The imminent IPO coming this November of digital wallet and payments firm Paytm is India’s most significant. Paytm has already secured up to US$4.4bn of investment, including a Series G round which derived US$1bn from backers including Alipay owner Ant Financial and SoftBank Vision Fund[i], at a valuation of US$16 billion. Its debut on the Indian stock market later this year could help Paytm raise US$1.5bn more at double the valuation.
Statista estimates that Paytm owner One97 Communications grew its revenue from 30.5bn Indian Rupees (US$40.8m) in FY18 to 36.3bn Indian Rupees (US$48.6m) in FY20. But momentum reversed in FY21 when the company’s turnover declined 11% as coronavirus lockdown restrictions forced many retailers to shut their doors and rival digital wallet providers grabbed a larger market share. With one eye on its forthcoming IPO, Paytm did well to simultaneously shrink its losses by 42%, primarily due to a 22% reduction in its operational expenditure.
Intense competition forces strategy rethink
Intense competition within the Indian digital payments market has forced Paytm to diversify its business over the last few years, with the runaway success of the Universal Payments Interface (UPI) 2.0 bringing new capabilities and rivals into play. The National Payments Corporation of India (NCPI) reported that the number and value of UPI transactions in the twelve months ending March 2021 tripled over the previous year, for example, with the number of banks on UPI increasing from 153 to 216.[ii]
Two companies – Walmart owned PhonePe (44%) and Google Pay (35%) – which have incorporated UPI account for the majority of UPI transactions, with Paytm Wallet trailing in a distant third (15%). Other organisations, including Bharat Interface for Money (BHIM), Cred, Axis Bank, YES Bank, ICICI Bank and the State Bank of India, have also seen growth in the volume and value of UPI transactions but from a much smaller base.
With 1.4 billion people and only 60 million credit cards, buy-now-pay-later (BNPL) services present significant opportunities. Paytm sees its credit technology and BNPL service as a catalyst for the next stage of growth. Apart from the focus on merchant payments, Paytm has stepped up fee-based business via mutual fund and insurance distribution, along with retail broking. According to Bloomberg, all these non-payment lines, including the e-commerce business, are close to 20% of the company’s total revenues.
Smartphones and mobile commerce driving payments growth
The increased penetration of lower-cost smartphones coupled with improvements in the reach and capacity of mobile networks will play a key role in driving that expansion. GSMA Intelligence estimates that 79% of India’ 1.4bn population has a mobile connection, with 45% being Internet users in January 2021 (up 8% over January 2020).
GlobalWebIndex statistics collected in the third quarter of 2020 suggest that over 96% of Indian adults between the ages of 16 and 64 own a smartphone, far more than those with laptops or desktop computers (56%) or a tablet device (23%). And Ookla speed tests conducted in January 2021 calculate that the average download speed of mobile Internet connections in the country is now 12.9Mbit/s, almost 13% faster than it was twelve months earlier.
Indians have been quick to make the most of those newly upgraded smartphone and mobile network capabilities, particularly when buying goods and services on the Internet. Statista’s Market Outlook for eCommerce suggests that the total value of the consumer eCommerce market in the country jumped 38.5% year on year to be worth US$46bn in 2020, undoubtedly fuelled by economic restrictions which closed large numbers of physical stores and forced more people to shop online.
Though that same growth rate is unlikely to be repeated in 2021, analysts believe that many Indian citizens will persevere with their newly acquired purchasing habits. The 2021 Global Payments Report by Worldpay from FIS forecasts that the eCommerce market in India will expand 84% to be worth US$111bn by 2024, driven by a broad shift to smartphone shopping which has its roots very much in the pandemic.
Digital wallets well placed to capitalise
In many ways, India is the perfect location for digital wallet adoption. Few adults aged over fifteen (3%) own credit cards, according to World Bank global financial inclusion data. At the same time, the Indian government has been proactive in introducing policies designed to move the country’s reliance away from cash and towards digital payments.
FIS Worldplay also predicts that digital wallets will increase their market share when funding online payments to 47% by 2024. GWI also estimates that around a third of Indian adults aged between 16 and 64 used banking and financial services apps in Q320, and 37% a mobile payment service similar to Google Pay. App Annie ranked Paytm as the 10th biggest app in India by monthly active users in January 2021. At the same time, 2% of India’s adults have mobile money accounts that link electronic wallets directly to their mobile phone numbers, according to the World Bank.
As well as encouraging more of its citizens and merchants to partake in the digital economy, the Indian government is also keen to foster greater competition within the payments market. It placed a 30% cap on the number of UPI transactions for all third-party payment apps in November last year to ensure the likes of PhonePe and Google Pay do not dominate the market (they have until December 2022 to comply). That could ultimately be good news for Paytm and other UPI providers. However, the debut of WhatsApp Pay in January 2021 (buoyed by its partnership with Indian telco Reliance Jio) may end up limiting any gains.
[i] Decoding Paytm’s $1 Billion Series G round, Entrackr, 5th February 2020
[ii] How UPI is making India’s digital economy boom, Fortune India, 24th April 2021