From Breakingviews: India's Paytm is delivering decent growth as it slashes marketing costs. Unlike its Chinese backer Ant, the fintech company is well set to expand rapidly in financial services without a rude regulatory shock, writes ugalani
The prospectus confirms Paytm’s reach. It shot to prominence during a 2016 banknote ban and now serves 333 million consumers and 21 million merchants. Paytm allows users to send money to friends, settle bills, buy groceries, book tickets and open a bank account. They can also tap wealth management products and, through the company’s financial partners, borrow money. Paytm earns most of its revenue from charging fees and commissions to merchants.
Its net loss shrank an impressive 42% in the year to March even though operating revenue contracted over 10% as a pandemic-induced slowdown weighed on its commerce business. Paytm grew gross merchandise value of payments to merchants by a 33% compound annual growth rate in the past two full financial years despite slashing marketing and promotional expenses by a much higher percentage. Scale has helped reduce its payment processing bill, and more customers are using two or more of its services.
It’s a glimpse at a powerful network effect. Research firm Bernstein calculates Paytm has higher revenue for each of its monthly active users than competitors; rivals include Google’s G-Pay and Walmart’s PhonePe, which have grabbed payments market share riding on India’s free-to-use government-backed digital infrastructure. Paytm offers a bigger range of products like e-wallets which are easier to monetise, and uses payments as a hook to sell higher fee-earning services.
Still, justifying its mooted $25 billion market value would require Paytm to trade at more than twice Visa
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