Paytm to cut losses by 33% to $400 million: Vijay Shekhar Sharma
Paytm has completely cut incentives on P2P UPI transactions after seeing a group of customers conduct millions of transactions of Rs 21 between its network and other rival players.
Paytm CEO Vijay Shekhar Sharma told TOI in an interview that the company will bring down its ebitda (earnings before interest, taxes, debt, and amortisation) losses by at least a third to $350-400 million (Rs 2,470-2,823 crore) in this financial year. The mobile payments and commerce major’s ebitda losses had tripled to $600 million (Rs 4,218 crore) in FY19. Ebitda is a measure of a company’s operating performance.
The company has cut down marketing spends on incentivising peer-to-peer transactions (P2P) in the payments business while completing heavy investment cycle in digital commerce businesses like movie and travel ticketing as they have “matured”.
According to Sharma, Paytm has become “contribution margin positive”—meaning it’s making money on each transaction before corporate costs like employee expenses and KYC fees—in September quarter at $7 million (Rs 50 crore). An increasing share of UPI (Unified Payments Interface) transactions has also helped the company cut payment gateway costs. At the ebitda level, its losses have come down by 34% in the July-September quarter as compared to January-March in 2019. “These businesses (commerce) have matured and brought in network effect after three years of investment phase. We will continue to invest $150-200 million in the payments business,” said Sharma, adding that the company remains in an expansion mode for new businesses in lending and insurance.
Paytm and WeWork, which withdrew its IPO filing last month, are both backed by SoftBank, whose founder Masayoshi Son, has reportedly told companies to become profitable before going public, a change in the Japanese investment firm’s approach. Sharma, however, said that losses are not being cut because of SoftBank.
Paytm, meanwhile, is in talks to raise $1-2 billion at a valuation of over $18 billion as reported by TOI on March 28, 2019. Sharma added that even as the company’s margins improve, Paytm has seen its gross merchandise value (GMV), defined as transactions where it earns a commission, has increased 40% from $6 billion in January-March quarter to $8.5 billion in the July-September period.
The firm expects GMV, which does not include P2P money transfers that don’t earn any revenue, to reach $35 billion by year-end. Paytm expects to reach $100 billion of gross transaction value, including P2P transfers, by the end of the current financial year. Paytm had seen its revenue remain flat in FY19, growing just by 6% to $458 million (Rs 3,232 crore), according to its annual report, which the company has ascribed to focus on low-margin payments business during the year.
Paytm has completely cut incentives on P2P UPI transactions after seeing a group of customers conduct millions of transactions of Rs 21 between its network and other rival players, which primarily include Google Pay and PhonePe, just to earn cashback. Paytm’s overall UPI transactions, which has been the fastest-growing payment mechanism in India, has been declining as compared to peers which have seen an increase. But the firm is doing this deliberately and is only incentivising merchant transactions on UPI.
“We have very actively made sure that we maintain a dominating market share in merchant payments in UPI,” said Sharma, claiming that Paytm has 68% share of UPI merchant transactions.