Clipped from: https://economictimes.indiatimes.com/markets/expert-view/paytms-future-growth-depends-on-financial-services/articleshow/84546318.cmsSECTIONSPaytm’s future growth depends on financial servicesLast Updated: Jul 19, 2021, 03:12 PM ISTSynopsis
“Paytm is clearly at a point where it has established category leadership in the overall payments super app, more in the form of revenue monetisation versus its peers.”
Paytm acquires most of its customers through payments but its future growth depends on financial services, says Gautam Chhugani, Director, Bernstein. Edited excerpts:
There is a lot of excitement in the IPO market. How do you look at Paytm’s IPO plan?
When you look at a fintech IPO, there is obviously a base assumption around the core business. In the case of Paytm, it is payments, which is how they acquire most of their customers. But the future growth depends on financial services. So what is it going to do over the next three to five years? Will they provide financial services in the form of lending, wealth management, insurance and so forth? A lot of analysis is going to depend on what investors believe about monetisation opportunities coming from financial services in the future.
The problem is that a lot of these founders dream big and each one is convinced that they are the category leaders. The numbers are not easily available. They all talk about hyper growth. From an investor’s perspective, it is very easy to believe the growth story.
I think it all depends on what segments you are looking at. If you look at Paytm, it operates in multiple segments – mobile payments, merchant acquiring and payment gateway in online commerce. In financial services, there are three verticals like lending, wealth management and insurance. So the answer is different for different verticals.
When you talk about category leadership, Paytm is clearly at a point where it has established category leadership in the overall payments super app, more in the form of revenue monetisation versus its peers. It has to constantly fight with Google Pay to keep its UPI market share. But also at the same time, the payments landscape in India is quite challenging because a large part of the payments volume does not generate revenue. For example, UPI does not generate revenue. So if you look at just the UPI market share or if you just look at just one part of the puzzle, then it does not necessarily correlate to revenues. You need to kind of look at what are the revenue generating verticals within Paytm’s broad portfolio payment services to arrive at what the future growth could entail.
Given the competitive landscape in India, just focussing on UPI was not the optimal strategy for Paytm because it does not generate revenue and second you need to keep spending. Paytm probably spends about 0.2x of their revenues on marketing. Its peers are spending upwards of 2.5-3x of their total revenue. So just focussing on one vertical for category leadership is going to be extremely challenging given the competitive dynamics in India.
Paytm has taken a more holistic approach with a full payments stack. They do not just look at its UPI market share but they focus more on the merchant market share within UPI. Paytm’s wallet business has held on to its volume while not growing at the same pace as UPI. But more than that, you have the merchant point of sale business with revenue monetisable opportunities. On the online side, it is also doing payment gateway business.