On May 15, 2019, Paytm, India’s largest mobile payment and commerce platform, launched a co-branded credit card with citibank.
The joint credit card promises to return cash to entice users to try the new product.
Paytm was founded by Vijay Shekhar Sharma and received huge financial support from Alibaba Group.
Over the past few years, Paytm has launched a number of products, and with the credit card, has grown into a small financial group.
Today, Paytm and its partners can offer a wide range of financial services, including gold, savings bank accounts, mutual funds, foreign exchange and other services. Once approved by regulators, the company will also provide insurance and point-to-point loan services.
However, Paytm is facing its biggest dilemma — the difficulty of making a profit in the short term.
Paytm spends a lot of money on advertising, marketing, and network costs, and is often discounted in the form of cash refunds. It is still difficult for the company to make a profit after nearly 9 years of existence because of such a living beyond its means.
Earlier last week, Vijay Shekhar Sharma, founder of Paytm parent company One97 Communications Ltd., admitted at the time of the joint credit card launch that the company had indeed yet to make a profit.
Paytm’s business is growing “smoothly”, but with too much money invested in new users and merchants, the prospects for profitability remain slim.
“We won’t be profitable this year, next year or even the year after,” he said in a 2018 interview.
Marketing and network costs are huge
One97, a Paytm holding company, has been losing money for nearly five years, mainly because of high operating costs, according to documents from One97 communications ltd. and Paytm subsidiaries. In fiscal 2017, One97 ‘s net loss was 9 billion rupees and grew to 16 billion rupees in fiscal 2018.
The operating costs of most group companies are mainly concentrated in marketing expenses and network expenses. The network expenses of Paytm are mainly used on payment processing platforms such as CCAvenue and Worldline, aiming to provide convenience for users to pay.
In fiscal 2017, One97 ‘s net loss was in fiscal 9,000,002,017, and One97 spent 2.4143 billion rupees on paying for gateways, compared with 12.04 billion rupees in fiscal 2018.
On the marketing side, spending in fiscal 2017 was 7.08 billion rupees, compared with an alarming increase of 19.01 billion rupees in fiscal 2018.
Paytm e-commerce company and Paytm payment bank also have similar balance sheets.
The majority of Paytm’s spending in fiscal 2018 was related to marketing costs and payment gateway fees, according to documents from the Indian Department of Corporate Affairs. The Paytm payment Bank began operations in November 2017.
By the end of December 2018, the bank had moved 3.714 billion rupees of deposits.
In December 2017, Paytm, a bank payment bank, issued a statement saying it would invest about 30 billion rupees over three years to create an offline banking network with 100,000 consumer outlets. However, since the payment bank is prohibited from granting credit, it will earn fees mainly through the sale of third-party products, with limited operating income.
In other words, the Paytm payment bank’s losses in fiscal 2019 will be even worse.
When asked if companies could continue to grow at a high cost and low profit, Sharma said that Paytm e-wallets had actually been profitable, excluding the cost of user rebate and marketing. “Our loss-making funds are mainly used to gain access to more customers and businesses on the platform, thereby expanding our ecosystem. ”
Sharma added that the Paytm e-wallet business now has 300 million users and 12 million merchants. Only when the former increases to 500 million and the latter to 40 million can Paytm become profitable.
According to a report released on February 17 by Indian network media Livemint, One97 expects its losses to soar to Rs. 21 billion in fiscal 2020, while it is likely to be profitable for the first time in fiscal 2021, with a projected profit of 2.0761 billion rupees.
One of the key reasons for the difficulty in making profits in the payment sector is its excessive upfront expenses. Whether it is to acquire customers, users to cash back and network fees, all need to invest a huge amount of money.