Paytm has pulled another conquest when the marketing reckon that it would take a kickback. Earlier, when there was buzz that Paytm is venturing into new spaces, the startup ecosystem used to hold their breaths. However, now the community is leaning towards the unicorn to challenge the norms, fabricate new courses, and carry out revolutionary things across industries.
Horde has long considered Paytm as India’s first super-app-in-making. The inscription is well-deserved since it does everything from financial services, an online discovery platform for neighborhood marts, to a ticketing and ecommerce platform. It is beyond question that Paytm is one of the most valuable fintech startups across the globe.
“As Sharma reflected on Paytm’s success, he was convinced that he was on track to achieving his goal of building India’s first $100 billion company. China produced Alibaba and Tencent; Japan produced Softbank, South Africa produced Naspers. We are headed for that journey.”
– The HBS Case (1).
The rapid expansion of Paytm into different industries has helped it increase its customer base, which allowed it to compete with Grab (Singapore) and GoJek (Indonesia), two of the world’s biggest super apps.
“Over the last six to seven years – mobile payments have come to the forefront of consumer offerings and [have led to major] innovations in consumer tech so people have come to realize that if we solve the payments problem, then there are many things we can do concerning commerce and concerning financial services.”
– Madhur Deora, President at Paytm (2).
The realization of the unicorn’s ambition is striking with the launch of its Paytm First Games. During the last seven months of the on-going COVID-19 pandemic, the startup has built a solid consumer base and became a rival to some of the sector’s most prominent players.
Currently, the digital payment leader has more than 80 million registered users and 20 million monthly active users in its gaming platform. It has observed a 200% growth rate in its user base in the first half of the year. According to the Paytm First Games’ statistics, it expects to push its user base to more than 100 million with 40 million MAU after the IPL season.
Online Gaming: A Tempting Fortune
Paytm’s venture into the gaming sector is aloof from its focus on financial and ecommerce services. It is even more significant since they are offering a lot of games on the platform for free.
The startup progressed to the gaming universe by rolling out a few games on its main Paytm app. It initially tested user traction for the service in an already-crowded market. After that, the team observed that people lingered longer on the app even after placing orders or making payments for playing games, and they saw the light.
“Our games platform became so big and promising that it only made sense to branch it into a separate app and expand the number of games.”
– Sudhanshu Gupta, COO of Paytm First Games (3).
Paytm First Games was the first launch in January 2018 with AGTech Holdings, a Chinese gaming company, as a partner (4). At that time, India was at its peak in online gaming due to Jio and its nosebleed data plan. Notably, it also helped to add smart in smartphones for many in India.
International players like Tencent, Garena, Supercell, and others have successfully created space for themselves on Indian users’ phones. Paytm First Game quickly received success with such penetration and competition, and there was a quick emergence of the Indian gamer community.
Paytm is bringing First Games into play to increase user engagement and take its association beyond payments and transactions. The firm soon realized it is easier to cross-promote its products by having footprints across several industries. It is especially the case for millennials who play games more significantly than any other generation.
The fintech industry’s favorite mantra is to ‘catch them young’ (5) since prehending to the generation means longer relationships. They are loyal to brands whose benefits and practicality they have discovered in their early lives.
Taking everything into consideration, Paytm First Games is complementing the Paytm ecosystem as it enhances its customer experience via a rich portfolio of games and entertainment.
The Knife-Edge
The COVID-19 pandemic has been a defining moment for Paytm First Games who observed more than 200% growth in 2020 (6). Thanks to the stay-at-home entertainment ecosystem; First Games bagged users not only from top cities of India but also from Tier III and Tier IV cities in all gaming formats.
The event of IPL cricket during the on-going pandemic has helped the company to kickoff and create interest in fantasy sports. It has allowed Paytm to drive even more traffic on First Games.
Notably, the cricket tournament season is the biggest considering the user engagement within the Fantasy sports gaming sector, with more than 30 to 50% metrics of the year coming from the two months of IPL cricket. Moreover, Paytm is considering fantasy cricket as an excellent vehicle to increase its reach since cricket reaches diverse audiences across India.
The startup further boosted its presence in the nation and overseas by roping Sanchin Tendulkar, the cricket maverick, as its brand ambassador (7).
According to the company’s statement, it has put aside 300 crore INR to invest in India’s fantasy sports and esports market (8). It expects to host more than 200 live events across international and domestic crick tournaments and soccer leagues in the upcoming months.
The company has asked Sachin to promote and create enthusiasm around other sports such as football, kabaddi, basketball, and esports, apart from fantasy cricket.
Following Footsteps
Paytm is an impressive startup, and it is remarkable how they have recognized and utilized opportunities. It started as a small payment platform, enabling users to recharge their mobile phones. It moved to local transports from local vendors such as Redbus and Uber and made its name in the broader payments industry.
There is no denying that Paytm is also the principal beneficiary of the demonetization in 2016. As digitization took off, the ‘Paytm Accepted’ sign became ubiquitous. When China’s Alibaba Group scooped more than 40% of its stake in 2015, it helped the firm fuel its growth and sharpen its growth (9).
“India is an important emerging market with strong e-commerce potential, and we look forward to partnering with Paytm to deliver innovative products and services to consumers. Supporting local homegrown entrepreneurial companies’ success has long been an important part of Alibaba Group’s globalization strategy. This investment will further expand Alibaba Group’s global footprint to India’s thriving mobile commerce market.” – Daniel Zhang, the CEO of Alibaba Group (10).
Sharma is well aware of Alibaba and Tencent’s successful business models. They revolved around two things, a data monopoly and a super-app, a fintech supermarket. Prominently, China does not allow foreigners to access its data. Moreover, WeChat and Alipay are so comprehensive based on many third-party apps that customers have no reason to go outside of the super-app.
It is also more sensible to follow in their footsteps and reasonable that India firewalled its consumers’ data. It is worth highlighting that today’s data has become the new oil (11).
Secondly, it would make sense that India build a clone to WeChat and Alipay as the future’s largest consumer market. And Paytm already has an aggregation of end-user data.
Alibaba and Tencent are two of the most valuable companies because of their business model in China. Ant Financial, formerly Alipay, a spin-off of Alibaba, was about to go public, and it could be one of the biggest IPO of all time.
The secret behind Ant’s success is leveraging its mammoth payment user base of a billion people to move into neighboring markets. For instance, it made mutual fund investment via the idle money in Alipay wallets. According to The Economist, they handled more than 16 trillion USD in the previous year (12).
Today, Ant’s most significant growth area in lending since they have so much real-time data about people and small business’s financial history that they can quickly gauge credit risk and assured repayment. It started with lending its own money, and now it serves as a broker for other lenders.
It is no surprise that Paytm is looking to follow suit. Their business models are similar. Paytm now also has its mutual fund offer, Paytm Money. Indian legislature does not allow it to become a loan supermarket; nevertheless, there are several opportunities for the company even as a credit bureau.
Challenges Ahead
Several things have hampered the unicorn’s plans. Google Pay has captured wallet share and mindshare in India and is now widely used. The wallet concept is also losing out to the UPI concept, where consumers can directly pay from their bank account.
People are also finding Google Pay easier to use, which is increasing its popularity. Like how Google became a verb, Google Pay is also becoming a proxy for contactless payment, especially for small retailers.
The COVID-19 pandemic has boosted the use of Google Pay since no one wants to deal with cash or cards as they can pass the infection.
“Google Pay has taken a comfortable lead in India’s payments over rivals like PhonePe, Amazon Pay, and a one-time market leader, Paytm. However, for Google, the up and coming to WhatsApp Pay may prove to be the real challenge.”
– The Business Insider (13).
Paytm is also forced to downplay its shareholding pattern due to the backlash against China amid the Ladakh standoff. Reportedly, people had consciously started to avoid Paytm when the Alibaba investment came in.
The entry of WhatsApp Pay and Jio Platforms into the super-app market would also disrupt things.
Paytm valuation is about 16 billion USD, and it has recently juggled its shareholding. The shareholding pattern was previously – Promoters One97 Communications; 38%, Alibaba Group; 42%, and Softbank; 20%. With the recent juggle – Ant Financial holds 29.7%, Softbank Vision Fund has 19.63%, SAIF Partners with 18.56%, Vijay Shekhar Sharma has 14.67%, Alibaba Group Holdings 7.18%, Berkshire Hathaway 2.76%, and other with remaining 7.49% (14).
Paytm has a capital infusion and a substantial dilution in the shareholding. The ownership of Alibaba Group, including Ant Financials, is about 37%. SAIF Partners, a spin-off of Softbank, holds 19% holding and has most of its operation in China.
SAIF could also be Chinese money coming in, but with Softbank’s recent troubles, there is no clarity whether the cash is Chinese or Japanese. However, it is not incorrect to assume that Chinese investors collectively own a controlling stake in Paytm.
It may attract the attention of regulators concerned about using Indian data by overseas firms, and it would be a continued headache for Paytm. As the Ladakh standoff continues, more babus have slowly become aware of the data value.
Jio Platforms who made alliances with Facebook and Google (15), tested WhatsApp-based demand-management and a POS for small businesses. It is a threat both in the consumer market and in the B2B market.
Battle Between Paytm and Google
In September 2020, Google Play had briefly unlisted the Paytm app for violating store terms and conditions (16). The giant re-listed the app shortly; however, the incident irritated Paytm. In this context, Paytm turned the miss-step of Google into an opportunity.
Additionally, in the same month, Google Play announced a worldwide rollout of a 30% distribution fee, which Apple has been charging for its App Store for a long time (17).
However, the outcry of Indian developers forced Google to make -turn and has held the fee rollout for Indian apps to March 2022 (18).
Regardless, it gave Paytm a chance to be the champion of app developers, and it announced a rival play store in India along with a fund of 10 crore INR to support its partners (19).
It was an excellent move from Paytm since it allowed the firm to hold the flag against the exploitative Big Tech from Silicon Valley and gather critical mass for the Indian play store.
The move had also brought up a critical question among market experts whether Paytm would move towards developing an app store like Apple and Google, a free distribution platform for apps on iOS and Android platforms, or making a closed wall garden like Alipay and WeChat.
However, with the recent development, the chances of the latter became higher. Moreover, it would be hard to compete against these well-established app stores due to their massive reach and brand names.
The latter is also a coup for the unicorn since it is becoming successful in locking the puzzle pieces with the launch of First Game. It is enabling itself, like Ant Financial, to create a dominant and must have super-app.
There are also higher chances that Jio and WhatsApp other plans, but Paytm surely deserve kudos for its high horse.
The All-in-One App
One97 Communications, Paytm’s parent company, has an e-commerce vertical Paytm Mall, gaming via Paytm First Games, Mutula funds via Paytm Money, entertainment from Paytm Insider, insurance operations via Paytm insurance booking, and a bank via Paytm Payments Bank.
As per sources, One97 communication as a whole has 700 to 800 million transactions. In 2019, Deepak Abbot, the former Senior VP of Paytm, stated that Paytm is emerging into a super-app that fills the users’ daily payment requirements (20).
“We have created Paytm as a super app that encompasses all their daily payment needs instantly.”
– Deepak Abbot, Former SVP of Paytm (21).
Many experts believe that the super-app won’t work in India (22), but Paytm is evolving into one by expanding its offerings.
“Given that India is not like China, in that it’s open to competition from the world, building a supper app was not the way to go forward. In a market with cheap 4G and good smartphones, the smartphone becomes the super app.” – Kavin Mittal, the Founder, and CEO of Hike (23).
Post-demonetization, Paytm observed a big boost not only in its transactions but also in valuation (24).
Vijay Shekhar Sharma already has two super apps in his pocket. It is not only in India but Japan as well. Sharma has built a digital payments firm PayPay with association from SoftBank and Yahoo in 2018 via a collaboration. Notably, Yahoo Japan had suspended its wallet and gave PayPay direct access to all its Yahoo wallet consumers (25).
Within ten months of its operation, Paypay bagged 10 million subscribers and has over more than 24 million users. As per Softbank, it processes more than 100 million transactions every month. In the quarterly earning presentation in December 2019, SoftBank had stated that PayPay is evolving into a marketing app from a payment tool (26).
Commanding Attention
While Paytm was expanding its services, several have questioned why Vijay bothers to diversify the app’s offering. His question is, why shouldn’t you? If one’s app is serving certain transactions or engagement in a day, he has a good shot at disrupting several businesses with fewer trades.
All companies want to gain more user attention as much as they can, according to Jayanth Kolla, the Founder, and partner of research and advisory firm Convergence Catalyst (27).
“This is similar to how cable networks such as Fox and Star have built various channels with a wide range of programming to create enough hooks for users to stick around. The plan for these apps is to hold people’s attention and monopolize a user’s activities on their mobile devices.”
– Jayanth Kolla (28).
He further added that higher engagement in an app would generate higher revenue from advertising.
And Sharma has agreed that payment is a moat. One can offer various services like content, entertainment, lifestyle, commerce, and financial services. He added that it is a business model, and payment alone can’t make you money.
Taking a Vital Step
Even though First Games is on track according to its profitability plan and working to meet its target, its primary focus is to expand its capacity.
The startup is making massive investments in technology and hiring a workforce to build Made-in-India games and find success worldwide.
“We need sharp people to build something for this countrymen! This country which we belong to”
– Vijay Shekhar Sharma, Founder, and CEO of Paytm (29).
In May, the company had stated that it has partnered with online Shopping marketplace Daraz to dip its toes in South Asia (30). The development came soon after it launched the gaming app in Bangladesh. It is now also focusing on entering Nepal, Myanmar, and Sri Lanka.
According to research by a New Delhi-based investment bank, Maple Capital Advisors, the online gaming segment is likely to reach the valuation of 3.75 billion by 2024 in India (31), and there is a tremendous growth potential for 400+ Indian gaming startups.
So far, the gaming industry has bagged more than 350 million USD investment in the past six years (32), and it would increase more in the upcoming years as space matures.
For Paytm, the opportunity is not with only increasing user base growth or generating additional revenue. It is also a vital step towards becoming the first super-app of the nation.
