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E-payments battle leads to $1 billion loss for top companies in FY19

While a large part of the losses for these companies (Softbank-backed Paytm, Walmart-owned PhonePe and Amazon Pay) were driven by marketing and promotion spends, including cashbacks to customers, costs related to technology and employees were othe...

Updated: Oct 31, 2019, 03.13 PM IST
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It translates into a loss of Rs 20 crore a day between these three players (Paytm, PhonePe and Amazon Pay) in FY19, as compared to Rs 7.5 crore in FY18.
(This story originally appeared in on Oct 31, 2019)
BENGALURU/NEW DELHI: The battle for domination in the digital payments space has caused a collective loss of over Rs 7,283 crore ($1.03 billion) between SoftBank-backed Paytm, Walmart-owned PhonePe and Amazon Pay during the fiscal ending March 2019. This is a collective increase of 167% from Rs 2,729 crore ($386 million) from the year ending March 2018. It translates into a loss of Rs 20 crore a day between these three players in FY19, as compared to Rs 7.5 crore in FY18.

If the Rs 1,028 crore spent by Google Pay during FY19 on cashbacks is included, the total losses for the industry stand at Rs 8,311 crore, underlining the intensity of the market share battle between the players in the market. Google Pay is operated through a Singapore unit whose financials could not be determined.

The mega losses in the space are comparable to the online retail battle between Flipkart, Amazon, Paytm Mall and Snapdeal. WhatsApp, a popular messaging platform owned by Facebook, is still to get regulatory approval for rollout of its payments service, which could further intensify the battle. While a large part of the losses for these companies were driven by marketing and promotion spends, including cashbacks to customers, costs related to technology and employees were other significant contributors.

“Just like e-commerce, consumers have to be incentivised, especially for peer-to-peer (P2P) transactions. Most companies end up spending upwards of Rs 100 per consumer. It does help companies like Amazon and Google to build a consumer profile, which in turn helps them to know where a consumer is spending, and how often,” a senior payments industry executive said.

E-PAYMENTs graphic

A large part of the investments over the last few years by these companies has been in the Unified Payments Interface (UPI) platform, which has also got a push from the government after demonetisation in November 2016. UPI recently crossed the milestone of 1billion monthly transactions.

Cashbacks are expected to continue for some time as companies fight to corner marketshare and gain users, according to industry experts, as they are not offering differentiated propositions like WeChat parent Tencent used messaging to get users for its payments business.

“Standalone payments cannot be the hook for driving loyalty among consumers, who are moving from one platform to the other driven by discounts. Right now, most of the payment companies haven’t built a moat for their business,” said Amrish Rau, co-founder of CitrusPay and former CEO of PayU India.

Paytm, which had the highest losses, recently said that it plans to reduce it this year by 33% and is focusing on just incentivising merchant payments, which earn fees. Amazon, e-commerce being its core business, has been incentivising existing users on its own platform as well as third-party merchants.
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