What does Paytm do?

Paytm is best known as a mobile payments provider but it also offers a wide range of financial services from consumer banking and ecommerce to merchant payments. Paytm has India's answer to China's WeChat and Alipay — a super app that spans a range of consumer services. While not as fully developed as those companies, Paytm looks to be rolling out more and more features for consumers.

Paytm is capitalizing on the strength of mobile and internet use in India and the growth of the country's middle class. India added more than 500 million new smartphone users over the past decade and is expected to have 1 billion internet users by 2026.

Launched in 2009, Paytm now has 333 million consumers and 21 million merchants using its services.

Paytm offers mobile banking for consumers and businesses through Paytm Payments Bank, which it owns 49% of, including savings accounts and debit cards. Paytm also lends through partners, providing 1.4 million loans in the 2021 fiscal year. It also offers co-branded credit cards and "buy now, pay later" retail loans.

In its core payments sector, Paytm has bill payment, mobile top-up, money transfer and Paytm Wallet contactless payments. In ecommerce, the Paytm super app sells movie and travel tickets and offers online games. It even sells insurance polices and gold.

On the merchant side, it has tools for in-store and in-person commerce: a payments gateway, bill payment, QR-code payments and point-of-sale software and hardware.

Paytm's financials

Paytm's revenue dropped 14.6% to $375.7 million in the 12 months that ended in March, its 2021 fiscal year. Its consolidated net loss also dropped to $227.4 million in fiscal 2021 from $381 million in the 2020 fiscal year.

Paytm said that it expects to "continue to incur net losses for the foreseeable future and we may not achieve or maintain profitability in the future."

"Lockdowns imposed as a result of the pandemic impacted our operations, in particular our commerce and cloud business," the company wrote in its filing. Its commerce and cloud revenue dropped 38% from fiscal 2021 to fiscal 2020, as India reeled from a surging pandemic. Travel, movies and event sales were heavily affected. As India eased its lockdowns, the value of the transactions it processed bounced back.

What could go wrong?

Paytm faces two significant risks: competition against market-dominant tech firms and access to digital ecosystems.

India's digital economy is defined by its giants, and these companies will likely use their dominance to squeeze Paytm's mobile payments market share.

• In the summer of 2020, the militaries of India and China faced off at their border, resulting in the death of 20 Indian troops. Though tensions had been simmering between the two nations, the border skirmish represented a tipping point, sparking anti-China sentiments within India. Ultimately, India's government took measures to limit the presence of China-based tech firms in India.
• This anti-China regulation turned out to be a gift to U.S.-based tech giants vying for a slice of India's massive digital market. Firms like Facebook and Google have upped their investment in India in recent years, which will help them bolster already dominant market positions.
• The danger for Paytm is that it's competing against super apps controlled by these tech giants. And making matters worse, the tech giants have bet on a different super app: Facebook and Google both invested in Jio, a telecom unit of an industrial conglomerate owned by India's richest man. Jio is working with Facebook to create a super app for the Indian market that would combine ecommerce, payments, gaming and messaging. Oh, and Facebook also happens to own WhatsApp, which is already the dominant messaging service in India.
• Paytm alludes to this dynamic in its IPO filing: "We compete with domestic and international companies and some of these companies have greater financial resources and substantially larger bases of consumers than we do, which may provide them with significant competitive advantages."
• It adds that these competitors could "devote greater resources to the development, promotion, and sale of services, and they may offer lower prices or more effectively introduce their own innovative services that adversely impact our growth."

As part of this battle, Paytm is in a fierce competition against at least three other major groups for licenses from the Reserve Bank of India as "new umbrella entities" as part of a new Indian payments network.

• Other reported bidders include a Google/Facebook group, an Amazon group and one from Tata Group.
• Paytm confirmed in its IPO filing that it is working with Foster Payment Network on its new umbrella license.

The problem of competing against tech giants goes beyond winning over customers — it's also about access. It notes that restrictions on app marketplaces could affect its mobile app usage:

• "In addition, we rely on app marketplaces to drive downloads of our mobile app. App marketplaces regularly make changes to their marketplaces, and those changes may make access to our services more difficult. In the event that it is difficult for our merchants to access and use our products and services, our business may be materially and adversely affected."
• Google briefly banned Paytm from its Android app store over the inclusion of fantasy sports in its super app, which Google said violated a prohibition on gambling.
• Paytm also highlighted its dependence on social networks and search engines — which are largely controlled by American tech giants in the Indian market.

Who gets rich?

China's Ant Group holds 29.6% of Paytm's pre-IPO shares. SAIF Partners, now known as Elevation Capital and which has been investing in India for 19 years, holds 18.5%. SAIF invested in Paytm's Series A, according to PitchBook. China's Alibaba holds 7.2%. Warren Buffet's Berkshire Hathaway owns 2.8% of shares. SoftBank Vision Fund holds 1.3%.

The most surprising name on this list is probably Berkshire Hathaway, which is not known as a tech investor—it could make a tidy 60% gain on its investment in just three years.

What people are saying

"This is the right time to do an IPO because the competition is rising fast and that preference for Paytm is declining; the IPO could make the difference for them to compete." — Neil Shah, technology analyst, Counterpoint, to the Financial Times in June

"Paytm has come a long way from a simple digital wallet business to an integrated payments ecosystem. We believe the next stage of growth will be led by financial services, particularly delivering seamless credit tech products to consumers and merchants." — Bernstein analysts in a report (via the Economic Times)

"Paytm's various businesses ranging from insurance broking to e-commerce, have not added much to revenue. Beyond its core product of payments, it hasn't really made a wave." — Mint deputy editor Aparna Iyer