Innovation gains

Paytm is leading the way among fintechs

Fintech companies in India not only operate at the cutting edge of digital technology but also generate revenue by plugging a basic gap in its educational system. While merchants are happy to accept digital payments, many of them are unable to read text messages confirming a transaction. Fintech service providers thus offer “soundboxes”. These internet-enabled smart speakers verbally confirm a digital payment. The merchant pays upfront for the speaker, along with a monthly rental averaging around Rs 100 per box for internet access and Rs 300 to Rs 500 per month for point-of-sale (PoS) machines for cards. While there are dozens of fintech companies, One97 Communications, better known by its brand name Paytm, is the market leader and offers the most sophisticated speakers. Its new soundbox, which is priced at Rs 999, has Bluetooth and 4G connectivity with a five-day battery life. This device also processes credit and debit cards from all issuers, as well as Unified Payments Interface (UPI) payments. It can be set to any of 11 languages.

The company’s Q1FY24 results indicate soundbox subscriptions more than doubled to 7.9 million by June 2023 from 3.8 million in June 2022. Paytm claims to hold near-monopoly, with an 85 per cent market share of the soundbox space. The company estimates the new box may attract 30-40 million new users over the next few years. It could be claimed that these boxes contribute to sustainability since they greatly reduce the need for paper receipts. While Paytm pioneered the concept, its competitors also offer boxes. If a soundbox that processes cards is on offer at these rates, it undercuts current rates for PoS devices, and this could be a game-changer driving even higher acceptance for cards, wallets and UPI. Apart from payment services, fintechs issue co-branded credit cards and they are big players in micro-credit. It could be claimed that they have largely replaced the traditional moneylenders who used to charge usurious rates for low-ticket, short-term loans to low-income borrowers.

In terms of financials, Paytm reported a net loss of Rs 360 crore in Q1FY24, but its revenue grew 39 per cent year-on-year (Y-o-Y) to Rs 2,340 crore, supported by strong growth in gross merchandise value (GMV), higher loan disbursements, and earnings from subscription devices. The Q1FY24 loss of Rs 360 crore appears worse at first glance compared to a reported loss of Rs 170 crore for Q4FY23. However, this has to be adjusted for the so-called UPI incentive, which is paid in Q4 of the financial year. The UPI incentive is a payment to encourage the uptake of the UPI system, and Paytm received Rs 180 crore on this account in Q4FY23. Loan disbursements grew 167 per cent Y-o-Y to Rs 14,850 crore in Q1FY24, and revenues from payment and financial services grew 44 per cent Y-o-Y to Rs 1,940 crore. Revenue from commerce and cloud services also grew 22 per cent Y-o-Y to Rs 410 crore. All these revenue streams are low-margin, and driven by volumes. Payment processing charges stood at 0.19 per cent of GMV. By offering services to unbanked and under-banked people in lower-income strata, fintechs have transformed the transactional and financial landscape, which can potentially lead to sustainable profitability.