Money talks… from a mobile phone


December 12, 2014

Rashmi Pratap, The Hindu Businessline

Mumbai, 12 December 2014

Vinay Singh does not own a debit or credit card, nor does anyone in his family, which has lived for four generations in Bihar’s Gaya district. Yet, they regularly shop online from Homeshop18 and Naaptol. Even their holiday hotel bookings are done online, again without internet banking or cards. Singh instead has a mobile wallet from Paytm, which allows him to load cash on his mobile phone through a nearby mobile retailer or ATM and use it for all his online transactions.

In the recent case where a customer of Uber’s car-sharing service was allegedly raped by the driver, Paytm helped Delhi Police close in on the accused. As Uber riders can only pay through Paytm under RBI guidelines for credit card use, the police downloaded the Uber app and Paytm wallet, booked a cab and directed the driver to take them to Uber’s office in Gurgaon. This was a neat ploy to track down the office, whose physical address remained unknown until then.

This new world of mobile wallets is expected to become a $20.4-billion business by the end of the year, according to a joint study by the Internet and Mobile Association of India, Payments Council of India and IMRB.

Besides loading cash, users can also sync their credit or debit card with Paytm’s mobile wallet and avoid having to punch in confidential card details during an online transaction. Several companies including PayU, CCAvenue, among others offer mobile payment services, but Paytm is different as it has its own mobile marketplace, which brings it into the league of Snapdeal and Shopclues.

Card-free shopping

“When smartphones came, people wanted to shop online and operator wallet (payment through mobile operator) was not allowed. We saw that gap and created Paytm in 2011 to build an online payment option for the masses,” says Vijay Shekhar Sharma, founder and CEO of Paytm. Short for ‘pay through mobile’, Paytm is the consumer brand of mobile internet company One97 Communications, whose investors include SAIF Partners, Intel Capital and SAP Ventures, among others.

Paytm began by offering payment services for utility bills and mobile recharges. It has expanded through tie-ups with companies since January this year, after the RBI gave its nod for mobile wallets. Shoppers can store cash on mobile phones for payments to a whole lot of retailers from Myntra to Zovi and Fabfurnish to Yepme.

“If you are on an online shopping site, Paytm gets your card details pre-filled and you just have to add your CVV number. The card details are only with us and not with any of the merchants,” says Sharma.

Paytm also takes care of any reversal of transaction. And if any merchant fails to fulfil obligations, Paytm blocks the merchant and the payment. Over 22 million have used Paytm since January, making it one of the largest mobile commerce companies.

Customers love it

Online furniture retailer Fabfurnish has witnessed this growth first-hand. “Paytm offers buyers incentives like cash-back and additional discounts. It also makes payment much more convenient. Tying with them leads to greater sales for merchants like us,” says Reeju Dutta, CRM manager of Fabfurnish.

At Fabfurnish, the number of transactions through Paytm has increased 10 times in the last six months. “Paytm drives a certain number of sales and revenues. Even though the order value may not be too high, the number of transactions through Paytm is relatively higher, making it very important for us,” Dutta explains.

Ditto for Homeshop18. Vikrant Khanna, its COO – TV Business, says: “Within a month of our partnership, 10 per cent of our online paying customers adopted this wallet service. It also gave us access to over 10 million Paytm customers and saw referral traffic.”

Currently, 12 per cent of Homeshop18’s online paying customers uses Paytm. “We are looking at launching Paytm option on all our mobile platforms next year and expect to grow by 50 per cent every month after that,” Khanna adds.

Paytm users can load their mobile wallets with cash from banks, retailers and ATMs. “We are in talks with some large nationalised banks for tie-ups. And on the retail front, we want to see that any place where a phone can be charged can also load money into a Paytm wallet,” says Sharma. He expects one million such outlets in the next three years.

Already, 16 million Paytm wallets have been created since January and the company has seen a Rs. 3,500-crore annual run rate of transactions. “Consumers have accepted us wholeheartedly. Our wallet users are growing at more than 40 per cent every month, while transactions are growing at more than 20 per cent,” he adds.

Forget cash-on-delivery

This growth for Paytm is driven by online services such as food delivery, cinema ticket bookings, travel bookings and so on. “These services typically don’t accept cash on delivery, but users want to book with assurance. We are an answer for businesses that don’t accept cash during delivery. We are an alternative to cash-on-delivery,” says Sharma. India’s e-commerce boom was primarily driven by cash-on-delivery, but Sharma believes the next wave of services including taxis and medical appointments will grow with mobile e-commerce. “But unlike e-commerce, we don’t require logistics.”

According to a study by Accel India, the number of cash-on-delivery transactions in India will drop from 60 per cent in 2013 to 50 per cent by 2016. And the share of third-party wallets such as Paytm will rise 7 per cent. Third-party wallets, despite being a new phenomenon, have a strong value proposition and will become popular quickly, just like in China. They will become a significant alternative to cash-on-delivery, the study says.

Khanna says additional factors such as greater adoption of mobile payment technology, high penetration of mobile internet and a strong demographic dividend will see young India increasingly favouring quicker, safer and convenient payment options.

Gateway to the market

Encouraged by the growing number of merchants and customers opting for Paytm, the company set up its marketplace in February. This is basically a common platform where customers and merchants can discover each other. “We are like the checkout aisle where you can pick up things on the way out,” says Sharma, adding, “we were getting traffic as we were sorting payments. So we began offering an opportunity to merchants to have their catalogue discovered.”

Globally, too, payment gateways and marketplaces have been linked — eBay and Paypal, and Alibaba with Taobao, for instance. “All marketplaces in the world are successful as they control payment to the merchant. Otherwise, you are an inventory owner and can’t control the experience of the customer and you can’t create trust. This is our fundamental understanding,” Sharma adds.

Paytm currently features a staggering 3.5 million products and over 10,000 merchants in its marketplace. “We will be the fastest to reach a million merchants in the next two years,” says Sharma.

As a marketplace, Paytm does not hold inventory. In contrast, the e-tailer owns the products in inventory-led models. “We don’t store goods but offer logistics to merchants through our cloud service,” says Sharma. Instead of big courier companies, Paytm has tied up with multiple smaller players in every location, allowing it to deliver to 20,000 pin codes across the country.

Double business

With nearly $30 million invested so far, Paytm is currently raising more money. “No other e-commerce company is using our model. There are independent payment companies such as CCAvenue and Airtel Money, while the marketplace model has Shopclues and Snapdeal. But nobody has this combination of payment+marketplace,” says Sharma.

This model, however, is not an easy one. Flipkart would know. It launched the payment gateway PayZippy in July 2013 only to shut it down a year later for want of traffic. Flipkart then tied up with payment gateway ngpay.

Devangshu Dutta, chief executive at consultancy firm Third Eyesight, says a payment gateway-cum-marketplace eases two pain points for merchants — acquiring customers and handling the payment transactions. “And, in theory, that’s something which can be delivered by the same company. But in practice, the skill sets and mindsets required are different.”

In the payment space, any company’s aim is to drive down the transaction cost, while the marketplace seeks to acquire customers, drive sales volume, drive conversion (visitors into buyers) and increase transaction value as well, he explains.

“There is nothing to say that the same company cannot execute it. But given that the marketplace model is undergoing significant changes and seeing a lot of action and competition (Amazon and Snapdeal are investing billions of dollars), it does need phenomenal execution ability to compete in that space,” Dutta adds.

Considering its dream run so far, Paytm will be hoping to ride the two boats simultaneously and successfully.

(Published in The Hindu Businessline)