Vijay Shekhar Sharma's Paytm: The Journey To Its IPO

Vijay Shekhar Sharma, founder and chairman of One97 Communications Ltd.,operator of PayTM, left, talks during a meeting. (Photographer: Anindito Mukherjee/Bloomberg)

Vijay Shekhar Sharma's Paytm: The Journey To Its IPO

Inside a blue-tinted 21-storeyed glass tower in Noida, sits a man who can claim to have built one of India's earliest digital payment firms. But as Vijay Shekhar Sharma's One97 Communications Ltd., commonly referred to by its brand name Paytm, moves towards a public offering, it continues to have admirers and detractors in equal parts.

On Monday, an extraordinary general meeting of the company approved the plan for an initial public offering. The company is looking to raise up Rs 12,000 crore through the issue of new shares, Bloomberg reported.

One97 Communications has a presence across a number of businesses but profitability eludes it. Ready or not, market conditions have pushed it towards an IPO.

Paytm's decision to go public seems largely motivated by the acceptance of tech-led entities by domestic capital markets, said Satyen Shah, head of investment banking at Edelweiss Capital. "The public market route, earlier almost non-existent, is now available as an exit option and at robust valuations for venture capital investors. Everyone wants a piece of the pie," said Shah.

With the decision taken, a lot is now riding on the success of Paytm's listing, said Vivek Ramji Iyer, partner and national leader of financial services and risk advisory at Grant Thornton Bharat.

The Paytm IPO will mark a crucial juncture not just for the company, but for the entire fintech ecosystem in the country. If it fails, the confidence of public markets in these ventures may also take a hit.
Ramji Iyer, National Leader - Financial Services, Grant Thornton Bharat

In reply to an email sent to Paytm on Thursday seeking inputs, the company said it will not be able to comment at this stage.

Where It All Began

Early investors and employees who backed Sharma, many of whom have split ways, tell the story of an organisation and a founder who have tried virtually everything over the years. It made a success of some of its ventures, while striking out in others.

In 2009, a 31-year old Vijay Shekhar Sharma was pitching his One97 Communications to investors as a value-added services provider for mobile phones. He drew some of his earliest investors then.

"I backed a founder who came from a small town but dared to dream big, not so much his company," said an early-stage investor who backed the company at that time, speaking on condition of anonymity. Another early investor, who also spoke on condition of anonymity, said he decided to invest in the first meeting itself, as he was “swept away” by Sharma’s “passion, charm and promises”.

Both put their money behind Sharma more than the business.

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Vijay Shekhar Sharma, founder and chairman of One97 Communications Ltd., operator of PayTM, gestures as he speaks to colleagues during a meeting at the company's office in Noida, Uttar Pradesh, India. (Photographer: Anindito Mukherjee/Bloomberg)

Quite quickly, it became clear that the VAS business could not be the company's mainstay, said a senior executive who was part of the company till 2015, requesting anonymity.

And so, between 2011 and 2012, many new business lines were tried out. These included an online video curation platform VideoPind, online gaming, e-commerce and digital payments, the senior executive said. Alongside, One97 launched the Paytm brand, short for Pay Through Mobile, to push the mobile recharge business.

Of all the new verticals that were tried out, payments stood out, the first investor cited above said.

The company, therefore, launched an online bill payment and ticketing platform in 2012. In 2013, the company secured a licence for operating semi-closed wallets from the Reserve Bank of India and launched its first licensed wallet product in 2014.

Once the firm had secured the wallet licence, the senior executive cited above said, multiple use cases emerged, especially for small-ticket transactions.

In 2015, Paytm applied for a payments bank licence and bagged one. When demonetisation was announced in 2016, Paytm was right there waiting to capture the demand for non-cash payment options.

Ironically, the payments business was never Sharma's first choice as he saw greater potential in e-commerce, the executive quoted above said. Even the board or the team did not see payments as a big opportunity when it started, because there was no successful precedent, even globally at that time, he said.

By 2014, China's Alibaba Group Holding Ltd. had filed for its IPO and its digital payments subsidiary Alipay had already facilitated payments worth $519 billion. "It was then, the opportunity in payments became more visible to everyone," the executive said.

The UPI Miss

Till about 2017, Paytm was ahead in the payments business. Then the Unified Payments Interface or UPI, launched by the National Payments Corporation of India in 2016, picked up.

This is where the first slip happened, a second official who worked at the company between 2016 and 2018, told BloombergQuint on condition of anonymity. Paytm chose to stick to its proprietary wallet platform instead of quickly adopting UPI.

The rationale, he said, was that wallet payments business was revenue positive as the company earned a fee from online merchants, which was not possible via UPI. The other reason was its reluctance to switch to a new platform when the wallet business was already doing well for the company.

Paytm's decision to go slow on UPI, however, emboldened competition. Soon enough, PhonePe (launched in 2015) and Google Pay (launched as Tez in 2017 in India) started gaining market share, and Paytm stumbled in maintaining its leadership position.

The business strategy then pivoted away from peer-to-peer payments to focus more on merchant payments and offline transactions. But with volumes dominated by peer-to-peer payments, the standalone payments business has remained largely unprofitable.

Beyond Payments 

Alongside payments, Sharma had kept attempting other ventures.

A travel vertical was launched in 2016. Soon after, the firm launched its entertainment vertical, with movie ticketing as the first product.

In 2017, Paytm Mall was formally launched as Paytm's e-commerce division. It was also demerged from the parent and carved out as a separate entity. The payments and e-commerce platforms were a combined deal pitched to Alibaba for an investment, the senior executive quoted above said.

A number of other add-ons kept coming along. Notable ones included mutual fund sales and insurance distribution in 2018, Paytm First Games in 2019, a broking licence and a recent step directly into insurance, which is yet to be operationalised.

Through all this, Paytm had no problem raising capital.

In 2015, Paytm got $680 million in funding from Alibaba Group that invested via its affiliate Ant Financial Services Group. In 2017, the company raised $1 billion from SoftBank Group Corp.’s Vision Fund, while in 2018 Berkshire Hathaway made its first private tech investment by investing $300 million in Paytm. In 2019, the company raised from investors including Ant Financial, Softbank, T.Rowe Price and Discovery Capital at a $16 billion valuation.

The comfort of being able to raise capital may have distracted from the fact that profitability was still a challenge.

In fiscal 2019, parent One97 Communications saw losses more than double to Rs 4,217 crore, compared to Rs 1,604 crore in fiscal 2018. Losses have come down since but remain high. In fiscal 2021, the parent entity reported a loss of Rs 1,701 crore.

Ideas To Execution

Lack of clarity on what the core focus of the company is has affected the growth of its various subsidiaries, said the second former PayTM official quoted earlier in the story.

Business verticals were started at once, but their execution remained lackadaisical. Team members who spearheaded the launch of these verticals moved away, and the company did not make any attempt at retaining them, the official said.

"There were constant senior management exits, and teams at different divisions worked in silos, only coordinating with the founder but never so much with each other," he said.

For Paytm to be successful it requires synchronisation between its core payments business and the different business verticals built on top of it. "Since that could never be achieved, none of its ventures ever really succeeded as anticipated," the second Paytm official quoted earlier said.

Last month, Amit Nayyar, president at Paytm, who was overseeing its financial services division, resigned from the company. Other senior management exits this year, include Rohit Thakur, Paytm's chief human resources officer, and Jaskaran Singh Kapany who headed marketing at the company left in February to join Xiaomi India as their chief marketing officer, said a person directly aware of the development, requesting anonymity.

There was also a great deal of micro-management, the first former executive quoted earlier in the story said. "He is a juggernaut in the PayTM machinery, but lacks warmth and compassion for his own team members. He is ambitious, aggressive and persuasive, but not a team leader."

Another person, familiar with matter, however, said that the senior management exits were natural attrition. This person added that staffing costs at Paytm have continued to rise as it tried to bring in the right talent.

What's The IPO Pitch?

So what will be Paytm's pitch as it goes public.

The second investor cited above said the company is trying too many things. "What is the big value proposition, where is the market domination, or a profitable business. What is even their business model?," the investor asked.

With individual business seeing modest or no profitability, the hope is that Paytm's large base of customer data will prove to be the real differentiator for the company.

"For PayTM, financial services may just remain their back-end, which will get strengthened over time as it gets further regulatory licences. But it is their massive data bank that will become the real differentiator," said Iyer of Grant Thornton Bharat.

The Indian digital and financial technology ecosystem is also transforming, said Iyer. "PayTM may not be profitable today, but it has all the nuts and bolts in place to become a digital giant," he said.

But that will need concentrated work.

There needs to be a conscious strategy to work on the unit economics and bottom-line discovery for each of its businesses, as the pressure to become profitable will only increase after getting listed.
Vivek Ramji Iyer, Partner & National Leader - Financial Services & Risk Advisory, Grant Thornton Bharat
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