives Paytm revenue. “Given the comprehensive nature of our payments platform, we believe that we have better ability to monetize the payments business because we are not dependent on one or few payment methods where monetization potential is low or zero. Some of the payment instruments like credit cards and payment methods like in-store devices have a much higher monetization potential than the more widely used payment forms,” the company said in its DRHP. 

As stated in the company’s DRHP, Paytm is the largest payment gateway aggregator in India based on total transactions, for the fiscal year ended March 31, 2021, with the widest ecosystem of payment instruments.

 

Additionally, this also gives users the flexibility to choose between different payment instruments and pay as per their convenience.

India’s Leading Digital Ecosystem, Paytm files for

 India’s Leading Digital Ecosystem, Paytm files for Rs. 16,600 Crore IPO

One97 Communications, the parent Co. of Paytm, India’s leading Digital Ecosystem for consumers and merchants, has filed its DRHP with the regulator for an aggregate offer size of Rs 16,600 Crore via an Initial Public Offering, as per market sources.

The Issue comprises a Fresh Issue of equity shares of Face Value of Rs 1 each aggregating to Rs 8,300 Crore and Offer for Sale by the existing shareholders, aggregating to Rs 8,300 Crore. The Company also retains the option, in discussion with BRLMs, to undertake a pre-IPO placement of INR 2,000 Crore, subject to relevant approvals. If the pre-IPO placement is completed, the Fresh Issue size will be reduced to that extent.

The Initial Public Offer is being made under rule 19(2)b of the Securities Contracts (Regulation) Rules, 1957, as amended, (the “SCRR”) and Regulation 31 of the SEBI ICDR Regulations where allocation to QIBs is 75%, NIIs is 15% and RIBs is 10% 

Market leadership and a strong network effect — for consumers and merchants

Paytm is India’s leading digital ecosystem for consumers and merchants, with a strong presence on both sides of the spectrum. The company’s two-sided (consumer and merchant) ecosystem enables commerce, and provides access to financial services, by leveraging technology to improve the lives of consumers and helps merchants grow their businesses. 

Notes: 1.  NCMC refers to National Common Mobility Card

 This also builds a network effect, which makes the core business stronger, and performance more efficient.

Paytm - abbreviated version of “Pay Through Mobile” was launched in 2009 as a mobile first digital payments platform to enable cashless payments. The company’s journey began with assisting bill payments and mobile top ups thereafter setting up Paytm Wallet in 2014 to build India’s largest payments platform based on no of consumers, no of merchants, no of transactions (consumer to merchant) and revenues as of March 31, 2021. Leveraging its core payments platform, it has evolved over a period of time to not only provide payment services but also commerce and cloud services, financial services to 333 mn consumers and 21 mn merchants. It is the only payments company in the country, together with its affiliates who own each layer of its payment stack.

Notes:

1. For fiscal year 2021

2.  As of March 31, 2021

3.  For fiscal year 2020; Commerce GMV of ₹ 42 billion for fiscal year 2021

4.  Includes transactions made to merchants on our ecosystem and peer-to-peer payments such as money transfers

5.  Includes EDC devices and Soundbox

6.  Includes savings and current account

7.  Includes savings and current account balance, fixed deposit (via commercial bank partners) and wallet balance

8.  Includes personal loans, merchant lending and postpaid

9.  Includes mutual fund, stock broking and gold AUM

Rapid Growth

The company’s financial services businesses i.e Mobile Banking, Lending, Insurance, Wealth Management Services were launched recently between 2019 and 2021. The company has also expanded into cloud and commercial services. These services are growing rapidly and creating an impact in their sectors.

Additionally, as stated in the DRHP, in support of the government's vision to transform the country into a cashless society, Paytm has a mission to bring half a billion of the Indian population into the mainstream economy, hereby improving lives and helping merchants grow their businesses.

Strong Revenue and Contribution Margin Positive

As on FY21, its revenue from operations stood at Rs. 28 bn from 114 mn annual transacting users and had facilitated 7.4 bn transactions including transactions made to merchants via its ecosystem and peer to peer payments.

The company’s revenue has been growing strongly, while losses have been coming down drastically.

Here’s how Paytm has significantly brought down its losses

FY19	FY20	FY21
₹4230 crore	₹2942 crore	₹1701 crore

The company has managed to achieve the same through careful planning, streamlining of operations and processes, while also optimizing marketing, other direct, as well as indirect costs. Here’s a look at how Paytm has brought down its marketing expenses.

 

FY19	FY20	FY21
₹3408.3 crore	₹1397.1 crore	₹532.5 crore

The company is already contribution margin positive as stated in the DRHP, and despite it being a COVID-19 impacted year, the company’s revenue from payments and financial services increased in FY 2021 as compared to FY 2020.

In 2017, One97 Communications piloted its bill payment services in Canada and in 2018, it partnered with Softbank Corp., Softbank Group Corp. and Yahoo Japan Corporation to launch PayPay, a leading digital payments and financial services company in Japan. It continues to explore sure international opportunities especially in developed markets 

While India continues to be the fastest growing major economy globally on account of rising consumption, large working population and growing urbanization, the financial services market continues to be significantly underpenetrated and digitization will  accelerate and facilitate the reach and adoption.

Market opportunities in India:

According to Red Seer, the country’s digital ecosystem is at an inflection point and offers a massive opportunity, as active internet users are expected to increase from 450 mn in FY21 to approximately 900 mn by FY26. It is expected that users will want to transact online for bill payments, shopping, entertainment and other needs.

Lead managers appointed to the Issue are Morgan Stanley India Company Private Limited, Goldman Sachs (India) Securities Private Limited, ICICI Securities Limited, Axis Capital Limited, JP Morgan India Private Limited, Citigroup Global Markets India Private Ltd and HDFC Bank Limited.