The rickety house of Paytm

Sunny Sen Jayadevan PK October 25, 2018 8 min

We’re seated in a conference room at Paytm’s office in Noida, Sector 5. A team of Chinese tech workers need the room for a meeting so we offer to vacate it. Sonia Dhawan, at the time the head of communications at Paytm is searching for Vijay Shekhar Sharma, the founder of the company. Our meeting is at 3 pm, on August 30, 2018. But he’s going to be late. In the meantime, we run into Pravin Jadhav, who is in charge of Paytm’s latest gambit— Paytm Money.

As we head up to the cafeteria on the terrace, we spot Amit Sinha, seated just outside the conference room on a desk with barely any elbow room. Paytm’s offices, like always, is packed to the rafters. We exchange pleasantries in a hurry and head for the elevator.

Jadhav is visibly excited. Paytm Money hasn’t been launched yet. But he is sitting pretty with nearly 8 lakh Indian users who have already shown interest in downloading it. Press interviews are being lined up ahead of the launch next day. A photo shoot with Sharma is scheduled for later in the day.

Pravin Jadhav and Vijay Shekhar Sharma at Paytm’s Noida headquarters.

We get a quick look at the Paytm Money app— slick user interface, predictive features to make investment decisions easier, a captive user base that can be nudged to download the app. That’s a lot more than Jadhav could hope for. Shortly after, we’re told that Sharma is a few meters away at the office of Paytm Payments Bank. This office has a more “office like” vibe to it. Sharma is wearing a black suit and has to finish meeting some other people in suits.

Sharma walks in after his meeting. It is close to 5 pm now. Over a helping of dhokla and jalebi, we talk shop (Disclosure: Sharma is also one of the investors in FactorDaily). The past few months haven’t been that great a ride for the 39-year old entrepreneur and his company. It’s been a few weeks since our meeting which lasted nearly two hours but one bit from it stands out: “We aren’t doing it for the critics. We’re doing it for the believers,” Sharma says.

But critics won’t be silenced that easily.

The latest scandal to befall the company is a story that’s worrying at many levels. Allegedly, Sharma’s secretary and the firm’s vice-president (communications) Dhawan, had hatched a plan with her husband and a colleague to extort Rs 20 crore ($2.73 million) from him. For Sharma, one of India’s youngest billionaires with an estimated net worth of over $1.7 billion, the money would amount to loose change. But then, the scandal made it to the press when the police arrested Dhawan and another colleague earlier this week. There are two theories floating around: That Dhawan was in need of money and made plans to get it from Sharma. And the other version is that she’s being targeted as she found damaging information on Sharma’s devices entrusted to her. Efforts to reach Dhawan proved naught.

Going by the media coverage, some users worry if their data has been staked for ransom. “In either of the incidents (Cobra Post sting and the Sonia Dhawan incident) personal data did not get compromised. We are obsessed with personal data. We respect the privacy of the customer. There has been no breach of our systems,” Madhur Deora, Chief Financial Officer at Paytm told FactorDaily on Wednesday.

Some current and former employees at Paytm FactorDaily spoke to, believe that we haven’t seen the end of the fracas even though the company is trying to put a lid on it. Though data leaks in the past haven’t really dented the growth of consumer internet companies in India, what should worry Sharma and his investors, is that the company has been hit by more than one roadblock lately.

It was only in March, Vijay Shekhar Sharma’s brother Ajay Shekhar Sharma was the target of a sting operation by Cobra Post which showed him claiming to be close to right-wing outfit Rashtriya Swayamsevak Sangh, or RSS, and readily accepting to promote religious propaganda on the Paytm app. Ajay Sharma continues to work for Paytm.

In July, Renu Satti, a Paytm veteran who had taken charge of the company’s Payments Bank business, had to quit (the RBI requires Payments Banks to be headed by a banker).

Earlier during the year, WhatsApp, an app which has over 250 million users in India, launched peer to peer payments. Paytm’s mistake here? The company has had Neeraj Arora, a WhatsApp executive leading its payments initiative, on its board for many months. Another board pick has been questioned. Amit Singhal, a former top executive at Google, and a board member at Paytm, was accused of sexual misconduct. He’s had to quit his new job at Uber following media reports of alleged sexual misconduct.

India’s digital payments market is expected to grow to $1 trillion by 2023, according to an estimate by Credit Suisse. The firm also reckons that mobile payments will go from $10 billion in 2017-18 to $190 billion by 2023. Come payday, Paytm, its investors hope, will be a market leader.

“Things are moving so fast that if such distractions keep happening…it can break things…take the momentum out of the company,” an executive at a rival firm told FactorDaily earlier.

Paytm’s explosive growth has been fuelled by a combination of high decibel marketing and cash backs. For the year ending March 2017, One97 Communications, the parent company of Paytm, booked losses of nearly Rs 900 crores. Of a total expenditure of Rs 2088 crores in the year, nearly Rs 970 crores went into advertising and promotions. To be sure, it isn’t unusual for internet companies with a winner take all mindset to lose money in their early years (See Flipkart’s Profits and Losses).

Paytm is still a market leader in mobile payments. Nevertheless, sceptics are not entirely unfounded in doubting the company’s ability to grow bigger. Paytm’s big bets: Paytm Mall, Paytm Money, sales from segments like travel, entertainment and the Payments Bank are all still works in progress.

In payments, the company faces competition from the likes of Google, WhatsApp, Amazon and homegrown players like PhonePe. Paytm has been largely able to fend off WhatsApp because of Indian banking regulations that require storing payments data locally and breaking end to end encryption.

To be sure, the company has also managed to defend and even grow its lead over others. It claims to process transactions worth over $50 billion for millions of users. “We have grown 4X since January in GMV. In terms of transactions, we have reached 5 billion on an annualised basis. There are more use cases than ever before,” says Deora.

Paytm Mall, the company’s retailing business, is yet to make a dent in the e-commerce market. According to some estimates, the company’s market share is between 3% and 5% of the Indian e-commerce market. Deora, however, points out that the company has doubled its market share in the last year.

In travel, MakeMyTrip which acquired redBus clocks nearly 1.6 lakh tickets a day. Paytm sells about 50,000 bus tickets a day. “MMT after its acquisition of GoIbibo is far ahead of Paytm,” said an executive with a large travel and hotel booking platform.  Paytm has had to shut down its hotel business. Deora, on a call with FactorDaily, said that it’s “paused” hotel operations and is working on a new product.

In entertainment, the company faces a deeply entrenched competitor in BookMyShow. The latter sells about 10 million tickets a month whereas Paytm, according to sources, sells about 30 million tickets a year. Paytm had plans to sell 100 million tickets in 2018. “Paytm has bigger distribution so demand generation is not a problem for them…I feel they can catch up,” said a top executive in the business.

Paytm obtained a Payments Bank licence back in 2015. But it still hasn’t hit its stride for various reasons. “We have had some issues,” admits Deora. The company on Wednesday announced the appointment of banking veteran Satish Kumar Gupta as the MD of its Payments Bank. It is still waiting on regulatory approvals to open banking outlets. “Banking is a long-term journey. We are happy not to have the internet-type explosive growth,” says Deora.

Paytm faces strong competitors in almost every business it is getting into. However, when it comes to distribution, it eclipses the competition.

Paytm, is the arrowhead of Chinese e-commerce giant Alibaba in India. The cost of missing the India opportunity will be far too great for Alibaba. So it may yet survive minor scandals at a personal level.

But as Paytm— which has seen a turn of good fortune since it moved away from being a value-added services player in the telecom era to a mobile payments juggernaut— runs afoul of regulators, launches new business at breakneck speed, shuts older ones, and battles competitors in nearly every business it has gone into and takes more than a few tumbles along the way, Sharma’s beliefs will be called into question.


Updated at 10:00 am on October 25, 2018  to update Vijay Shekhar Sharma's age.

Disclosure: FactorDaily is owned by SourceCode Media, which counts Accel Partners, Blume Ventures, Vijay Shekhar Sharma, Jay Vijayan and Girish Mathrubootham among its investors. Accel Partners and Blume Ventures are venture capital firms with investments in several companies. Vijay Shekhar Sharma is the founder of Paytm. Jay Vijayan and Girish Mathrubootham are entrepreneurs and angel investors. None of FactorDaily’s investors has any influence on its reporting about India’s technology and startup ecosystem.