Seven and a half years after it was first launched as a payment platform – at a conference which was more of “home” for One97, a mobile VAS company, than a payments business – Paytm is now a payments bank. Paytm began as a payments platform for enterprises: for online commerce companies and telecom operators. A comment on MediaNama on that launch story puts it into perspective:

“Guys stop looking to download this application. PayTM is not a product which will directly interact with down line customers but this is a product for enterprise companies and telecom operators to use One97 PayTM payment gateway for their services.”

The man who introduced Paytm then, Rajiv Madhok, is no longer with the company, leaving in what was a fairly bitter fallout.

Much has changed over the last seven and half years. 2009 was a year when the independent payments industry was more or less written off: just a year prior to the launch of Paytm, the Reserve Bank of India had pulled the rug from under payments companies like M-chek, Obopay, NGPay and Paymate (as well as the one-that-never-relaunched: Times of India’s Wallet365), by issuing Mobile Banking guidelines, which made payment companies dependent on whims of the industry that the RBI protects: the banks.

Things change

However, policy change is often incremental. The opportunity really was created when the RBI began looking at regulating cash cards in 2008; it eventually issued licenses in 2010 (there’s an old list of licensees here; and by the way, Paymate did get a wallets license), and in 2012, allowed 100% FDI in wallets, before issuing guidelines for Payments Banks in 2014.

Changes in company strategy was also incremental. What began as an enterprise payment service (more of a payment gateway) for telecom operators in 2009, became a commerce service, became a largely recharge service (copying what RechargeItNow was doing), then a recharge service with a wallet license (2013), added an ecommerce marketplace (2014), hived it off (2016), after getting the Payments Bank license (2015), before getting the approval.

Talk to any old (or ex) Paytm employee, and they’ll tell you that while One97 founder Vijay Shekhar Sharma had wanted Paytm to ride the ecommerce wave, the idea of focusing on the payments business was that of its first CEO: Harinder Takhar. Takhar now lives in Canada, running Paytm Labs. Sharma, though, has one key ingredient: ambition. He has gone from wanting to build a billion dollar valuation business, to now building a 100 billion dollar valuation business.

The moat

If there’s one thread that remains constant in this series of changes over the years, it is that of user acquisition. What happened with Wallet365 all those years ago was that they just didn’t have enough users for the Reserve Bank of India to take them seriously.

Think about it this way: it’s because Ola and Uber have a large user base that guidelines are being created for aggregators. It is because Flipkart has a large user base that it wasn’t shut down outright for operating in what it called was a grey area.

A large user base gives companies leverage, and Paytm/One97 has always been focused on access to users. When One97 was only a Mobile VAS business, Vijay Shekhar Sharma chose to largely stay away from the “content business”, and instead, focused on acquiring users for content creators and licensees. Sharma always saw it as a customer data business, telling us in 2011:

  “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.”  

Access to the customer, and ownership of customer data, is something that Kunal Bahl, CEO of Paytm’s rival Snapdeal also values. I remember him mentioning that his business is a data and marketing business, when Snapdeal was a Groupon clone; the data and customer relationships have allowed Snapdeal to pivot to ecommerce, just as it has allowed Paytm to do so as well. To quote Sharma again, from that 2011 interview, when One97 raised money from SAP Ventures: “…you make money because the number of companies want to access the consumer [on] your platform, or the number of consumers want to transact using your platform, or a number of consumers want to shop from you.” Five years later, at an event: “In the beginning technology companies first get users, and then start monetizing after building a moat.”

An old paytm logo.

A large customer base is a big moat; a loyal customer base even more so. Paytm’s focus, prior to even Takhar joining, was building scale with the recharge business, and marketing it primarily on Radio, but also online and at offline events. Paytm took what was a business for RechargeItNow, and burnt money converting it into a pure user acquisition play. The same philosophy was in play, when Freecharge decided that it’s a marketing company, not a recharge company.

Funding from Alibaba raised Paytm’s conservative approach to ad spending on radio changed, as it took to TV, print, and more visibly sponsorship of the Indian Cricket Team and matches in India for four years, starting 2015, for Rs 203.28 crore. Nothing gives visibility like Cricket does.

To quote Sharma during the launch of the company’s ill fated virtual PoS: “We’re investing more in digitization than the government is. No one is investing as much as we are in keeping the media… (running). By we, I mean the startup industry”, and “We don’t look at P&L loss, but we look at cash-flow. We always have cash in our bank. Right now what we’re spending will allow us to spend at the current pace. With the bank, we’ll have new revenue line items. We are acquiring consumers. We believe the payments bank will make money in the next two years. I don’t think we have an obligation to make money for the next two years. Once people switch, we will reap our dividends in the long term, not short term.”

The Role of Cashbacks

Once it got the wallet license from the RBI, the easiest way of retaining customers was to give cashbacks: it ensured that at least some of the users, for whom wallets were created, came back and used the money. Cashbacks plus wallet solved a problem that ecommerce companies failed to: people bought from the ecommerce company where they got maximum discount and they often went back only when the discount on their next purchase was right.

Cashbacks to a wallet ensured that the money was used on the same site, so at least Paytm got the promise of two transactions out of each transaction. This allowed it to build GMV (even if largely for recharges). Cashbacks on recharges – with millions recharging their mobile balance because of a simple interface and great product – ensured that million of wallets would have been created. How many wallets were created just by giving cashbacks? We don’t know. How many wallets exist with cashback money unutilised? We don’t know, but we do have a sense, from the latest data released by Paytm, that around 30 million wallets were unutilised during 2016. We don’t have data for the two years leading up to 2016. Dormant wallet users will end up not getting transferred to the Payments Bank, but they’ve done their job.


While there’s no transparency from the Reserve Bank of India on why some applicants were given a Payments Bank License and others not, I would hazard a guess that a substantially large, demonstrable, wallet user base played an important part. In the same way, while some merchants might say that they don’t know what the Paytm sticker on their store is about, the claim of 1 million merchants, and the fact that during demonetization, Paytm kept showing up on TV everywhere, impacts how everyone thinks about it: it is perhaps too big for policy makers to ignore as well. As it enters the Payments Bank business, it will find itself a little hamstrung against full-fledged banks and the control they exert over payments via NPCI. Payments Banks have limitations:

Paytm’s primary weapon, once gain, will be velocity of growth, and the acquisition of users and merchants, for each of its business lines. Like I mentioned earlier, policy change is incremental: maybe five or ten years down the line, payment banks will become full-fledged banks.

The question that the RBI is yet to answer, though, is what will become of wallets. Paytm has found its way out. What will wallets do?

An aside: the funny part about the evolution of Paytm is the number of times its logo has changed, with color tweaks, and the way edges have changed far too frequently, while it has gone from being PayTM to paytm. So Paypal suing the company for allegedly copying its logo is probably not going to hold.

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