Indian consumers first associated Paytm with its wallet that offered easy digital payments before the introduction of UPI or the Unified Payments Interface. Many small businesses benefitted from gaining upgraded passes to inexpensive technology, software and other financial services. Essentially India shocked the technical world with its latest adaptation to the digital payments system, in which Paytm was the pioneer.
College students, small merchants, shopkeepers etc became familiar with the term “Paytm Karo”. Paytm‘s financial services, payments services and commerce and cloud services are three key businesses where the financial and payments sectors together contribute 75% of its revenues. In this article, we will take a look at Paytm's revenue model and how Paytm makes money.
Did you know that today Paytm is set for a whopping ₹18,300 crore IPO (Initial Public Offering)?
Development of Paytm
Vijay Shekhar Sharma founded Paytm with only ₹8 Crores in August 2010. In the early stages, it served as a recharge medium for DTH and prepaid mobile services. In 2013 it included postpaid mobile, data card and landline invoice payment options. In October 2013, Paytm received an investment of ₹75.55 Crores from Sapphire Ventures. In 2014, Paytm initiated an expansion of its portfolio. In the same year, Paytm Wallet was acquired. Indian Railways and Uber became the first clients to count Paytm Wallet as their payment option.
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Evolution of Paytm
By 2015, Paytm expanded its service to metro recharges, gas, electricity and water bill payments. Paytm even ventured into travel ticket facilities with 20 lakh monthly ticket bookings. In March 2015, the Alibaba business group invested in Paytm with 40% of the stock belonging to Paytm as per their strategic agreement. Even TATA group’s Managing Director Ratan Tata backed Paytm at this time.
In 2016, it received an allocation from Mountain Capital. During the same year, Paytm launched movies, events, amusement parks ticketing, flight ticket booking and Paytm QR. In August 2018, Berkshire Hathaway invested ₹28 crores in exchange for a 3 to 4% stake in Paytm. By the next year, it became India’s first payment app which crossed over ten crore app downloads.
Why is Paytm’s Business Model Unique?
Paytm is India’s largest digital ecosystem for merchants and consumers. Paytm built one of the largest India-based payments platforms in terms of the number of transactions, number of consumers, number of merchants and revenue as of March 2021, according to RedSeer. Paytm offers commerce and cloud services, payment services and financial services to over 21 lakh registered merchants and 337 lakhs registered consumers as of 30th June 2021.
Paytm for Consumer
Paytm’s dual for merchants and consumers are unique and enable commerce. By utilizing technology, you can access financial services through its financial organization partners, which helps improve consumer lifestyles as well as provide business growth for merchants. Merchant and consumer engagement is an important aspect of Paytm’s business model and unit economics.
This is how it works in the following:
Payments
The services include peer-2-peer money transfers, bill payments, in-store payments and online payments. Paytm collects commissions from service providers such as mobile operators, DTH providers, etc. Additionally, they offer incentivized recharging through cash-backs and other offers.
Commerce
This section includes Paytm Mall and ticketing services like trains, flights, and movies. Paytm entered the event/movie ticketing market providing stiff competition to another primary player BookMyShow through lesser convenience fees. It also competes with Yatra or MakeMyTrip in the flight/train booking section.
Financial Services
Paytm also extends its services to finance including savings accounts, credit cards, insurance etc. Since, in this digital era, most processes like account opening and document verification are done digitally, Paytm easily grabs a new customer base in this category.
Paytm for Business
Paytm helps businesses to receive payments from their customers and manage heavy transactions. Read the points to understand how Paytm eases the flow of business transactions.
Consumer Payments
This provides the facility for various merchants to accept direct payments from consumers. This payment section can be categorised into online and offline. The online payment section includes payment gateways, UPI payments, links, settlements, and subscription-based payments.
Business Payments and Software
These include payouts, POS Billing Software, nodal accounts, Business Khata and Advertising. These services ensure ease of business for merchants by enabling them to avoid technical nuances through the software.
Financial Services
Paytm offers the same services to businesses as it does to consumers. This includes benefits like pensions, salary accounts, mutual funds and Paytm Gold. Paytm also covers loans and insurance in this segment.
Developer Services
These cover API services and Paytm AI. API refers to software language. When you purchase from a website, there are two entities- the website and your bank, through which the payment is made. API facilitates this exchange. Paytm AI is a fraud management system by Paytm.
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How Does Paytm Make Money?
Paytm categorises its revenue under two distinct revenue lines. To know more about the Paytm revenue model read the points which are mentioned below:
Payment and Financial Services
In this case, Paytm generates its revenue from:
- Paytm charges its consumers convenience fees for certain types of transactions.
- The transaction fees charged by Paytm to its merchants are calculated as a percentage of GMV.
- Recurring subscription fees are charged to merchants for specific items and services like POS and Soundbox.
- The fee percentage charged by Paytm varies by the payment instrument type used by merchants and consumers.
Paytm Revenue with Lending Services
For lending services, with the help of financial institution partners, Paytm can earn revenue through the following:
- A sourcing fee from the financial institution partners, which is earned at loan disbursal based on the loan amount percentage and
- A collection fee from those financial institution partners based on the loan amount percentage through Paytm’s collection services.
Paytm Revenue with Credit Cards
For the distribution of credit cards, Paytm collects distribution fees from financial institution partners for each card issued and a percentage of the net annual spend for the card. It also earns bonuses from the card networks for driving card adoption. Paytm also earns a commission for insurance products from insurance partners based on the percentage of the net premium for insurance items that are sold through Paytm.
For equity broking services, Paytm charges different consumer fees like account opening fees, transaction fees that depend on transaction volumes and type, and a yearly subscription fee. Paytm earns 75% of its total revenue from its payment and financial services as of 2021.
Paytm for Commerce and Cloud Services
Paytm charges its merchants a transaction fee and its consumers a convenience fee on a percentage of transactions related to entertainment, travel, ticketing and other businesses. In the case of cloud and software services, Paytm charges its merchants a subscription fee and a fee linked to the frequency of activity on Paytm’s service platforms.
Paytm’s Cost Structure
Apart from revenue and income generation Paytm also faces a few expenses which are given below. Paytm’s main expenditures include:
- Payment processing charges (40%)
- Employee benefits expenses (25%)
- Marketing and promotional expenses (11%)
- Cloud, software and data centre expenses (7%)
- Amortisation and depreciation expenses (4%)
- Other expenses (12%)
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Conclusion
Paytm also launches brand marketing campaigns for merchants and charges money depending on the type and scale of the campaign for its advertising facility. No wonder, with the current business structure, Paytm will become a ‘super app’ in the future. It offers numerous services for consumers and merchants starting from bill payments, and movie tickets to POS billing software and insurance. Hopefully, you have learned about how Paytm earns and its business model in this article.
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