For every payment made, Paytm Payments Bank makes money: Vijay Shekhar Sharma

Paytm is in the stage of business where monetisation is the key and that is the reason the company rolled back its cash back schemes, said Vijay Shekhar Sharma, its founder. The company which literally used cashback as its user acquisition strategy, has found that it has acquired more customers organically than through deals mainly on the basis of better use cases and better service.

“There is money to be made in payments, depends where you are in the value chain,” said Sharma during a fireside chat with Rajan Anandan, managing director, Sequoia Capital as a part of the Global Fintech Fest on July 23.

Sharma said that as a bank, Paytm can make money out of payment transactions. Taking a potshot at his competition which are mostly third party payment apps, Sharma said that as they drive more payments, Paytm gets to make more money. To iterate his case, Sharma mentioned that while payment companies cannot charge merchants for UPI payments, NPCI which manages the payments rails makes money.

As a result of Covid19, Paytm is seeing higher adoption of digital payments among new customers and at the same time repeated use of digital payments among existing consumers.

“If a person was doing ‘X’ number of transactions per week, now he or she is doing atleast 3X,” he added.

While digital payments have grown in the country, Sharma pointed out that there is still a tremendous amount of resistance from consumers. In his systems, an active merchant might be still be doing only five to seven transactions through Paytm per month.

“Tier two, three consumers are still comfortable with cash and that is a reality,” he said.

Further talking about his broader plans in financial services, Sharma said that Paytm is chasing after low cost deposits which can later be used for lending. Citing the case of his acquisition of an insurance company, Sharma said insurance is one vertical which is a source of long term money and that money can be used for lending. But as a payments bank Paytm cannot lend and will partner with non banking lenders to finish the final leg.

“Lending is our ambition, we are trying to bring the deposits in through account deposits, mutual funds, gold and others,” he said.

Sharma added that there is a tremendous opportunity in lending in India, if the country wants to be a USD 5 trillion economy, then over the next three years there is a trillion dollar worth of loans required and banks cannot fulfil that entire need. Any startup which can get a few billion dollars out of the pie to flow through them will stand to gain.

Flipping the tables, Sharma asked for Anandan’s comment on the country’s current funding environment, to which the ex-Google India top executive pointed out that there is no dearth of capital globally, but what COVID-19 has done is made Indian startups more efficient.

“You can see startups restructuring their cost, distributing better over the last four months, overall the quality of the ecosystem will improve,” said Anandan. “Just imagine Paytm which was valued at USD 18 billion in the last round becomes profitable next year, how much value creation would that be.”

Once the ecosystem improves in quality, there is USD 20 trillion deployed at negative interest rates which can find its way into the startup ecosystem, he said.