Building a Super App: How Paytm is leading India’s fintech revolution

Smartphone apps have come a long way since their inception and have become our primary way of getting things done. Thanks to a thriving developer community, individuals, as well as conglomerates, can leverage a user base of almost a billion users. We have an app for everything. Right from streaming to highly competitive games like PUBG, there’s no creative limitation.

But, a few apps are trying to do more. In simple words, these apps slowly go on adding new functionality that would otherwise require you to download a separate app. When one app can do the job of a dozen other apps, it’s technically called a Super App.

A couple of years back, you needed an app for booking a flight, an app for movie tickets, an app for shopping, an app for your bank transactions, and so on. Paytm, on the other hand, can do all of that from a single app. The point is to build an integrated ecosystem of services so that the user never has to go anywhere else.

Why do we need a Super App?

• From the user’s perspective, you don’t need to download a plethora of other apps to get your daily errands done. One app can take care of everything. Just make one account and you’re good to go. It’s almost like Paypal, but even simpler because you never have to leave the app’s ecosystem to finish checkout.
• As a business, this ensures that there’s higher user retention. If I don’t fly often, I’ll just remove the travel/airline app after use. Next time, I’ll be fine choosing any other provider because there’s no incentive for me to be loyal. With a Super App, the company can ensure I come back to them because they offer much more than tickets.

• In a developing economy like India, a majority of the users have an affordable smartphone. These phones are restricted in terms of storage. Hence, the user doesn’t have the luxury to keep 20 utility apps installed for each task. A Super App can help bridge this restriction by clubbing all services in one app.
• It’s convenient. “Google it” in modern language means search up the Internet. Similarly, “Paytm it” means complete all your financial requirements in one place. Download it once and you’re good to go forever.

How was a Super App conceptualized?

• It all started in China with an instant messaging app called WeChat. Just like every other IM out there, you could chat and send media files over the Internet without accruing additional charges from your telco like an SMS. But, how could this app differentiate itself against American giants? (There are two different versions of WeChat: one that you can download inside China and the global version. The global version does not include most of the advanced services described below).
• It started adding services. WeChat has developed into an all-in-one app that people in China can use to call a taxi, order train and flight tickets, order takeout meals, do online shopping, purchase cinema tickets, book a hotel, rent public bicycles, pay household bills, and even trade second-hand goods.
• While adding services may not be very exciting, WeChat’s walk to fame was because of its payment service. Just like Paypal, you can add your bank/card details in the app and directly use it to pay offline. Instead of cash or swiping a card, you can just scan a QR code at any roadside shop and complete your payment.

• This wasn’t a technological shift. It’s a cultural one. People realized that WeChat-ting each other was much more convenient than carrying cash and figuring out the change. WeChat also has a Wallet service where you can store funds for immediate use. Conventional banks became an old concept when users realized an app can store money.
• For businesses, accepting payments via WeChat was extremely convenient as well. No need to maintain a Point of Sales (PoS) machine, immediate error-free transfers, and a massive user base available at fingertips. Further, the app also has a native marketplace where you can sell your products directly. If there are any queries, the buyer can WeChat the seller.
• Within no time, this app was able to endanger legacy institutions like banks, technology like email, and most importantly, replace cash.
• The Chinese government isn’t transparent. It is fine with WeChat operating because it’ll hand over user data as requested. However, digitizing transactions is a government’s dream come true because it can be tracked from origin to source. Cash, on the other hand, is untraceable. This automatically became enforcement means to reduce cash, encourage taxation, and improve the state’s revenue. Unaccounted income is popularly called Black Money in India.
• WeChat is owned and operated by Chinese technology giant Tencent. The parent is also a stakeholder in PUBG and Call of Duty’s developers. To build a Super App, you need funding and reach of a giant. And WeChat had the perfect backing to fuel its ambitious dreams.

Ultimately, WeChat is now a role model for many aspiring fintech companies. The model has proved it can work and companies around the world are trying to replicate it. India has Paytm, South-East Asia has Grab/GoJek, and Japan has Line.

How Paytm became India’s first Super App

• Paytm was started in 2010 by Vijay Shekhar Sharma and his holding company is officially called One97 Communications. Right now, it owns 38% of Paytm, while 42% is owned by the Alibaba Group (China), and 20% by Softbank (Japan).
• In the early days when Paytm started, it just focused on processing online telecom/DTH/postpaid services. The country had barely digitized back then and smartphone penetration was limited to the urban rich. Paytm was quite early in the game and that was its exact secret to success. In early 2013, it launched its in-house Wallet system that stored money digitally and was based directly on India Rupee, the key to where they are today.

• In the coming years, Paytm expanded into utility bill payments (electricity, water, gas, broadband), train/flight/bus tickets, movie tickets, as well as educational fees, amusement parks, and insurance. Anything that could be done online was brought onboard.
• At the center of all these services is their Wallet. Unlike other “loyalty” cashbacks, the Wallet is directly based on Indian Rupee and does not depreciate. The company provided massive discounts and cashback to attract users and make them get used to the platform. Similar to every modern startup, Paytm spent hundreds of millions of dollars to acquire users. Even today it offers very attractive cashback when compared to the competition.
• Their initial breakthrough came with the entry of Uber in India. The American cab aggregator couldn’t accept online payments in India because it didn’t have a complying license. As a temporary measure, it tied up with Paytm and utilized their Wallet framework. This brought India’s premium customers in Paytm’s radar. Even though Uber can process cards on its own today, the Paytm option continues to exist and is still very popular with users.

• But, the payments industry is slightly different. For example, if you pay your electricity bill via Paytm, it won’t charge you a convenience fee. The power company will be liable to pay Paytm a certain percentage of the total value because the app was also a service to them. Instead of manning counters to accept cheque or cash payments, the power company too can leverage digitization. This is how Paytm manages to earn as well as afford to spend on customer acquisition.
• The company also became a “gateway” for online transactions, just like CCAvenue or BillDesk. Smaller online vendors can use the Paytm Payment Gateway to run transactions online. For the end-user, this adds more convenience because if you’re logged in, just tap the Wallet icon and finish the process.

2016 — A blessing for India’s Fintech

Paytm became a phenomenal success after India’s Demonetization drive in November 2016. Within a few minutes, high-value currency notes were declared worthless. Everyone was encouraged to get online and start transacting digitally.

At the same time, India witnessed the 4G revolution. After the entry of Jio, data was exceedingly affordable. Smartphone brands like Xiaomi were bombarding the market with affordable 4G phones and within no time, India added hundreds of millions of first-time Internet users. This was the eureka moment for India’s fintech.

With a population of 1.3 billion, only 661 million Indians had access to a debit card. Opening a bank account and getting a debit card takes at least a couple of days. With Paytm, you could just take your documents, get them scanned for KYC, and your Paytm Wallet was enabled. All done within a few minutes.

This was the pivotal moment when India embraced mobile payments. Due to the cash crunch, small businesses like roadside tea sellers also started accepting Paytm. Within a short period, the app onboarded millions of new users as well as merchants. A thriving ecosystem was finally complete.

Payments are done! What’s next?

• Paytm also applied for a banking license from RBI and was granted one, but it wasn’t conventional. A new concept of a “Payments Bank” was floated and many other players like Airtel, Idea, and Fino jumped in. Unfortunately, the idea hasn’t picked up well and beleaguered telcos like Airtel and Idea have already kept that part of the business on the backburner.
• Paytm aggressively marketed its Payments Bank and even got too greedy. It was barred from completing online KYC for a while because it started registering users for a Payments Bank account without their direct consent.
• These setbacks proved that their Wallet was still their strongest offering. And since then, they’ve been focused on maintaining it at the center of it all.

• On the sidelines, Paytm is actively acquiring businesses like Insider.in, Nearbuy, and Balance. Insider now fuels the apps local entertainment section, Nearbuy was Paytm’s top competitor for deals and coupons, while Balance is now being leveraged in Paytm Money.
• The in-house team is also working on new products that will act as extensions of the Paytm ecosystem. They’ve already launched Paytm Money, an app that directly lets you invest in mutual funds. Paytm Mall is a marketplace like Amazon and available as a standalone app. There have been reports that the company also intends to enter the broking industry via a trading app. Lastly, Paytm has expanded operations to Canada and Japan.

In 2019, Paytm raised US$ 1 billion from investors at a staggering valuation of US$ 16 billion. Till now, Paytm has raised a little over $2.5 billion in investments. The company claims it has a monthly user base of 140 million, making it the largest payments app in India.

Though, everything’s not as rosy as it looks. Paytm’s losses for fiscal 2018–19 nearly tripled to INR 4,217 crore from INR 1,604 crore in the year-ago period. This expansion has taken a massive toll on its profitability. But experts say the losses aren’t surprising and the company is big enough to sustain profitable operations if it focuses on just the payments stack.

UPI — The secret recipe for building an ecosystem of Super Apps

• Paytm is just one of the many Super Apps that are popping up in India. While Paytm is undoubtedly India’s first Super App, its dominance is being quickly challenged by newer apps. And, Paytm could be running out of firepower.
• While there’s no doubt that Paytm’s Wallet is a solid product, it’s not unique. The same product was with Freecharge and is being leveraged by Amazon today.

• After demonetization, Paytm enjoyed a good run for a few months because it already had a user base. But, India’s NPCI also launched UPI (Unified Payments Interface) — a standardized protocol that’s accepted by every major Indian bank and can be easily incorporated in any payment gateway or app.
• By the end of 2017, the growth of digital wallets had stalled, as UPI-based apps like Google Pay and PhonePe were leading the expansion of digital payments. By then Paytm, too, had moved to the UPI platform to survive.

Paytm isn’t the only Super App

• It’s a long list, but companies like Facebook, Google, and Amazon immediately wanted a piece of the pie. Flipkart (now backed by Walmart) acquired PhonePe, Google developed Tez (now Google Pay), Amazon started Amazon Pay, and WhatsApp conceptualized WhatsApp pay. Paytm is now up against every technological giant you can think of.
• Amazon is synonymous with online shopping. In India, it quickly rolled out an option to pay utility bills and book flight tickets. Flipkart made the same moves while making PhonePe an independent company. Google Pay has all the payment features you’ll find in Paytm. Even a caller identification app like Truecaller has aced online payments.

• RBI set a February 2020 deadline to complete all pending wallet KYC’s and Paytm says less than a third of its 350 million registered users are KYC compliant.
• UPI took away the charm of having an online wallet. And, that’s exactly why Paytm is rapidly expanding. It knows competing against giants like Google and Amazon will bleed it to death. They’re making space in new markets as well as entering new verticals like the stock market and mutual funds.
• This week, the company announced a new PoS machine that’s powered by Android. Even though this sounds great on paper, the ground reality is different. The PoS segment is cramped to the neck with conventional banks as well as well-established companies like Pine Labs and Mswipe. Can Paytm afford to expand in competitive spaces like these when it’s already struggling in its own turf?

• As of September 2019, Paytm’s UPI transactions account for 6% of all UPI transactions, while Google Pay is on the top at 62%, and PhonePe is at 25%. For an app that kickstarted digital payments in India, Paytm has definitely lost the game to new players.
• Lastly, it also needs to watch out for an attack from WhatsApp. The IM has 400 million active users in India but hasn’t been able to launch integrated payments due to compliance norms. When it gets the nod, the complete industry should be ready for a massive attack that could potentially cost them millions of valuable users.

Thanks to one common piece of technology, India is open to Super Apps. Ups and downs are a part of running a business and whether Paytm is able to continue the streak or not, doesn’t matter. In the end, India’s financial industry has massively encouraged digital payments and UPI was the game-changer. Every institution today, whether it’s a young start-up or an established bank, is trying to leverage the full growth of India’s fintech ecosystem. If we look at it, this transformation will benefit everyone massively because digital transactions are easier to trace and tax. Rather than increasing tax rates for the upper spectrum of citizens, this system can bring onboard new users who can contribute indirectly.

Words by Shivam Vahia

Originally published at https://warpcore.live on February 14, 2020.