Paytm is India’s leading mobile wallet and fast emerging as a full-spectrum financial services company. With its humble start in 2010 as a prepaid mobile and DTH recharge platform, over the next ten years, Paytm (a part of One97 Communications) has become a leader in mobile payments with a 50% market share. The company has become a pioneer in the online-to-offline (O2O) marketplace and vows to enable half a billion Indians to join the mainstream economy through payments, commerce, banking, investments, and financial services.
With over 450 million wallet users, 17 million merchants, and 700 million monthly transactions on its ecosystem, the Paytm QR code has become ubiquitous in the Indian commerce milieu and has led others to imitate its practices. The All-in-One QR, Paytm Gold, Paytm Soundbox, All-in-One POS, Paytm Business Khata comprise the steady stream of innovations that the company has introduced for both its customers and merchants. The secret for such a wide-scale adoption of Paytm, in the face of intense competition, is the user-centric approach the company has adopted to build its products and services.
This case adopts the lens of Design Thinking to study the practices of Paytm that have enabled the company to steadily grow and become a household name in India. Four aspects key of the company are discussed here: 1) Getting merchants on-board to strengthen a double-sided market, 2) Lowering the adoption barrier for customers, 3) Exploring the adjacencies for merchants and erecting exit barriers, and 4) Taking an iterative and adaptive approach to innovation.
Paytm (short for Pay Through Mobile) was founded by a first-generation entrepreneur Vijay Shekhar Sharma in August 2010 in Noida. Paytm is part of One97 Communications, a company that Vijay started in 2001 as a mobile Internet company.
The following statement by Vijay Sharma captures his entrepreneurial spirit, “If you don’t work every day to create history and change the destiny of your country, your community, or the business world, you are really wasting your time. Do not stop with anything small and that is what matters the most. And finally, go big or go home.”
The company started as a bill payment platform, and, over time, added utility payments, bus tickets, train tickets, flight tickets, movie and event tickets, chat, online shopping, e-newspaper, insurance, food delivery, mini App store, stocks and IPOs, credit cards, and personal loans. However, the core product of Paytm is the Reserve Bank of India (RBI)-approved e-wallet where a user’s money is secured under the Escrow account with a nationalized bank.
As of FY 2019–20, Paytm’s revenues stood at ₹3,629 crores and it incurred a loss of ₹2,597 crores. The losses came down from ₹4,150 crores a year before, whereas the revenues have remained pretty much flat from FT 2018–19. As of September 2020, the company is valued at $16 billion, with significant investors as Softbank, Ant Group, AGH Holdings, SAIF Partners, Berkshire Hathaway, T Rowe Price, and Discovery Capital.
In the following section, we delve deeper into some of the principles and practices at the company that enabled it to remain atop the mobile payments market in India.
Getting merchants on-board to strengthen a double-sided market
Paytm, like any other online platform, operate on two-sided markets — on one side are merchants who sell their products and services, and on the other side are the consumers who pay for such offerings. Owing to positive externalities, more merchants who accept payments through Paytm would encourage more consumers to use the product and this is Paytm’s flywheel.
In the words of Vijay Sharma, “Mobile phones are playing a large role in our lives and a lot of what we do is moving to that screen. We want to part of this screen evolution — both from the network side and the consumer side.”
Getting consumers to adopt Paytm is relatively easy, especially with cashback and other features, but the critical component is to get merchants on-board the application and that’s where Paytm did a remarkable job.
One may attribute the success of Paytm to India’s demonetization move in November 2016. But the question remains: ‘Why only Paytm?’ If demonetization was a great opportunity for digital wallets and mobile-based payments systems, how did Paytm leverage the disruption better than any other player? There were other providers: MobiKwik (started in 2009), Freecharge (2010), Airtel Money (2012), PhonePe (2015), and Zeta (2015), among others.
Paytm could manage to exploit the demonetization disruption better than perhaps any other player is because of the deep and expansive engagement it had with merchants beforehand. In the context of Design Thinking, Paytm ‘did the last experiment first’.
The last experiment, or the most crucial hypothesis to be proven, was, ‘Will the millions of vendors across India accept mobile wallets to receive payment?’ The key concern was not whether buyers or customers would adopt Paytm; rather, it had to do with the adoption level for sellers, especially those who predominantly work on cash. Imagine if a merchant refuses to accept Paytm, however much a customer desires to use Paytm or however much cashback Paytm is willing to offer.
At least two years before the demonetization tsunami hit the Indian economy in 2016, the team at Paytm was busy reaching out to the hinterland of the country, educating thousands of shopkeepers about the benefits of mobile payments and especially about the ease of managing exact change.
The value proposition for the merchants was: hassle-free management of loose change and no risk of theft or loss of cash. Further, with zero setup fees, zero annual fees, and no hardware involved, there was a minimal adoption barrier. As a merchant, all you needed was a mobile phone, and not even a bank account.
The enrolment of offline merchants started in September 2015. By 2016, the company launched its ‘Paytm Force’ program, as a part of which over 3,000 trained and certified e-commerce specialists helped merchants with services like catalog creation, order fulfillment, complete account management, and query resolution for embracing mobile payments.
Over the month of demonetization — November 2016 — the team hired another 10,000 agents to expand its offline merchant network and accelerate merchant onboarding, while most of the other mobile wallet players were still waking up to the opportunity.
By the end of November 2016, Paytm already had over 1 million offline merchants enrolled, and was well-placed to take on the demonetization challenge. For the consumers and merchants without an Internet connection, Paytm launched a toll-free number 180018001234 to enable transactions.
For the very first time in India, millions of small shopkeepers could accept digital payments without investing in a POS (Point-of-Sale) machine. It led to a large-scale offline-to-online migration of commerce in India. And when the 2016 demonetization struck India, the company was ready with a solution.
With the mobile app supporting ten regional languages, the traction was especially high in small towns and villages, where vegetable and fruit vendors and owners of Kirana stores, food stalls, and pharmacies welcomed this convenient way of receiving money over mobiles.
On the consumer end of the market, Paytm, with its adoption of intuitive technology, ensured that there develops a stickiness rather quickly.
Lowering the adoption barrier for customers
Paytm has invested heavily in simplifying the user interface of its applications and processes that has been a core driver for its large-scale adoption.
When was the last time you called a Paytm call center or spoke to an employee or an agent? Perhaps never, or rarely, if at all. And yet you are comfortable transacting money over your mobile in an almost habit-like manner. Not just you, many people — including cobblers, street hawkers, vegetable vendors, and small storekeepers — seem to be comfortable embracing online transactions without having any human intervention.
One of the main breakthroughs in the journey of the massive and rapid adoption of digital payments was the Paytm QR code. Launched in October 2015, the Quick Response code was a frugal exaptation of existing technology to a novel context, whereby a user does not have to key in a ten-digit mobile phone number to make a payment. This takes away the labor and the associated errors of money transfer, and it soon gets into people’s habits.
All other players had to eventually adopt the QR code-based payment systems. But as they say, habits die hard, and Paytm continued to build on the habits it had once helped cultivate. Building on the habit Paytm encouraged customers to make a bank-to-bank transfer at zero fees, further taking away the friction and ensuring the longevity of customers on the platform.
The promise of cashback further encouraged the customer to adopt the platform for payments. However, on the virtue of cashback to drive customer traffic, Vijay Sharma notes, “In the monetization journey, we figured out that it is easy to acquire customers and to bring customers back by handing over cashback. This country has value-conscious users. So we wanted to figure out who are the customers who are loyal on a platform for its service, not necessarily for the cashback…we actually grew the customer base without giving a cashback and active, DAU (daily active users), MAU (monthly active users) over the previous year,”
Paytm become a household name in India thanks to its remarkable brand-building efforts. Starting with the #PaytmKaro commercial launched during the 2015 edition of IPL, the company had a remarkable run on popularizing mobile payment in India.
When the QR code-based payment picked pace, Paytm launched the feature ‘Scan any QR code to pay using Paytm’ to further keep the customers from leaving the platform. Introduced in late 2019, the feature further galvanized the company’s position for both customers and merchants.
In January 2019, the company launched postpaid services for its customers where users get a credit limit of up to Rs 60,000 enabling them to recharge their mobile numbers or DTH connections, book movie tickets, and shop on Paytm online marketplace without entering a bank or card details and even wallet top-ups. This offers another reason for the customer to remain on the platform.
A good example of an intuitive customer interface is the Paytm Soundbox. This IoT device helps merchants with instant voice confirmation so that they don’t miss a payment. By October 2020, over 2 lakh street hawkers, kiranas, and merchants across the country were using Paytm Soundbox.
Before, one had to show the Paytm screen to a merchant to acknowledge that the payment is made, but now with the auto-announcement, a payment is not missed and the customer can move on with her next work.
Below is an interaction where Preeti, a fruitseller from Agra, explains the benefits of Paytm Soundbox India’s PM.
Such innovations ensure that transactions are smooth and this lowers the adoption barrier and heightens the initiation barriers.
Exploring the adjacencies for merchants and erecting exit barriers
Once the competition woke up to the possibilities and potential of mobile payments and wallets, it was time for Paytm to differentiate itself and further offer value adds to the customer and merchants to retain stickiness.
With an already huge and sticky customer base, Paytm in January 2018 launched the ‘Paytm for Business’ app which allows its merchants and business partners to track payments instantly, navigate through the past collections and track settlements made to their preferred bank accounts.
Paytm already had a massive lead in terms of merchant penetration as against the competition, and to further penetrate the merchant base and maintain stickiness, in November 2018, Paytm introduced instant bank settlement for its merchants.
In January 2020, the launch of the All-in-one QR code proved to be another breakthrough, for now, the customer doesn’t have to make transactions through a Paytm wallet and doesn’t have to leave the platform to competing options for making payment.
The merchants are delighted as the new QR enables them to accept payments through Paytm Wallet, UPI, and Rupay Cards directly into their bank account at a 0% fee. The All-in-one QR code is supplemented with ‘Paytm for Business’ and ‘Paytm Business Khata’, an e-ledger service, that enables the merchants to keep a track of every transaction, including cash and credit, and get a single view of the entire business. Between January and May 2020, the Business Khata recorded over ₹1500 Crores in payments.
One of the impactful introductions was the ‘Paytm All-in-One Portable Android Smart POS’. Launched at a price of ₹ 499 per month rental in February 2020, the device weighs 163 grams, is 12mm thick, and has a 4.5-inch touch screen. With a powerful processor, all-day battery life, and an inbuilt camera to scan QR codes. It works on 4G sim cards, Wi-Fi and has Bluetooth connectivity, offering redundancy in payments. A merchant can swipe a card, monitor payment activities, and double this as a Paytm account on mobile phones.
The device is also linked to ‘Paytm for Business’ app to generate GST compliant bills and also to manage all transactions and settlements.
On the features offered by the POS, Nandan Nilekani notes, “I think Paytm All-in-One Android POS is a very important device. We do have multiple options and this device brings it all together. If small merchants across the country can accept digital payments, that’s should be the future. I am glad that Paytm is doing this.”
Between 2019 and 2020, Paytm introduced features like instant activation, iCollect for Virtual Account Number Bank Transfers, real-time settlement, and instant refund, further reducing the friction for onboarding and using the payment gateway.
In January 2021, Paytm enabled its All-In-One payment gateway to help merchants receive payment through UPI ID, UPI Apps, UPI Linked Bank Accounts and Rupay card payments at zero fees. Through another unique solution, Enterprise Bill Payment System (EBPS), Paytm enables MSMEs to make regular payments to a large number of vendors, salaries and food allowance to employees, rewards or instant refunds to their customers, and even other expenses like utility bills for multiple offices.
Notes Saloni Malhotra, vice president at Paytm, “Instead of spending their time and effort on the exercise of managing bill payments, EBPS offers companies the chance to cut costs and focus on their business growth.” The company is slated to process transactions worth Rs 3,000 crore in the FY 2020–21.
Through the Merchant Lending Program company in FY 2019–20, the company had processed loans worth ₹550 crore benefiting over a lakh merchant partner. These collateral-free loans are based on an algorithm that determines the credit-worthiness of the merchant based on his daily transactions and arrives at a pre-qualified loan offering.
Notes Bhavesh Gupta, CEO — Paytm Lending, “With our collateral-free instant loans, we are trying to help kirana stores and other small business owners who have been left behind by the traditional banking sector and do not have easy access to loans and credit. Going forward, we will especially focus on EDC merchants and provide higher loan amounts based on their EDC transactions.”
With 99.99% uptime of the payment gateway and a 99% transaction success rate, the gateway remains the backbone of millions of sellers in India. Though the company would end absorbing ₹600 crores as MDR charged annually by banks and other charges to support MSMEs, the investment pays multiple times over.
As against the dominant belief of design thinking being about customer-centricity, the case of Paytm shows how merchant- or partner-centricity was critical for the idea to take off and for the brand to remain relevant to its core stakeholders.
Taking an iterative and adaptive approach towards innovation
The story of Paytm has been of being ‘fortune favoring the prepared.’ They could sense an opportunity early on and adapt their systems and interface to make the most of it. The classic case is seizing the demonetization opportunity almost overnight.
Another example is the 2018 Kerala Floods, which led to around 500 deaths and loss of property of about $5 billion. Paytm was quick to add a donation feature on its app, Kerala Chief Minister’s Distress Relief Fund, and helped customers donate any amount to the fund and get tax exemptions under Section 80G (2) of the Income Tax Act 1961. It led to a growth in goodwill and a sincere contribution to the cause. The same was followed during the COVID-19 for contribution to the PM CARES Funds.
In 2017, when the Indian government was rolling out GST across the country, Paytm got busy with making its merchants GST-ready. It helped them get access to Goods and Service Tax Network (GSTN) numbers, simplifying the process of owning multiple GSTNs across states and ensure tax-compliance ahead of the upcoming GST launch. The company hosted several offline camps and online workshops to educate sellers about GST compliance.
Sensing the threat of UPI payments and the growing adoption of QR code-based payment interfaces by competitors, Paytm made a smart move. In November 2017, Paytm introduced the BHIM UPI on the app, where the customers can create their own Paytm BHIM UPI ID on the app, enabling seamless and instant money transfers directly between two bank accounts.
By November 2018, Paytm emerged as India’s largest contributor to UPI payments, with 179 Million UPI transactions in October 2018 (a 600% jump in 6 months).
Ditto for FASTags. When the National Payments Corporation of India, under the guidelines of the National Highways Authority of India and Indian Highways Management, mandated the use of electronic tags for payment of toll tax across India, Paytm stepped right up with its reusable, rechargeable RFID tags. Interestingly, Paytm introduced FASTag as early as September 2016 and was fully prepared for the December 2019 deadline.
Apart from minimum documentation and instant activation, Paytm FASTag allows users to directly pay from the Paytm Wallet, making the entire experience highly intuitive. By January 2021, Paytm had become the leading issuer of FASTag in the country with over 6 million FASTags.
In 2020, when the COVID-19 pandemic hit the world and social distancing became the norm, Paytm seized the opportunity of contactless ordering and payment.
In April 2020, the company launched COVID-19 insurance that covers loss of pay, quarantine expenses, and treatment costs. Offered in collaboration with Reliance General Insurance, the insurance policy covers positive diagnosis, 14-day quarantine, loss of pay/job, a waiver to the 45 days Travel exclusion policy, and offers a sum assured a maximum of ₹2 lakhs.
Another timely initiative was the ‘Contactless In-store Ordering’ for restaurants and eateries, launched in April 2020.
The feature allows the customers to browse the menu, place orders, and make payments, all in a contactless manner. The restaurants have the additional benefit of getting discovered through geo-targeting, targeted promotions, and seamless integration with their existing POS systems.
Another initiative around the time was ‘Contactless Ticketing’ for state-run bus services. These QR codes are made available in over 20,000 buses run by DTC, BEST, Punjab Roadways, CTU, OSRTC, KSRTC among other service providers, to enable customers to buy tickets in a contactless manner.
The driver would have Paytm Soundbox installed on the dashboard which will inform the conductor every time someone pays for a ticket.
On how COVID-19 came as a big opportunity for Paytm, Vijay Sharma notes, “If a customer was doing X transactions before, right now he’s doing 2.5–3.5X transactions. Customers who are used to digital are getting engaged deeper and newer customers are coming on the platform…the number of customers who are on the platform and are doing more number of transactions has phenomenally increased…At a week-level, an active customer is doing two transactions.”
The company has managed to be at the right place at the right time and leveraged technology and scale to exploit opportunities.
Paytm has been one of India’s most successful and well know startups from the last decade. The company’s ability to remind valuable to both the merchants and consumers has propelled it to become one of India’s leading financial services provider.
The insights we can draw from the Paytm case are: the importance of being experimentative; focusing on two sides of the market, both customers and sellers; an intense focus on simplification and enhancing the user experience; and being sensitive about incoming opportunities.
I hope you found this case study useful. For a detailed discourse on some of the other success stories, read the book, Design Your Thinking.