Paytm struck when the iron was hot. At 8 pm, on November 8, 2016, Prime Minister Narendra Modi set the cat among pigeons by banning the old Rs 500 and Rs 1000 currency notes thus withdrawing as much as 86 percent of cash from circulation. In the absence of a concrete remonetisation plan that was the undoing of the demonetisation move together with wiggle room for crooks to get rid of the banned notes, Paytm stepped into the breach. Its mobile wallet captured the hearts and minds of both merchants including itinerant street vendors and consumers alike.
Paytm’s market share in overall mobile payments transactions is about 40 percent; in addition, it has a market share of 65 to 70 percent in wallet payments transactions, according to RedSeer
Banks in India were guilty of not seeing the writing on the wall. They should have discerned consumer reluctance if not resistance to fishing out debit/credit cards from their purse in an era where one’s mobile phone was and is an all-purpose device that performs multiple functions—phone, chatting, camera and a host of other functions including payment to retailers one needs to perform in the humdrum of day-to-day life. Of course, the RBI
promoted NPCI’s UPI that it had launched as a pilot project with 21 banks on April 11, 2016, has vicariously acted for the banking system in the country thus proving that the Paytm model is exactly not a rocket science and has alternatives.
That the domestic mutual funds cumulatively bid for merely 348,828 shares out of the 48.4 million on offer to investors made by Paytm
is revealing in this context. This was one of the lowest participation from mutual funds in an IPO in recent memory. Their marked reluctance had a lot to do with Paytm spreading itself thin by venturing into share broking, online retail and insurance to name a few thus giving the game away—it was not sure of its numero uno position in the mobile wallet business. Besides, the issue was valued at close to 50 times its previous year’s revenue, which made it more expensive than many of its international peers.
Its flagship mobile wallet segment earns money through transaction fees and take-rates charged to merchants based on the percentage of GMV, which is a key revenue driver for the company. It also charges customers convenience fees
. Both these are paid under sufferance. In fact, people are sulking at the audacity of merchants including IRCTC
and Airlines charging a convenience fee. It is also not uncommon for Ola
drivers to chafe and crib at their fare being pared down by 26 percent that they have to pay to the ride apps.
Domestic mutual funds in addition have a score to settle with Paytm what with most of them being promoted by banks. How can they prop up someone who ensnared business that should have gone to banks if only they were a little futuristic and proactive? In fact, it shouldn’t be too much for banks to offer gratis what Paytm and other mobile wallet apps offer. After all, banks go out of the way to ask their current account holders mainly merchants and businesses to use their swiping machines. Not charging the merchants would endear them to banks thus helping in forging a lasting relationship.
Their vigilance is commendable given the fact that they invest in small people. They have in the past batted for small shareholders in the general meetings of companies when managements sought to run amuck though they were guilty of doing shoddy research before committing their (unitholders’) funds in the infamous IL&FS
group which shortchanged our banks to the tune of a whopping Rs 91,000 crore. Now they have partially redeemed themselves in public eyes through IPO
vigilance and not following the other institutional investors blindly. They have read the tea leaves carefully and sent out strong signals that the Paytm IPO
pricing is overoptimistic not warranted by what future portends.
— S. Murlidharan is a CA by qualification and writes on economic issues, fiscal and commercial laws. The views expressed in the article are his own.
Read his other columns here
(Edited by : Ajay Vaishnav)
First Published: Nov 11, 2021, 05:09 PM IST