Paytm shifts focus to merchants as it looks to narrow gap with rivals

Written by || February 19 2020

India fintech unicorn Paytm is shifting its focus to merchants in a bid to better compete with rivals Google Pay and Walmart-backed PhonePe. Paytm lags those two firms in its share of the transactions on India's state-backed real-time UPI payments system. As of October, UPI handled more than 50% of India's digital transactions, according to research firm Razorpay.

Credit Suisse reckons that India’s payments market could reach $1 trillion by 2023. Four or five major firms are likely to vie in India's payments market after consolidation, analysts say. A duopoly like Ant Financial-WeChat Pay in China is unlikely in the India market.

In early February, Paytm launched an all-in-one payments gateway for SMEs, signaling a shift to merchants from retail customers. The new system includes a stand that displays QR check-out codes, a "sound box" that provides voice confirmations of transactions, cloud software to manage inventory and a POS device equipped with a scanner and printer. The device accepts all types of digital payments, not just those offered by Paytm.

Amidst intensifying competition, Paytm raised US$1 billion from Softbank's Vision Fund and other investors in November, increasing its valuation to US$16 billion. Despite that high valuation, the company has never posted an operating profit in its 10 years of existence. That wasn't a big problem in the heady days before the abortive IPO of troubled office-sharing startup WeWork. Yet, since then, tech investors have shown less tolerance for flagrant cash burning.

Paytm's executives express optimism in public appearances and interviews. “Paytm is already bigger than all other players combined in merchant mobile payments," Vijay Shekhar Sharma, founder of Paytm parent One97 Communications Ltd., said during the recent launch of the all-one-payments gateway in Bangalore. Paytm accounts for about 5 billion of the total 9 billion merchant payments in India, he added.

In a February interview with Indian online media Daze Info, Sharma said that the new payments gateway would help the firm attract 10 million new merchants this year, bringing the total to 25-26 million.

Merchant reception has been enthusiastic, he said. Merchants are willing to pay for the system because it solved two problems for them: "The fraud payment confirmation screen is slowly becoming a big challenge for merchants to deal with and it’s bad for any business. The second one being sticky confirmation."

Regarding a future IPO, Sharma said that the company had no definite timeline. Before having a concrete IPO roadmap, Paymt should "be making money and predictable," he said.

We couldn't agree more.