Is Vijay Shekhar Sharma’s Paytm IPO-Ready?

Digital payments provider Paytm is mulling a $3-billion initial public offering, the largest ever in India, Bloomberg News reported on Thursday. The Vijay Shekhar Sharma-led startup may tap the Indian capital markets close to the festival season this year, the report said.

Is the 12-year-old Paytm ready to go public?

While it is popularly known as a payments application which also runs a payments bank, Paytm has built an ecosystem comprising wealth management, insurance, remittances and merchant credit. Its investors include China’s Ant Group Co., Warren Buffet’s Berkshire Hathaway and Japan’s SoftBank Group, among others.

Financials for FY21 are not available but in FY20, Paytm reported a loss of Rs 2,597 crore on a revenue of Rs 3,629 crore. In FY19, it had reported a loss of Rs 3,960 crore on a revenue of Rs 3,319 crore.

Where do Paytm’s businesses stand? A report dated May 27 by Bernstein’s Gautam Chhugani and Manas Agrawal throws some light on the question.

Also Read: Paytm Targets $3 Billion IPO in What Would Be India’s Largest Debut

Payments

Paytm currently has an active user base of 50 million individuals and 20 million online and offline merchants.

Paytm’s unified payments interface or UPI offering is the third-largest, following Google Pay and Walmart-owned PhonePe. In April, Paytm Payments Bank application reported 37.3 crore UPI transactions worth Rs 41,470 crore by individual users as well as merchants.

While UPI sees high volume transactions, about 87% of the transactions are initiated by individuals, which are currently free of cost. To ensure that it earns a reasonable revenue from its UPI-led payments business, Paytm has been focusing on merchants and providing them digital payment solutions, the Bernstein report said.

Paytm’s share of UPI beneficiary business, a proxy for merchant payments receipts, rose to 16% of its transactions by April 2021, from 13% a year ago.

Combining UPI peer-to-merchant payments with its own wallet services, merchant acquiring business and online merchant payments, nearly $52 billion (about Rs 3.8 lakh crore) in payments passed through Paytm networks, up 33% year-on-year, Bernstein said.

Paytm Payments Bank, one of the few payments banks still active in India, reported a base of 6 crore savings account holders and Rs 2,900 crore worth deposits as of the end of FY20, according to the report. The payments bank offers a 2.75% interest on a zero balance savings account as it cannot provide loans and earn margins.

Wealth Management

Paytm Money, set up in 2017, is the company’s investment and wealth management platform. Apart from providing advisory services on the Paytm application, Paytm Money distributes mutual funds and has a broking facility, where investors can dabble in stocks.

It currently has about 70 lakh users under the wealth management platform, with two-thirds of them being first-time equity investors. It has also added pension schemes and digital gold under Paytm Money.

Under the broking business, it has seen 2 lakh users sign up for a new broking account. The company aims to add 4 lakh new demat accounts under the broking business. While it does not charge a fee for signing up on the broking platform, it charges a flat fee of Rs 10 per derivative trade, the lowest among its peers, Bernstein said.

The tech-enabled broking platform for retail investors puts Paytm in direct competition with established players such as Zerodha, Upstox, and Groww, which are aiming to expand the base of stock traders beyond large cities.

Credit

While Paytm Payments Bank cannot process loans on its own balance sheet, it can work with banks and non-bank lenders under the co-origination model. Paytm also offers co-branded credit cards along with SBI Cards & Payment Services Ltd. The card has no minimum income criteria and can be offered to salaried as well as self-employed individuals, who use the Paytm application.

Among its key lending products, Paytm Postpaid is a buy-now-pay-later scheme for consumer purchases, through tie-ups with banks and non-bank lenders. Users can use their mobile wallets to access the product and make their purchases, with repayments structured in installments through the wallet.

Paytm Postpaid provides credit limits ranging from Rs 20,000 to Rs 1 lakh. Since it was launched in 2020, the product saw quick adoption, said Bernstein without citing any data.

It also provides credit facilities to merchants. This, too, is done through the partnership model, where Paytm earns a fee for sourcing and servicing the loan for the lenders it partners with.

Apart from these, Paytm offers small , short tenure personal loans through tie-ups with partners such as Hero Fincorp, Aditya Birla Finance, Clix Capital and Tata Capital. Paytm helps process the credit by assessing the mobile wallet activity of its users.

Insurance

Paytm’s insurance business also follows a distribution model.

Currently, Paytm works with over 30 insurance companies to sell various insurance products through its mobile application. It distributes products across life, health, motor and electronics insurance categories. By leveraging its position in the e-toll collection business under the FASTag franchise, Paytm aims to push up its motor insurance business.

In July 2020, Paytm also announced the acquisition of general insurance company Raheja QBE, which is pending regulatory approval. Competitors including Google Pay, PhonePe and Mobikwik are also entering the insurance distribution and cross-sell business, Bernstein said in its report.