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...
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.
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.