Paytm’s wallet business: on a growth

trajectory or suicide mission?

Richa Agarwal and Sumedha Tuteja

Richa Agarwal is an Associate Background

Professor at the Department of
“Use Paytm” (Advertising slogan – “Paytm Karo”) has become a preferred catchphrase among
Human Resource
many major cities in India for making payments. Paytm is relentlessly working towards making
Management, Institute of
Management Studies
small payments simpler, faster, and most importantly cashless. This Noida-based company
Ghaziabad, Ghaziabad, India. essentially is known for its mobile wallet and e-commerce portal. However, the company has
Sumedha Tuteja is an Assistant also received permission from India’s central bank, the Reserve Bank of India (RBI), to become a
Professor at the Department of Payments Bank in early 2017.
Finance, Institute of
Management Studies
Ghaziabad, Ghaziabad, India. Journey of Paytm
Paytm is a digital payments and e-commerce platform that was launched by One97
Communications Limited (One97) in the year 2000. The company was founded by
Mr Vijay Shekhar Sharma. This company started as a mobile value-added service company
offering B2B solutions to its clients. It used to provide services such as business to business
services, developing content, messaging, and made to order network applications which were a
part of telecom operators mobile marketing offers.
Gradually, by 2009, the mobile world changed as smartphones became more accessible to the
common man, which in turn created several challenges. One97 Communication was thriving on the
mobile phone tunes that were downloaded by customers. These downloads were therefore a source
of revenue for the company as this service was charged through the telecom service providers of
customers. However, eventually the customers started using pirated services and the tune download
business on which One97 communications was growing started suffering (Rajan, 2012a).
Nevertheless, Paytm started with an optimistic outlook, eyeing the top-up and payments
business but it was a tough path as it had to change the consumer mindset toward a new
alternative for payments (refer Exhibit 1). The leadership of the company had been betting high on
the venture. Harinder Takhar, the former CEO of Paytm, in an interview mentioned about
Vijay Shekhar Sharma (Mint, 2013):
“Vijay would never let this (venture) fold”. He says there is no “give up (in business), just tweak
as you go”.

In 2010, the company began facilitating recharge[1] of mobile phone account balances commonly
known as “mobile phone recharge” or “top-ups.” At the time, internet connection time-outs were
a norm in India, because of which frustration of a disruption during a top-up transaction or a
movie-ticket purchase was growing. An office discussion about this problem led the One97 Team to
start thinking about ways to speed up the transaction process by eliminating the deterrents
Disclaimer. This case is written that redirected customers to the bank website for effecting payment (Puri et al., 2016). Out of that
solely for educational purposes
and is not intended to represent
conversation, the idea of Paytm was born and a new payment gateway was founded. Hence, the
successful or unsuccessful team realized that payments through smartphones would be easier than payments through banks’
managerial decision making. The cards. And, hence the company, Paytm, that stood for “Pay Through Mobile” was launched.
authors may have disguised
names; financial, and other
recognizable information to protect
The company, at that stage, ventured only into recharge services for topping up balances in the
confidentiality. mobile phones or direct-to-home television subscriptions. According to the company sources,

PAGE 112 j THE CASE JOURNAL j VOL. 14 NO. 1 2018, pp. 112-138, © Emerald Publishing Limited, ISSN 1544-9106 DOI 10.1108/TCJ-07-2017-0063
the first 100,000 app downloads were achieved without any advertising. For the first four months
of the official launch of the app, i.e., from August to November 2010, the company got traffic from
the text advertisements published in the IRCTC’s ticket confirmation e-mail (offering 5 percent
discount on recharges), through weekly contests on Facebook page of the app and through
word of mouth. Paytm also gave a nudge to its users by offering a free, month-long subscription
of jokes through Short Messaging Service on every recharge worth Rs100 or more
(Rajan, 2012a, b).
It also ran a friend referral program through which it started getting more than a hundred
referrals each day. In December 2010, the company started Google Ads with a nominal budget
of Rs10,000[2] per day and within a month the transactions on the app quadrupled
(Rajan, 2012b).
The founder, Vijay Shekhar Sharma, realized that a company can command market power
through a large user base. In an interview in 2011, he admits that he always saw Paytm as a
“customer data business” rather than a “content business” (Scroll.in, 2017a). He said:
We have this large mobile marketing piece, which is multiple types of customer communication
and upselling pieces come together. We base ourselves on massive analytics, and a large number
of data points that we enter into our databases every day. The customer knowledge know-how
is at the core of our business. If you see that, and build what all you could communicate
to the customer.

Eventually, in 2013, it realized that the country had more smartphones than credit cards.
Therefore, Paytm was the first portal in the country to launch an immediate mobile payment
service (IMPS). This service helped the users to establish a link between their bank accounts with
their phone number. The three-year-old company had acquired six million users by the year end!
It therefore got a special mention in the mBillionth Awards that are felicitated to the companies
that build sustainable business based on mobile technology (Mint, 2016).
By early 2014, Paytm launched its wallet service by seeking a license from the RBI. By December,
it had registered 20 million users and by July 2015 the tally reached to a 100 million users (refer
Exhibit 2; YourStory, 2015). In 2016, Paytm recorded one billion transactions which is a record in
itself for the industry. It had 147 million transacting users in the year 2016, two billion user
sessions, and 200 million unique visitors on the app and website (Trak.in, 2017).

In March 2016, Paytm entered into movie ticketing business. The business has surpassed the
gross merchandise value of Rs400 crore and is ready to face the market leader – BookMyShow in
this market (The Economic Times, 2017a). Paytm provides booking in over 3,500 screens across
over 550 cities in India. The company has now partnered with major multiplex players such as
PVR, Inox, Carnival, and Cinepolis in order to bring 3,000 more screens to its customers. By the
mid-2016, the Paytm wallet allowed the customers to pay for their mobile phones, Delhi Metro
Rail cards, utility bills, book bus tickets and movie tickets, pay admission fees for affiliated schools
and colleges, book amusement park tickets, and even make purchases through its e-commerce
website i.e., Paytm Mall (Sraman, 2016).

On November 8, 2016, our Prime Minister, Mr Narendra Modi announced that Rs500 and
Rs1,000 currency notes would no longer be recognized legally as currency, i.e., the legal tender
for these currency notes, was withdrawn with immediate effect. This surprise move nullified
86 percent of India’s currency, that evening (Shepard, 2016). And, soon the nation realized the
importance of digital payments. Paytm’s traffic spiked up by 435 percent, the app downloads
grew by 200 percent, and the transaction and transaction value increased by 250 percent
(Hindustan Times, 2017a). This was because of Paytm’s wide reach across 8.5 lakh stores, petrol
pumps, and in about 1200 cities in the country (Quartz India, 2016).

Since demonetization, Paytm registers 8.5 million transactions on a daily basis through its
platform and hence is confident that it would surpass the cumulative transaction volume through
cards (debit or credit cards) in India (Gadgets 360, 2017a). Demonetization certainly gave a
big push to Paytm’s user base. The CEO Mr Vijay Shekhar Sharma said:
We have seen a 5-fold increase in users in December-January and January-February, people who
have used it start to get hooked on and the network effect continues.

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 By April 2017, it registered processing of 1.5 billion transactions in the year 2016-2017 and this
fiscal year, it targets to support four billion transactions (Gadgets 360, 2017b). Paytm founder
and CEO Mr Vijay Shekhar Sharma asserts:
We have seen significant growth and this year too, we expect to see a manifold growth to 4.5 billion.
A significant part of this growth is coming from tier II and beyond cities.

Paytm has collaborated with a precious metals providers MMTC-PAMP[3] India, to sell digital
gold. Through this service, the customers can buy and sell 24-karat gold through Paytm.
They can make a purchase or sale worth as low as Rs1. The gold bought through Paytm would
be stored in lockers by MMTC-PAMP. Users also get home delivery of gold in the form of minted
coins or they just sell it online the next instant (VC Circle, 2017). Within six days of this launch,
Paytm boasted of selling over 30 kgs of gold through its electronic platform (The Economic
Times, 2017b).

Is the optimism justified?

But there is more than meets the eye. Major e-wallet players are growing on the back of doling out
cashbacks to its customers. However, such a marketing strategy is not sustainable in the long
run and eventually these players would have to come with a more practical business model.
Users adopting wallets due to cashbacks would eventually stop using them as soon as such
promotions are pulled out. Hence, these wallets would no longer be of any relevance to the
customers subsequently (refer Exhibit 3; The Economic Times, 2016a).
The CEO of Oxigen Wallet, Mr Ankur Saxena says:
Cashbacks have spoilt the users. As an industry, we thought it would make using wallets a habit.
Clearly that wasn’t the best move by any of us because during cashbacks you saw a sudden spike in
transactions. But without them, the number of transactions reduces to 2% of that figure.

There has been a considerable rivalry between banks and e-wallets in India. There have been
incidents where banks are not supporting payments through these new wallets. There have been
instances such as blocking of money transfer by ICICI Bank into Flipkart’s PhonePe or
SBI refusing to let its customers transact on Paytm for security reasons.
The payments through banks in India are based on cards that cannot facilitate peer-to-peer
payments and constitute merely 10 percent of the country’s 13 million retailers (The Economic
Times, 2017j). A survey conducted by a global asset management company, Sanford C.
Bernstein, finds that wallets are indeed going to make a dent in the banks’ payments business.
This is because more and more young customers are choosing to pay with wallets instead of their
credit or debit cards. Moreover, for merchants, it makes more sense to maintain good balance in
their Paytm Bank current account to avail payment services free of charge rather than pay a
transaction cost as high as 1.8 percent to the banks for card payments. An analyst at the
research division of Berstein claims that retailers in India are going to embrace payments through
Paytm once they are allowed to make deposits in Paytm Bank.
However, the Managing Director of HDFC Bank, Mr Aditya Puri does not feel that wallet
companies are a threat for his bank and says (Business Today, 2017a):
I think wallets have no future. There is not enough margin in the payment business for the wallets to
have a future […]. Wallets as a valid economic proposition is doubtful. There is no money in the
payments business. The current loss reported by market leader Paytm is Rs1,651 crore. You cannot
have a business that says pay a Rs500 bill and take Rs250 cash-back.

HDFC Bank is there to give a tough fight to Paytm and other wallet companies in this regard.
The Bank accounts for the credit card business as much as three of its closest competitors put
together. It has hired the services of a payment technology company, In-Solutions Global,
to provide an end-to-end merchant acquiring platform to take on to players like Paytm (Times of
India, 2017).

Paytm suffered a net loss of Rs1,549 crores in 2016, which was four times the loss it reported in
2015 (The Economic Times, 2016b). The reason for such a bad situation is the sudden spike in

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the expenditure on cashbacks, marketing expenses, and expenditure on discounts offered to
customers. The company’s revenues, however, rose from Rs210 crore in the year ending 2014
to Rs336 crore in 2015.

What is an e-wallet?
It is a virtual wallet service facilitated by certain service providers where the users can add money
and spend the same on the online or offline merchant sites. However, the merchants need
to be listed with these wallet companies. At the online site of the merchant, these wallets work
more or less like any other bank’s card for facilitating payment to the merchant. At the offline
merchants’ site, such a service is not only “cashless,” but it does not also require swiping of a
debit or credit card.

Types of wallets
In India, we have four types of wallets (Assocham India and RNCOS, 2016).
Open wallet: this wallet enables purchasing of goods and services, withdrawal of cash at ATMs or
banks, and transfer of funds. It also lets the customers send money to any mobile number or
bank account (e.g. M-Pesa service by Vodafone and ICICI).
Semi-open wallet: this facility lets the users transact with the merchants listed with the wallet
company. In such a wallet, the user cannot withdraw cash or initiate a refund. This means that the
customer needs to spend the amount it has loaded (e.g. Airtel Money).
Closed wallet: this wallet is issued by a merchant to buy goods and services specifically from that
merchant. Hence, in the event of a cancellation, the money is locked with the merchant
(e.g. Flipkart e-wallet).
Semi-closed wallet: it does not allow the user to withdraw cash but only, purchase goods and
services through its website or app from listed merchants (e.g. Paytm).

Competition
The Indian e-wallet industry faces keen domestic rivalry due to the emergence of so many
e-wallets in the e-commerce industry and “look alike” alternatives by the banking industry which is
also vying for this market. The emergence of new e-wallets brings low switching cost and strong
bargaining power by the customers. They face cut-throat competition among each other.
There are over 40 mobile wallet services active in the country and over the past four years, mobile
wallet transactions have jumped from Rs10 billions of transactions in 2012-2013 to more than
Rs490 billion in the year 2015-2016 with an exhilarating rate (refer Exhibit 4; Scroll.in, 2017b).
Paytm has taken the client procurement course by getting into the e-commerce zone
and is undermining to be at Flipkart, Amazon, and Snapdeal at their game. Freecharge got itself
a solid grapple trader in Snapdeal post its securing and is attempting to utilize that further
bolstering its good fortune. The current hypothesis is that possibly Flipkart will purchase
Freecharge.
Players like Ola taxis are going for client maintenance by propelling their own free wallets
(Ola Money). Such wallets guarantee 100 percent achievement rate for exchanges instead of
outsider wallets adjusted to your application. The other utility they have is for guardians – they can
energize wallets for their children and know the cash is not being spent somewhere else. Yet,
Ola taxis are likewise incurring losses.
Oxigen Wallet is attempting to use its tie-ups with 2,00,000 retail outlets in the nation to urge
clients to decide on its Oxigen Wallet for installments rather than money or platinum cards.
Freecharge, alongside presenting a Go card controlled by MasterCard, is attempting to present
elements like dynamic stick that progress at regular intervals, so as to make the checkout of
exchange significantly snappier.

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 Mobikwik has given good competition to Paytm and is one of the largest wallet companies in
India. The m-wallet operator intends to offer a range of financial services to its clients. Its main
source of income is through settlement of transactions through merchants, but through this
business, it aims to earn fee-based income from the sale of third-party products. With an aim to
become a “financial services supermarket.” Mobikwik plans to inject Rs300 crore for acquisition
of customers and merchants (Business Line, 2017). A consulting firm, TechSci Research,
claims that Paytm, ITZCash. and Mobikwik hold about 80 percent of the Indian wallet market
(Business Today, 2017b).
PayU Money is thinking of introducing inbuilt password for the app, again to avoid the One Time
Passwords and other separate login hassles, to reduce the layers in the transaction process.
The aim is to accomplish three things – reduce transaction time, make the transactions more
secure, and make them more convenient. It had bought Mumbai-based wallet player – Citrus
Pay – for $130 million (Rs865 crores) in September 2016. PayU India is targeting to achieve
$100 million by the end of fiscal year 2017-2018. If this target is achieved India would become the
largest market for this company (The Economic Times, 2017c).

Opportunities in Indian market

In this backdrop, potential opportunity lies in consumer payments industry (Singh, 2016)
(specifically wallets):
1. Tapping into the untapped market – according to data from RBI, India is the home to largest
number of unbanked families (more than 145 million). Potentially one of the largest bases to
capitalize on.
2. A focus on providing merchants with Multichannel Payment Services.
3. Payment through wallets using NFC, tokenization, biometrics – because mobile devices will
be a mainstream option for person-to-person or person-to-business payments.
4. Cryptocurrencies, e.g., Bitcoin, Litecoin, etc. (Total Market Cap: $3,880,950,327).
5. Developing solutions that are not payment solutions, but are touch payments – solutions for
merchant, gift, loyalty, data analytics, etc.
6. Financial inclusion – a wallet which can cater to this will definitely rule the Indian market.
7. Analytics solutions – Payments Transaction Data Analytics will be a major source of
payments-related revenue.
8. Remittances – remittances to developing countries to grow by 5 percent. (Annual domestic
remittance stood at $13 billion in 2010 and was expected to reach at $20.3 billion by 2014,
growing at a compounded annual rate of 12 percent).

Emerging trends in Indian wallet market

New players in the Indian wallet market
Amazon India. Amazon India has also obtained a license to operate a semi-closed
wallet – “Amazon Pay,” in India (Moneycontrol.com, 2017a). With this move Amazon plans to
give a tough competition to its rivals, i.e., Flipkart, Snapdeal, and Paytm. It intends to give
cashbacks through the wallet to its customers rather than cash discounts. It would be a
significant player to watch, as the transactions on this wallet are not restricted to those through
Amazon’s website alone. Therefore, it would compete directly with the digital wallets and
governments apps for digital payments.
Truecaller. The Swedish company, Truecaller has partnered with India’s largest private sector
bank, ICICI Bank, to launch a mobile payment service – “Truecaller Pay.” This service lets Android
(mobile phone software) users in India make payments through mobile phone. The company has
redesigned its Android application to venture into m-wallet space in India (Mint, 2017a).

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WhatsApp. In April 2017, it was rumored that the Facebook-owned messaging app, WhatsApp,
is interested in launching a Unified Payments Interface (UPI)-based payments service in the next
six months (Hindustan Times, 2017b). This is because WhatsApp had invited applications for
providing support for “Digital Transactions Lead, India” on its website. As of now the company
has not commented much on this, however, it expressed its interest in supporting the Indian
Government on the “Digital India” drive. If it enters into mobile payments business, it would be a
big threat for Paytm as WhatsApp has approximately 200 million users in India (The Financial
Times, 2017). However, the company is not having any plans to support payments to merchants,
whether online or offline at present.

UPI
UPI is not a wallet but a simplified application to access net banking, thus providing its users a
wallet like experience. In a digital wallet, the customer needs to have required amount in the
wallet, however, through UPI there is no need to load funds into apps beforehand. This is
because in UPI the funds are transferred directly from a customer’s bank account. RBI has
proposed to open up this platform for digital wallets so that money can be directly sent to such
wallets between the user and the merchants (The Economic Times, 2017d). Bhavik Vasa,
Chief Growth Officer at payment and wallet company ItzCash said:
This interoperability “will strengthen the business model of a wallet since the players will not need to
acquire both merchants and customers.”

However, if UPI becomes popular, it could pose a threat to the business of digital wallets.
This is because it would integrate various bank accounts and cards into one interface. Kotak
Mahindra Bank had launched its UPI app – Kay Pay – in October 2016. In less than three
weeks of its launch the app is boasting of 75,000 users (The Economic Times, 2017e).
Mr Deepak Sharma, Chief Digital Officer at Kotak Mahindra Bank says:
Why would you need a mobile wallet?

His point is that UPI provides a single, seamless, interoperable platform through which payments
can be done to a merchant or an individual directly from a bank account. Therefore, the utility of a
digital wallet ceases to exist.

IndiaQR
In February 2017, a new payment option – IndiaQR – has been launched. This service has been
jointly developed by Mastercard Inc., Visa, and Rupay. This is a quick response (QR) code
mandated by the government that would facilitate electronic payments at merchant outlets
without swiping of card or a POS (point-of-sales) machine. This service would allow banks to
simplify electronic payments at merchant’s outlets (Tech 2, 2017). IndiaQR would work across all
banks and would not lock the user to one payment network, which is the case with digital wallets.
Hence, Paytm needs to gear up to face competition from the banks, once this service becomes
popular. HDFC Bank has already planned investments to embrace IndiaQR to take on Paytm’s
share in payments (Gadgets 360, 2017a, b).

New RBI norms

The RBI has issued the “Master Directions on Issuance and Operations of Prepaid Payment
Instruments in India” that entails new guidelines for Prepaid Payment Instruments (PPI),
i.e. wallets, in March 2017 (RBI, 2017). Following rules have been laid out in the directive:
1. Interoperability has been allowed among PPIs as per this guideline, therefore now transfer
can affected directly between the wallets.
2. The minimum net worth for a company with wallet or any other PPI should be at least Rs25 crores.
This limit has been raised from Rs1 crore, making it difficult for small wallet companies to survive.
However, this limit is applicable only after 2020, hence, the wallets have time to look for investors
and build a long-term survival strategy.

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 3. All wallet accounts must complete Know Your Customer (KYC) within 60 days. This is a major
diversion from the earlier rule which exempted wallet accounts with balance less than 20,000
from any such verifications. The accounts that do not fulfill the KYC requirements would not
be able to add funds into the wallet, however, the client can use the money already stored
in the wallet (BGR, 2017).
4. The accounts thus verified through KYC would also be eligible for cross-border transactions,
i.e., the customer can use her Amazon Pay balance not only on Amazon.in but also on
Amazon.com (Gadgets 360, 2017c). Also, wallets can receive inward remittances under
this new diktat.
5. The companies providing wallets need to ensure that a separate login and password exists for
services other than wallet services. This ruling has been placed by the Central Bank to
underscore the importance of security and risk management in wallets. This means that there
would be a different login ID for a Paytm wallet and Paytm Mall. This decision comes in the way of
Paytm’s “integrated service offering” through one app. Second, RBI has mandated a two-factor
authentication even for transactions through these wallets. Thus, payments through wallets
would not be as convenient and swift as they used to be. In effect, wallets would not better than
any other payment solution, making it difficult for wallets to differentiate themselves from
payment experience through credit and debit cards, net banking, and mobile banking platforms.
6. The wallet providers need to specify a validity period of the wallet, with minimum validity of
one year from the date of activation. If the balance in wallet is zero for a year, the service
providers ought to close the same, after giving notice to the user. This directive would make it
difficult for the wallet companies to retain their user base.
7. Metro cards and other such prepaid instruments can also be used at the shops located on
the metro stations (i.e. the premises of the transit system). No KYC would be required for
such cards or instruments.

Paytm as a payment bank

In January 2017, Paytm received the license from RBI as a payments bank (The Economic Times,
2017f ). A payment bank can accept deposit up to Rs1 Lakh from individuals and small business
entities. Such banks can issue ATM or debit cards, however they cannot issue credit cards
(RBI, 2014). It can enable payments and remittances for its customers and even distribute simple
non-risk sharing financial products such as mutual funds or insurance products, however,
it cannot venture into lending activities. Such a bank is essentially like any other bank but operates
at a very small scale and does not assume any credit risk.
The Fintech firm would in effect transfer Paytm Wallet to this newly formed Payments Bank.
The wallet users would get an option to open an account with Paytm Bank and hence they can
open savings account to earn interest on the money deposited in the wallet (The Economic Times,
2017g). Paytm Bank, in turn, would invest this money deposited by wallet users into governments
deposits. Also, the Bank would earn non-interest income through cross-selling third-party products
such as mutual funds and insurance, etc. However, it is still not clear whether the company would
be able to make profits through these services (YourStory, 2017).

The money game

The Chinese e-commerce giant, Alibaba, has invested Rs1,180 crore ($177 million) in Paytm Mall –
Paytm’s e-commerce website – to get ready for a face-off with Amazon and Flipkart.
This investment has led to an increase in the stake of Alibaba and its affiliate Ant Financial from
40 percent to 62 percent. Singapore’s SAIF Partner has been an existing investor in Paytm, and
has injected some more funds into the company, making the total investment to $200 million
(Rs1,334 crores) (The Economic Times, 2017h). This investment has made Paytm’s e-commerce
unit as an Indian Unicorn[4]. Japan’s Softbank Corp Group is planning to invest $1.2-1.5 billion in
Paytm. This investment would reduce Alibaba’s control over the company and alleviate concerns of
the government about a Chinese firm having a major control in the company (Mint, 2017b).

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Paytm e-commerce aims to add about a billion products from all over the world before the festive
season in 2017. This is close to twice the number of products being sold on Amazon India and
approximately 20 times to those on Flipkart and Snapdeal (Business Standard, 2017).
While the attention of the market is on these e-commerce players, it is payment gateways that are
making money. This is why e-commerce companies such as Amazon and Flipkart are investing
heavily in the launch of its wallets (Moneycontrol.com, 2017b). Paytm revealed its plans in April
2017 for the investment of over Rs10,000 crores in the banking and financial services for the next
three years. These funds are going to be reserved only for Paytm Bank, its wallet service,
and allied financial services being offered by Paytm (The Hindu, 2017).

Is this business viable?

According to a valuation paper commissioned by the company and prepared by the audit and
consulting firm – Deloitte Haskins and Sells – the company claims to become operationally
profitable by 2019. As per the report, the value of a share of Paytm is Rs3,525. This report has
been issued in September 2016 on the request of Paytm’s holding company – One97
Communications. The report expects profits to the company to rise steeply after 2018
(India Today, 2016). Vijay Shekhar Sharma has shared with a popular newspaper daily – the
Times of India – that the company’s payments business has made profits on an operational basis.
According to Sharma, the company’s EBITDA (Earnings Before Interest, Taxes, Depreciation and
Amortization) became positive in 2015 itself. Paytm could boast of an annual gross merchandise
value or GMV of $3 billion in 2015. In all, 60 percent of this value has been derived from the
payments business. However, it is the e-commerce business that is responsible for the losses
(KnowStartUp, 2016). Although Paytm’s wallet business is much ahead of its peers, it still needs
to play carefully to maintain its position in the payments market. Also, the company needs to
decide whether enough is being done to mend its e-commerce business.
The picture is not clear, whether Paytm is following a steep growth trajectory or jumping into a
suicidal pit. Would Paytm be able to create value for its shareholders? In March 2017, Reliance
Capital has sold its stake in One97 Communications to Alibaba for an estimated amount of
Rs275 crores. If these numbers are correct, Reliance Capital has earned a profit of 2650 percent
or 27 times the initial investment, with this deal (The Economic Times, 2017i). The company had
invested Rs10 crores for a stake of 1.5 percent in One97 Communications in the year 2010.
According to the numbers indicated in this deal, Paytm’s valuation can be estimated as close to
$4.8 billion that is lesser only from Flipkart’s $5 billion mark (Firstpost, 2017). Another estimate,
basis three deals where stake was sold in March 2017, values Paytm up to $5.9 billion
(Mint, 2017c). However, the question still remains: is this value real or a delusion?

Notes
1. The term “recharge” means purchase of Airtime card or voucher from a prepaid telecom service provider.
It is also referred to as a “top-up” transaction.

2. Rs refers to Indian Rupee (INR) ¼ US$0.015 as on October 6, 2017.

3. MMTC-PAMP is a joint venture between a bullion refinery PAMP SA Switzerland and MMTC which is a
public sector undertaking in India.

4. Term for an unlisted company valued at over a billion dollars.

5. Indian Railways Catering and Tourism Corporation (IRCTC) is a subsidiary of Indian Railways that handles
online booking of train tickets in India.

References
Assocham India and RNCOS (2016), M-Wallet: Scenario Post Demonetisation, Assocham India, Delhi.
BGR (2017), “RBI’s new guidelines for wallet services: strict regulations, customer security, access to
interoperability, and more”, BGR Media, March 22, available at: www.bgr.in/news/rbis-new-guidelines-for-wallet-
services-strict-regulations-customer-security-access-to-interoperability-and-more/ (accessed May 12, 2017).

VOL. 14 NO. 1 2018 j THE CASE JOURNAL j PAGE 119

 Business Line (2017), “MobiKwik plans to be a ‘financial services supermarket’ ”, The Hindu Business Line,
March 2, available at: www.thehindubusinessline.com/money-and-banking/mobikwik-plans-to-be-a-
financial-services-supermarket/article9567899.ece (accessed May 9, 2017).

Business Standard (2017), “Paytm e-commerce becomes a unicorn with 200-million investment round”,
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Appendix
Exhibit 1

Figure A1 Paytm testing waters in the Indian payments market in 2013

Creating Need for m-payments

The payment of mobile
recharges and bill payments
Rs 50 Crores invested since was already happening through
last two years. In 2013, it retailers. Local Shopkeepers
has ventured into Immediate even gave credit to the
Mobile Payments Systems customers. Yet, by 2013 Paytm
Paytm was incubated from (IMPS) for Merchant Payments. has been successful in building
the parent company, Till September, it has processed a base of 100 million online
One97. It started as a 1 lakh transactions on a daily basis customers
payments solution The company is targeting to
provider mainly for mobile process One Million
recharges transactions daily

Sources: Adapted from Mint (2013) and YourStory (2013)

Exhibit 2

Figure A2 Paytm Wallet’s growing popularity

80% of
market share
in terms of
number of
No. of users users by
stood at 100 September
No. of users million in 2015
reached 20 July 2015
million by
December 2014
Paytm Wallet end
was launched
in January 2014

Source: YourStory (2015)

VOL. 14 NO. 1 2018 j THE CASE JOURNAL j PAGE 123

 Exhibit 3

Figure A3 Paytm’s deteriorating financials

Impact of Cashbacks
and Spendings Profit/Loss (in Rupees Crores)
200
5
0
FY14 FY15 FY16
Paytm founder’s salary –200

increased from 2.3 –400

crores per annum FY15 –372
to 3.1 crore in FY16 –600
despite losses
–800 Profit/Loss (in
Rupees Crores)
–1,000

Company’s marketing –1,200

policies which included high
amount of cash-backs were –1,400
draining its monetary
resources and added to –1,600 –1,549
decreasing financials –1,800

Source: The Economic Times (2016a)

Exhibit 4

Figure A4 Growing acceptance of digital wallets

Growth of different payment methods between 2014 and 2016 (%)

600
Credit cards Debit cards M-wallets
500
400
300
200
100
0
Number of transactions Value of transactions
Source: Scroll.in. (2017b)

Exhibit 5. Excerpts from Industry Report

Report on m-wallet: scenario post-demonetization by ASSOCHAM India and RNCOS
(Assocham India and RNCOS, 2016).

Industry drivers
Rise in mobile internet users
One of the major driving factors of Indian m-wallet market is the incline in the usage of mobile
internet. This is primarily because the telecom operators have reduced their service charges
due to extensive competition and introduction of new technologies. The 3G user base has

PAGE 124 j THE CASE JOURNAL j VOL. 14 NO. 1 2018

been growing significantly YOY since 2013, and mobile internet has become an affordable
service to many people in India as compared to early 2000s. By the end of June 2016, over
370 million mobile internet users are expected to get registered as per the statistics of the
Internet and Mobile Association of India.
According to the statistics, in 2012, India had 48 million active mobile internet users,
which increased to 91 million in 2013. According to our analysis, the number of mobile internet
users in India is expected to grow at a CAGR of 67 percent during the period 2016-2020,
as tariff rates for 2G and 3G are expected to lower down further with 4G mobile internet
hitting the market. Also, the telecom companies have started offering 4G internet at the
price of 3G internet, attracting more people to use faster internet services at very low
price (Figure A5).

Rise in usage of smartphones

According to IDC, smartphone shipments in India grew almost six times from 2012 to
2015 backed by decreasing handset prices and data plans tariffs, which consequently
increased penetration of smartphones in the last several years. The median price of handsets
has dropped significantly, making internet enabled devices affordable for the masses.
The entry of many Chinese smartphone manufacturers in India, for instance Xiaomi,
CoolPad, Vivo, Oppo, is resulting in lowering average selling price. The Indian market is
flooded with INR5,000-INR15,000 price range of smartphones, resulting into period of
feature-to-smartphone.
In the country of 1.3 billion people, mobile phone subscriptions in India have already reached
1 billion mark, according to the latest data by TRAI. The low cost of mobile data and free
accessibility to the internet via WiFi in many areas are fascinating smartphone users like never
before. In addition, expansion of 3G and 4G network coverage is further expected to boost
smartphone sales in the country. According to our analysis, the smartphone shipment has grown
at a CAGR of around 76 percent during the period 2010-2015.

Growth of e-commerce industry

Mobile payments are the backbone of an e-commerce industry. The e-commerce market in India
is growing at a rapid pace, as a result of growing smartphone and internet penetration.
E-commerce companies are making strategic acquisitions to expand their market presence,
enter newer markets and niche segments.

Figure A5 Mobile internet subscriber (million), 2012-2016

371

238

137
91
48

2012 2013 2014 2015 2016e

Note: e = IAMAI estimation year ending June
Source: Internet and Mobile Association of India
(IAMAI)

VOL. 14 NO. 1 2018 j THE CASE JOURNAL j PAGE 125

 Also, few e-commerce companies operate only through mobile application and do not have
web presence, which require only m-payment. E-payments and mobile wallets are getting more
popular among the youth in the country. The RBI is also working toward making India a
cashless economy, and to bring in accountability and transparency in each financial
transaction. Therefore, m-wallet is gaining importance with the growth of e-commerce industry.
Almost all the e-tailing players in the Indian context have tied up with one or more m-wallet
companies to attract customers with huge discounts and cashbacks, when paying through
these wallets.
However, cash on delivery (COD) is still a pertinent part of the e-tailing business. Therefore, both
the e-commerce companies as well as m-wallet companies should take certain steps to change
the trend of COD in the country.
According to industry experts, nearly 60-65 percent of the total e-commerce sales are being
generated by mobile devices and tablets in India, which is approximately 50 percent increase as
compared to the corresponding figure in 2014, and the same trend is expected to follow in future.
The value of the e-commerce industry in India was US$23 billion in 2015, and is estimated to
reach US$38 billion by the end of 2016 (Figure A6).

Huge benefits at online and offline stores

The major growth driver of m-wallet market is the availability of huge cashbacks and discount,
which is attracting customers rapidly. As Indians have tendency to save, they are easily
attracted by the coupons, discounts or cashbacks that allow them to spend less.
M-wallet in India allows users to get minimum 5 percent discount, and cashback ranges
from INR100-500 on shopping at their merchant outlets. This benefit can be availed at online as
well as offline stores. These m-wallet companies expand their customer base by offering
exciting discounts and offers; also, they are increasing their number of merchant tie-ups to
capture the market share.
For instance, Flipkart, an e-commerce leader gives 10-20 percent discount on a transaction,
if a payment is done through m-wallet. Also, cab companies provide free ride or maximum
INR500 off on registering with the m-wallet service. For instance, OLA cabs provide INR500
free ride coupon, if the payment is made through Ola wallet. Paytm gives huge discount on
movie tickets, if the booking is done through BookMyShow and payment is done through the
Paytm wallet.
Many people in India have started utilizing credit card and m-payment services in light
of the presence of various coupon companies offering deals on every transaction a user
makes. This is a major reason why m-wallet companies in India, aggressively offer discount
coupons to attract more customers to utilize their services and build the trust factor with

Figure A6 Smartphone shipments (million), 2010-2015

102.0

81.7

27.8
16.3
11.2
6.0

2010 2011 2012 2013 2014 2015

Source: International Data Corporation (IDC)

PAGE 126 j THE CASE JOURNAL j VOL. 14 NO. 1 2018

the consumers. Moreover, with the dramatic increase in the number of mobile internet users in
India, m-wallet platforms are proffering new deals everyday to survive in this highly
consolidated market.

Ease and convenience

Convenience and ease of doing the transaction are the key growth drivers of the Indian m-wallet
market. Mobile wallets obliterate the need to carry physical wallets while on the go; they ensure
more security than cards or carrying cash, especially when traveling. Mobile wallet users enjoy
greater flexibility in making secure payments. The convenience of making payments on the go,
and easy accessibility of this new mode of payment makes it a coherent and natural choice.
Additionally, those who do not have a credit card or a debit card can go to their nearest wallet
recharge kiosk and get their wallets loaded against cash. These wallets do not require KYC
formalities; therefore, anyone can register and use mobile wallet, and avail banking services such
as transfer of money from wallet to wallet and wallet to bank account.
M-wallet users can pay their utility bills, insurance premium, and can recharge their metro cards
with just one click from anywhere. They do not have to go the government offices or to the
merchants for paying bills and wasting their time. Also, they get discounts and cashbacks along
with the cited benefits.

Industry roadblocks
Consumer mindset
Mobile wallet is a recent phenomenon, not many people are aware about this service in India.
The consumer’s mindset is the biggest factor that hinders the growth of Indian m-wallet market,
as they are more skeptical about the safety and security issues as in the case of internet banking.
Users worry that their devices could be hacked or attacked by some kind of viruses. Also, often
people complains that their money has been debited but the transaction got declined while
transacting via mobile, and to avoid such problems users keep themselves away from using
mobile wallet-related services.
Privacy is another issue related to the growth of m-wallet industry. For all kind of monetary transactions
or other services one need to disclose his identity, which at times creates a huge problem for the
customer. Hackers hack the security or wireless transmission and obtain all the information related to
the customer, which may be related to the social or financial matter of a customer.

Competition from debit/credit cards

Mobile wallets still face tough competition from debit or credit cards in India, as these cards have
several advantages over m-wallets. M-wallets allow limited amount of money transfers from wallet
to wallet or wallet to bank, which is not the case while transacting from debit or credit cards.
Therefore, these wallets are not suitable for higher purchases, for example buying a laptop or a
mobile. Also, only a limited amount can be transacted in a single transaction while using
m-wallets. For example: Oxigen allows maximum amount that can be transacted in a month is
INR10,000 or INR10,000 in single transaction, whereas Paytm daily upper limit for wallet to bank
account transactions is INR5,000 and the monthly limit is INR25,000.
Therefore, m-wallets tend to handle low-value, high-frequency transactions, with the average
value per transaction being INR320.94 in FY 2015. This is largely down to such wallets not
requiring authentication for low-value transactions, making payment swift and easy. In contrast,
credit and debit card transactions tend to be larger, with value per transaction during FY 2015
equating to INR3,087.44 and INR1,501.68, respectively.

Compatibility issues
M-wallet apps are not made for all types of mobile phones; some m-wallets are compatible
only with one or two operating systems. For example, HDFC zappy m-wallet does not work

VOL. 14 NO. 1 2018 j THE CASE JOURNAL j PAGE 127

 with Windows or IOS operating systems, it is meant only for Android users. Therefore,
if a windows operating system user wishes to download HDFC zappy on his phone, then he
will not be able to use it. He would have to switch either to android smartphone or to any other
m-wallet app.
Also, the services offered by Oxigen are compatible with the App Store ( for iOS) and Google Play
( for Android), while leaving a strong competitor Windows. Thus, Oxigen has lesser users than its
competitor wallets. The current demands of consumers look for variable options and overall
compatibility of such services, where Oxigen may lack a bit.

Corresponding author
Sumedha Tuteja can be contacted at: [email protected]

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