What exactly do the likes ofBlackRock Inc.
and Canada Pension Plan Investment Board see in the unprofitable Indian payments startupheading for the country's biggest-ever initial public offering? A simpleanswer: the raw power of data.Paytm, formally known as One97 Communications Ltd., has signed up BlackRock, the world's largest asset manager, and CPPIB together with the sovereign wealth funds of Singapore and Abu Dhabiasanchor investorsfor next week's 183 billion rupee ($2.46billion) IPO.
The $1.1 billion sale to cornerstone investors sawmore than10 times as much demandas shares on offer,according to Bloomberg News.The Indian online-payment pioneer had tremendous novelty value five years ago.When Prime Minister Narendra Modi suddenlyimmobilized 86% of the country's currencyin November 2016in a failed bid to freeze outill-gotten cash,the fledgling app, whose name is shorthand for pay through mobile,won millions of new customers overnight.
Founder Vijay Shekhar Sharmacouldn't hide his glee.
Warren Buffett's Berkshire Hathaway Inc.joined Masayoshi Son's SoftBank Group Corp.
and Alibaba Group Holding Ltd.
as investors in the startup.That was then.
India's technology landscape has evolved so rapidly since 2016that most businesses nowadays pay next to nothing for receiving customer payments over smartphones.
And the pricingpressureisn't going to ease, except that merchants willwant to pay less even for add-on services, such as reconciling accounts and handlingreturns and refunds.Back when it didn't have today's 57million unique monthly users, Paytm incurred 162rupees in direct costs not counting overheads likesalaries and brand-building to garner 100 rupees of revenue.
Of that, 70 rupees went toward processing payments and another 86 rupees were spent on cash-backs and other enticements.
You cannot have a business that says, Pay a 500 rupees bill and take 250 rupees cash-back,''' Aditya Puri, the then-chief executive of HDFC Bank Ltd., India's largest lender by market value, said in 2017, adding thate-wallets have no future.In its most recent quarter, however, Paytm ended up with a 27 rupees surplus on the same 100 rupees revenue.
Thanks to additional overheads, it's not yet a profit but it's getting closer.
HDFC Bank is now apartner of Paytm.The economics areimproving, even thoughphone walletshavebecome a commodity.
The underlying technology, which Paytm uses to compete against Alphabet Inc.'s Google Pay and Walmart Inc.'s PhonePe, is a shared utility anyone can commercialize.
So while Paytm handles the equivalent of nearly $80 billionof payments annually to 22 million merchants, its take rate for translating transactions to revenue is just 0.6%.But it's this very competitive nature of the payments game thatencouragesmore merchants in small cities and towns to accept cashless instruments, bypassing expensive cards and contactless systems like PayPal Holdings Inc., which hasleft the Indiandomestic scene entirely.(Except for the headline, this story has not been edited by TheIndianSubcontinent staff and is published from a syndicated feed.)