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Paytm charts out new strategy to generate revenue and cut cost

Paytm is looking to slash annual losses by 50% over the next two years.

Image credit: Avanish Tiwary

SoftBank and Alibaba-backed digital payment company Paytm, owned by India’s most valuable startup One97, is starting its journey towards profitability after 10 years of operations.

Earlier this week, Vijay Shekhar Sharma, founder and CEO of One97, charted out a dual strategy that entails cutting losses by generating more revenue through the monetization of its 15 million merchant base.

“Our offline merchant base is our most defensible moat. We were clear from day one that this MDR (merchant discount rate) could not be our monetization strategy,” he told Economic Times (ET) in an interview. “We are creating cloud services and software solutions, including billing, invoicing, GST (good and services tax), CRM (customer relationship management), loyalty, and overtime financial services as a revenue moat.”

The merchant discount rate is the fee charged to a merchant for processing digital payments. Starting this year, the Indian government waived off MDR for Rupay-enable debit cards and BHIM-UPI (Unified Payment Interface), both of which are backed by government body National Payments Corporation of India (NPCI).

Sharma added the company is looking to slash annual losses by 50% over the next two years, by “monetizing its offline merchant base, scaling its merchant network, and rolling back on discounts across businesses.”

Taking one more step towards becoming an end-to-end financial service provider, on Tuesday, Paytm introduced an all-in-one Android POS (point of sale) device that enables merchants to accept digital payments and generate GST (Goods and Services Tax) compliant bills, scan items, and manage all forms of transactions through their ‘Paytm for Business’ app.

With the new offerings, the company expects to onboard an additional 10 million merchants to its platform over the next 12-18 months.

“Merchants are looking for solutions that not only support acceptance of all kinds of payments (UPI, card, and wallets) but also allow easy reconciliation,” he told wire service Press Trust of India (PTI). He added that Paytm’s Android-based POS machine will be “about 20-30% cheaper and more comprehensive than the competition.”

Paytm has seen mounting losses over the last few years as it chased user growth. For the financial year (FY) ended March 2019, One97 posted a loss of USD 552.1 million, up 165.5% from USD 207.9 million reported in the FY 2018. Meanwhile, it saw a meager 2% increase in revenue which stood at USD 425.2 million in FY19 as compared to USD 416.5 million a year ago.

The Noida-based startup valued at USD 16-billion claims to have over 450 million users and 15 million merchants on its platform. In November 2019, it raised USD 1 billion from Ant Financial and Softbank Vision Fund, T Rowe Price, Discovery Capital, and D1 Capital, to load its war chest to take on rivals like Walmart-owned PhonePe, Amazon, and Google Pay, which are increasingly digging their claws deeper into India’s USD 200 billion-plus digital payments market, which is pegged to reach USD 1 trillion by 2023.

In December, Sharma revealed his ambitions to convert Paytm’s payments bank into a small finance bank that will allow the company to add lending to its gamut of services. “We are keen to be a small finance bank. If the regulator gives the nod, we will definitely want to pursue this,” he told ET.

However, according to the current government regulations, the company can only convert itself into a small finance bank after five years of operating as a payment bank. Paytm has been operating a payments bank since 2017 under which it can only accept restricted deposits and offer services like debit cards, net banking, and mobile banking. With a small finance bank license, it would be able to provide basic banking services such as deposits and lending. This would essentially mean it can start offering loans on its own to individuals as well as small business entities.

Since the company’s bigger plans are going to take a while to materialize, it will have to find a new business that can earn money for it. Providing business and financial solutions to its rapidly growing merchant base, fits well into the narrative.