India’s Digital Wallet

Paytm is an Indian e-commerce and e-payments company currently valued over $10 billion. Originally founded as a mobile value add service in 2010, Paytm launched its wallet as late as 2013. Yet it currently is the dominant player in the Indian market, with 255 million transactions in December 2017. Its plan is to achieve $14 billion GMV in this fiscal year. To date Paytm has raised over $700 million.


While initially a simple P2P digital wallet, Paytm services have expanded to payments that its users make on a day to day basis. This includes booking air tickets, movie tickets, bus tickets as well as payments for utilities including electricity and broadband. In 2015, it got its license to start a payment bank, an unprecedented achievement for a company not in traditional banking.


A major challenge for Paytm was bringing a cash-based economy online. Paytm achieved this in a few ways. Firstly, it implemented a strong marketing campaign. Sponsoring cricket games and TV ads that demonstrated Paytm use cases were a huge success. There was significant uptick in usage after these campaigns.


Secondly, overcoming regulatory hurdles and receiving a payment bank status eventually allowed Paytm to gain more flexibility in the use of “Paytm cash”, specifically in transferring money back into users’ other bank accounts. This flexibility allowed several different use cases to be transacted on Paytm. This in turn allowed the platform to be stickier, as Paytm encompassed all possible transactions. Soon Paytm started offering other banking services including a savings account and wealth management. While Paytm started with a simple digital transaction-based service that evolved into comprehensive online banking, traditional banks offered all services and are now moving online. It remains to be seen who will win.


It would be foolish to discuss Paytm, without highlighting the effects of demonetization. On 8 November 2016, the Government of India announced the ban of all Rs 500 and Rs 1000 notes. These notes represented 86% of the value of all notes in circulation. These notes had to be deposited at banks and exchanged for new notes. However, because of poor implementation, it was weeks and sometimes months before bank branches and ATMs had new notes available. Paytm exploited this situated perfectly.


It used this situation to push physical stores, from large supermarkets to small roadside vendors, to download Paytm and use it as a form of payment.  The day following demonetization Paytm took out front page advertisements in all the leading newspapers thanking the prime minister and urging people to use Paytm. The whole country was transacting on Paytm. Between November 10 and December 20 2016, Paytm added over 20 million new users. In fact in the two week following demonization, Paytm was seeing 7 million transactions per day, which is more than the combined daily usage of all Indian debit and credit cards.


Today, Paytm is already seen as a winner in the Indian market. And its market is essentially bottomless. In fact only about 60 million users are on Paytm compared to India large and still growing population of 1.2 billion.


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Student comments on Paytm

  1. Thank you so much for the great post, Shiv. I was in Bangalore the past winter and was impressed how Paytm has penetrated the payment market in India. This is a great example of leapfrogging in emerging markets. There are many unbanked population in emerging markets like India, and digital wallet enabled such population to have transaction in a more convenient, faster and safer way. I’m very curious to see how incumbents such as banks and credit card companies will respond to disruptive players like Paytm, whether they will come up with similar business models, or try to differentiate their own business model from digital wallets. In any case, Paytm seems to have already built a strong position in the market, with the backup of PM Modi’s government.

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