Paytm will launch its stockbroking business in the next two to three weeks, Paytm founder and CEO Vijay Shekhar Sharma announced on Thursday at the Global Fintech Fest. In the brokerage, users “will bring and keep some margin money and control money”. In financial services, Paytm already offers insurance and mutual funds through Paytm Payments Bank, and “hopes to do lending” in future; Paytm Payments Bank is not allowed to lend right now. Since it is a payments bank, there are certain limitations which is why it offers fixed deposit through a partner bank, he said. The Paytm Bank has more than 55 million accounts, as per Sharma, of which 40 million are monthly active accounts.

The payments business is the largest source of revenue for Paytm. “A couple of hundred million dollars of revenue comes standalone from payments,” Sharma said. Its ticketing and booking business — for travel, movies, events — is its second biggest earner while e-commerce, through Paytm Mall, is a distant third, he said. The company is now building its financial services stack. “I don’t consider a bank as a separate financial services stack; I treat that as a part of payments,” Sharma said.

Paytm started with the payments business, starting with the wallet, then UPI and then point of sale (POS) machines. “Payments business is a full stack business. It includes even payout businesses” such as “companies looking to pay their customers, employees and so on”, Sharma said.

Despite removing cashbacks, Paytm user base grew

Sharma also explained that Paytm used cashbacks to acquire price conscious Indian users to use digital payments. Unlike reward points that are offered on credit cards and whose meaning and vary across card providers, he said that cashbacks allowed Indian consumers to see actual money in their bank accounts. As an experiment, Sharma said that the company stopped offering cashbacks in the last six months and found that the user base grew. “We made three time the money we made last year, and spent one-third the money we spent last year in the same month,” he said. He said that Paytm was now it in its monetisation stage.

On being asked why only a third of India’s 500 million internet users use digital payments, Shekhar said it comes down to two factors — comfort and trust. “In tier two, tier three cities, people are still comfortable using cash,” he said. “Digital payments still face a huge amount of resistance from consumers,” he said. On an average, a typical merchant has five to seven Paytm transactions per month.

‘We make money from being a bank, not a PSP’

Sharma explained that while UPI does not help the app provider make any money, NPCI makes money from UPI “because the switching costs exist inside the system”. And Paytm is also a bank and thus has float revenues, transaction revenues, etc., he said. “Being a bank gets us revenue, not being a PSP [payment service provider],” he said.

Paytm in numbers

Paytm has 350 million users who have at least once used its payments platforms, either through wallet, or UPI, or card, and about 17 million merchants. At Paytm, more than 50 million users use “card or wallet standalone products” on a monthly basis. When it comes to merchant payments, both to online merchants like Zomato and offline merchants like BigBazaar or a kirana shop, Sharma claimed that Paytm has the majority market share and “is larger than everybody else combined”.

Sharma expressed his confusion about how number of UPI users are calculated. “I am told that UPI has about 130-140 million users. And that I am also told that UPI has 100 million monthly active users for a billion transactions and I am always confused. How can a platform that has 130 million ever signed up users [sic] have such a large number of monthly active users like 130 million. I am not sure how that happens. And is it really monthly active [users]? If it is, it is amazing because no platform in the world that has signed up customers can have monthly active connecting customers at that ratio,” he said.

‘Indian start-ups have improved unit economy during COVID-19,’ says Sequoia MD

In response to a question from Sharma about the funding scenario for Indian start-ups post-2020, Rajan Anandan, the managing director at Sequoia Capital, said that by the end of 2021, the health of the Indian start-up ecosystem will be 10x better. “Indian start-ups will require less capital that they will get easily because the world is awash with capital,” Anandan said. He said that the world has $20 trillion with negative interest rates right now which is seeking high-quality companies to invest in.

“India has over 40,000 start-ups of which only 10% have raised venture capital. And of the start-ups that have raised venture capital funding, 90% are deeply unprofitable. And of the ones that haven’t raised [venture capital funding], only 40% are profitable. A lot of start-ups have already closed shop [because of COVID-19] but in the last four months, we have seen that every Indian start-up has materially improved their underlying unit economy,” Anandan said. Uncertainty around eroded consumer base and collapse of demand to zero made start-ups shed off extra weight and restructure costs, he said. In the last four months, products have become better while distribution has become smarter, he said.