Alibaba-backed Paytm sees net loss surge by 163% in FY 2019

Paytm is pushing the envelope as it’s in talks to pick 10% stake in Yes Bank

Source: Unsplash

One97 Communications, the parent company of India’s financial services unicorn Paytm has increased its net loss by almost three-fold as it prepares itself to post a profit of USD 29 million in the financial year 2021.

Owing to the increase in expenditure on brand building and business activities, its net loss surged by 163% to the tune of USD 587 million in financial year 2019 on a USD 498 million revenue, a meagre 8.2% year-over-year increase.

The company reported a USD 223 million loss in FY 2018.

A local media quoting a Paytm spokesperson said the company has been spending USD 1 billion every year since 2017 to expand digital payments eco-system in the country.

“We will further invest about USD 3 billion in the next two years to scale the same,” the Paytm spokesperson said.

According to Paytm’s annual report, it is keen to fortify its position across business verticals like payments bank, insurance and insurance broking, travel ticketing, hotel, and mobile wallet services to generate healthier turnover in the coming fiscal years. Hence instead of majorly focusing on its peer to peer payments business, Paytm wants to drive more merchant transactions through mom & pop stores on its platform.

It seeks to monetize the data it generates through analytics later to be offered as financial services to consumers and merchants. The firm has launched a major publicity campaign in rural India to teach merchants how to scan any QR code at their outlet through the Paytm app to receive instant payment.

According to the company, it recorded 1.2 billion merchant transactions in the first three months of 2019 through 14 million retail stores thereby maintaining its lead position of 70% market share in the offline payments sector.

However, according to a local media, Flipkart-owned PhonePe tops the Unified Payments Interface (UPI) led transactions recording 342 million payment transactions, followed by Google Pay at 320 million, while Paytm facilitated 157 million UPI transactions. UPI is India’s real-time payment system which instantly transfers funds between two bank accounts on a digital platform.

Even as it struggles to reduce its losses, Paytm founder Vijay Shekhar Sharma is in an early-stage discussion with Yes Bank promoter Rana Kapoor to pick up his and his family’s entire 9.64% stake in the private bank for up to USD 278 million. To finalize the deal, the two parties will need an approval from India’s apex bank Reserve Bank of India as it doesn’t allow institutional investors to hold more than 5% stake in a private bank.

As its bad loans increase from corporate groups in real estate, entertainment and infra sectors, global rating agency Moody’s downgraded Yes Bank’s long-term foreign and local currency bank deposit ratings.

It is to be noted that by acquiring stakes in Yes Bank, Paytm can expand its services for its payments bank—a special banking license given by RBI in 2015 to 11 private companies to run a bank with multiple restrictions on lending and a cap on depositing money. Its customers can borrow money via Yes Bank and also deposit more than Rs one lakh (USD 1392) in their Paytm Payments Bank account which RBI doesn’t allow for payments banks.

If the deal happens it will be the first time in India that a fintech company or its promoter, will buy a sizeable stake in a commercial bank. Earlier Axis Bank acquired FreeCharge, a digital marketplace for financial services, from e-commerce player Snapdeal.