India Payments Research
Can Paytm reach profitability soon?
India’s most prominent fintech unicorn has steadily improved its financials in recent years in a push to reach profitability sooner rather than later. In the October to December period, Paytm posted an operating profit – which the company defines as core profit before cost of employee stock options – for the fifth consecutive quarter. The figure was 2.19 billion rupees, a significant improvement over 310 million rupees during the same period a year earlier. Consolidated revenue, meanwhile, increased 38% to 28.5 billion rupees, with its payments business contributing 61% to the total. Despite these solid numbers, the company could face some headwinds in the months ahead.
UPI gets a boost in its quest to go global
We recently wrote about how Google Pay has defied the odds in India, a crucial fintech market where both American tech and credit card giants have struggled to carve out a niche. The Google Pay app continues to hold a roughly 35% market share of the paramount homegrown payments rail United Payments Interface (UPI) in India, while WhatsApp Pay and Amazon Pay each have less than 1% and PayPal is absent altogether.
The Indian remittances market is booming
One of the most promising segments of digital financial services in India is remittances. Unlike traditional banking, it is not completely dominated by incumbents, and the massive Indian diaspora population ensures that demand will be robust for years to come. 2023 was another big year for Indian remittances – though not as big as 2022.
How Google Pay defied the odds in India
Big Tech considers India an important market when it comes to search, social media, messaging and e-commerce. Fintech, however, is another story.
Why is ZestMoney shutting down?
After a long moment in the sun, buy now, pay later (BNPL) has lost some of its luster. That’s not to say it will fade away. Far from it. In fact, many deep-pocketed fintechs and prominent incumbents in advanced economies have introduced the service because consumers like interest-free installment payments. However, pure-play BNPL firms that are essentially one-trick, loss-making ponies are in varying degrees of trouble. In the case of India’s ZestMoney, once a high flyer in the subcontinent’s erstwhile red-hot BNPL segment, the trouble seems to be terminal – and the company will reportedly throw in the towel at the end of this month.
Ant Group gradually divests from India
Ant Group has an ambitious international expansion strategy with Asia Pacific at its core. However, one of the largest markets in the region is increasingly not part of Ant’s vision. Suffice to say that when Ant was ramping up expansion in Asia a few years ago, it did not foresee geopolitical tensions with India impacting its investments in the subcontinent, a market the Chinese tech giant once saw as very promising. But the business environment for Chinese companies in India is likely to remain highly challenging for the foreseeable future.
The Indian credit card market is gaining momentum
We have been writing for a while now about the potential for credit cards to capture market share in India, irrespective of the trajectory of buy, now pay later (BNPL) and e-wallets. In a nutshell, there is nothing quite like a credit card when it comes to cashless payments: the potential for rewards, the potentially significant credit limit, and in some cases, the prestige of holding a specific card. And then there is the bonus that paying off the balance promptly helps one build a solid credit profile over time. Even though India’s credit card penetration is estimated at just 5.5%, in absolute terms, that’s still about 77 million people because the subcontinent’s population is 1.4 billion. So even at that low level of penetration, India has a larger credit card market than all of France or the UK.
Can Paytm go the distance?
After years of losing money, Paytm has turned things around in the past two years. A disappointing IPO on the eve of a long-overdue slowdown in inflated tech stocks and valuations was a wake-up call for the company to focus on profitability instead of growth in myriad verticals. In the June quarter, India’s most prominent fintech showed some promising signs, especially in terms of loan growth, but it also faces rising competition and lacks a banking license that would allow it to lend directly to customers.
The rise of UPI in India and its cross-border potential
This commentary was written in collaboration with Banking Circle.
India’s United Payments Interface (UPI) real-time payments system has transformed how Indians make payments, allowing them to easily transfer money instantly from one bank account to another: from a customer to a business, or between individuals. Since its 2016 launch, UPI has amassed 300 million users and 500 million merchants in a population of 1.4 billion and been a decisive factor in India’s embrace of cashless payments given its ease of use and interoperability.
Why PhonePe is thriving
There is usually good reason to be skeptical these days about a loss-making fintech with a sky-high valuation, but India’s PhonePe – valued at US$12 billion – could be an exception to the rule. The company has fought its way to the top of the subcontinent’s massive UPI payments rail, edging out Google Pay and Paytm, is gradually building out a comprehensive digital financial services ecosystem and continues to raise eyewatering sums from investors at a time when the easy money no longer flows.
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Has Paytm found the secret sauce?
Paytm seems to have found the secret sauce at last. After years of rolling out seemingly unrelated digital financial services, the Indian fintech giant is instead focusing on lending and seeing its revenue rise accordingly. In the first quarter of the 2024 fiscal year, Paytm’s revenue rose 39% year-on-year to 23.42 billion Indian rupees (US$286 million). The company reported an operating profit for a third straight quarter, despite higher employee expenses and no government incentives, while its net loss narrowed to 3.57 billion rupees.
Why credit card adoption is rising in India
In recent years, the biggest credit story in India has been buy now, pay later, sometimes abbreviated as BNPL. Tremendous demand for credit has driven the BNPL boom in the subcontinent, but tighter regulation and slower growth are both now inevitable. As BNPL slows in India, there is an opportunity for the overlooked – but better regulated and steadily growing – credit card segment to build market share. To be sure, credit cards remain more of a premium product in India now than BNPL and the market is significantly smaller than for installment payments. Still, it is not small given India’s overall market size.
Why is Paytm’s stock up 67% this year?
Patience is a virtue, and good things come to those who wait? Or so it seems in the case of Paytm, India’s most prominent fintech, once best known for looking like yet another questionable bet by Masayoshi Son, but now reminding us he knows how to pick winners after all. Paytm stumbled out of the gates of its November 2021 IPO, but since then has gradually improved its core metrics and has had a pretty good 2023. The company’s stock is up 67% this year; it has a booming lending business and may be profitable sooner than expected.
PhonePe raises another US$100 million
Raising money is not nearly as easy it used to be for fintechs, but that has not stopped PhonePe. India’s Walmart-owned payments fintech giant just raised another US$100 million from private equity firm General Atlantic as it races towards a US$1 billion fundraising goal. PhonePe is arguably the most prominent Indian fintech unicorn that has yet go public, with a valuation of US$12 billion, massive transaction volume and a commanding presence on the ubiquitous United Payments Interface (UPI) payments rail.