Paytm piggybacks on payments bank servers to meet note ban rush
HOW DOES PAYTM EARN MONEY?
A consumer puts money in the mobile wallet, at which point it costs the company one to 1.5 per cent for providing payment gateways, etc. So, of every ~100 put in the wallet, about ~99 goes to the wallet. When a consumer uses the wallet cash to buy something on the app, such as bus tickets, movie tickets, that is the time Paytm makes money. When the money is used to buy flight tickets, Paytm gets a margin of about 10 per cent, on bus tickets six per cent, on e-commerce two to 15 per cent. While there’s no earning for the company on the money deposited in the wallet, things will be different with a payments bank. The bank will earn interest from depositors putting money — called float — in the wallet. For mobile wallet company Paytm, it was a sheer stroke of luck that demonetisation came at a time when it was almost ready to launch its payments bank.
When Business Standard caught up with Vijay Shekhar Sharma, chief executive officer of Paytm, more than three weeks after the big currency notes were banned, one question on top of the mind was, how did the wallet company cope with the sudden surge in demand for cashless transaction. Did Sharma have at least a hint of what was about to unfold? Over margherita pizza and lemonade in the coffee shop of a luxury hotel, Sharma said he had no clue till Prime Minister Narendra Modi made the announcement late evening on November 8. He quickly added the company was able to manage the rush because it could use the servers that were ready to roll out for the payments bank, which was yet to get the approvals from the Reserve Bank of India (RBI).
“The technology teams were proactively ready. Two things worked out for us, one was the readiness for the payments bank, we were preparing the platform and machinery for the bank, we used those servers and systems already there and did not have to acquire new ones. Second, we were anyway building the internal process for next year to grow 10x and doing stress tests. So our systems were getting secure, having audits for the post-bank launch,” Sharma said.
The company which has missed the deadlines set by itself for the launch of its payments bank is still several weeks away from the roll-out. Although Paytm had earlier wanted to be the first to start a payments bank, it has already been beaten by Airtel.
In fact, Sharma was on a fund-raising mission for the bank when demonetisation broke out. He had flown to Mumbai earlier in the day and was about to leave for dinner at Leopold Café when he got to hear ~500 and ~1,000 notes were reduced to pieces of paper. The team at the Noida-headquartered office was already working on the advertisements to make it on Day One. And Sharma was preparing to leave for Hong Kong for the bank funding next morning. In the days to follow, he tracked the developments including the rush in traffic for Paytm wallet remotely through a WhatsApp group called ‘’URGENT’’ created by his team back home.
“When demonetisation happened, I had not got my money to spend on a payments bank, which means during the initial five days I was a fish out of water. I had to sell my shares to complete the process, as the bank approval was pending. Around ~220 crore has been put into the bank, of which ~120 crore has come from my side,” Sharma said.
Paytm has, since November 8, been on an overdrive, rolling out a series of features on its app including multi-language options for a no-holds barred access across the country. The company is now planning to make Paytm available on all types of mobile phones, going much beyond smartphones.
While Sharma is at the centre of things post-demonetisation with people on the street as well as in government ministries wanting to take selfies with him, there’s a high cost attached to demonetisation for the company. Since the announcement, the company’s gross spend has been around ~240 crore in November alone--on advertisements, scaling up, adding more users…. “This is a classic moment when start-ups are acting as start-ups.’’ Ask him about his earnings, and his reply: ‘’these are not the times to calculate earnings.’’ But he has been on a high riding on demonetisation and decided to give out the earning--around ~100 crore.
The investment and earning spree is likely to continue to tackle demonetisation’s after effects. In the next three months, One97Communications, the company that owns and runs Paytm , plans to spend around ~750 crore on scaling up and expansion. ‘’India may have a digital divide but its payments system would not have a digital divide,” he said in all seriousness.
What about cashbacks? Will the pace slacken a bit? With wallets on the verge of becoming a necessity, Sharma said that cashbacks would reduce. “We are actively reducing cashbacks. They have been reduced by 30 per cent already.’’ Cashback spend last year was around ~1,400 crore, out of a total spend of ~2,500 crore.
Even as the recent narrative had shifted to Chinese money in Paytm (Chinese online major Alibaba is the largest investor in One97Communications), Sharma said, ‘’I like to refrain from commenting on political issues.’’ He did give out statements earlier though that Paytm is as much an Indian company as Maruti.