Paytm has been a digital payments pioneer in India. Paytm was considered as one of the success stories of the previous decade as it influenced the unprecedented rate of digitization of people’s lives. Paytm was at the right place at the right time. Hence, Paytm could scale up and diversify its business. It is a ‘mobile wallet’ through which you can load up cash and pay merchants via a mobile app. Paytm has been a household name for the past decade.
The company dived into consumer lending, credit cards, wealth management, and insurance distribution as well as areas unrelated to its core competence such as movie ticketing, fantasy sports, and e-commerce over the last 3 years.
Now, India’s biggest digital wallet company is struggling to convince investors about the value of its business. But, what led to their downfall?
The value perception between Paytm and its investors has only widened since its listing in November. Paytm needs to generate returns on the capital deployed in it by investors. Thus, It can no longer act like an aggressive start-up burning cash.
These are some of the factors which led to their downfall:
1. Declining Revenue
The paytm payments business is a high-volume one. Payment providers need to have a high amount of transactions in the market to achieve a reasonable level of revenue.
It is now tough for Paytm to have a high amount of transactions. Digital wallets processed transactions worth Rs 19,789 crore in January, or 0.4 percent of the total retail transactions processed during that month according to Data from the Reserve Bank Of India. Retail payments include wallets, UPI, cards, and online banking modes such as IMPS and NEFT. UPI’s share in total retail payments was more than 17 percent.
Paytm needs to increase transactions on its own payment platforms to increase its Business Revenue.
2. Huge Capital Investment
Paytm was a cashless option for mobile top-ups and bill payments. The Company got exponential growth when the Government declared demonetization in November 2016. Hence, It also triggered a flurry of investment in the company. According to Macquarie, Paytm raised an aggregate of Rs 19,000 crore since its inception in the financial year 2021, and has accumulated losses worth Rs 13,200 crore.
Paytm has destroyed wealth for most investors. Paytm is still a revenue-generating business. But its costs outweigh the money it generates, keeping its losses high. The company has had a volatile history of revenue.
The Initial Public Offering (IPO) has given an opportunity for some investors to sell their stakes. Of the Rs 18,000 crore raised from the IPO, nearly half went into the pockets of existing investors who chose to sell.
3. EXPENSES OF PAYTM
The biggest cost of Paytm is payment processing fees that it has to pay to card networks such as Visa, banks, and other financial institutions for processing its transactions.
The marketing and promotional costs followed by employee benefits are the next big expenses of Paytm.
Paytm gives cash-backs to bring customers onto its platform and make them stick to its wallet. Rivals Phone Pe and Google Pay have gathered more than half the market share in UPI.
Paytm’s loss widened in the April-December period of the financial year 2022 because of an increase in costs. Morgan Stanley expects Paytm to be EBITDA-positive by the financial year 2025. Macquarie expects the company to reach operating profitability, not before the financial year 2030.
Why Paytm IPO Failed?
Extremely expensive valuation and no clear guidance from the management on when the company will start making a profit are the reasons for the failure of their IPO.
Another reason for the lackluster response to Paytm IPO was its huge size. The company raised Rs 18,300 crore and the market does not have an appetite for such a large listing.
Paytm has been a cash-burning machine. The Company rolled out several business lines with no visibility of achieving profitability. Paytm has drawn in the equity capital of Rs 190 billion since its inception. 70 percent (Rs 132 billion) of equity capital raised has gone towards funding losses. The business generates very low revenues for every dollar invested or spent towards marketing. This is considered problematic for a low-margin consumer-facing business where competition across each vertical is only increasing.
CONCLUSION
Paytm will find it challenging to expand its business going ahead. Paytm’s payments-based business model has been disrupted by Unified Payment Interface (UPI), a real-time retail payment system developed by the government-backed National Payments Corporation of India (NPCI)
Watch the video to find out why India’s biggest-ever IPO Crashed. You will get to know a detailed analysis of their IPO.
