Paytm founder on mobile PoS app, payments bank launch, marketing spend and more

Mobile wallet firm Paytm, which claims to have over 158 million customers in India, has launched what it called India's first mobile point-of-sale application, App PoS. It will act as a virtual PoS that will enable small merchants to accept all card payments including Rupay, Visa, MasterCard and Maestro.

The Alibaba-backed company claims that 40,000 merchants are signing up daily at present and expects this number to hit 70,000 a day after the launch of the feature on Paytm app.

India has 55 crore bank accounts, 74 crore debit and credit cards, 20 crore monthly PoS transactions are conducted on average via debit and credit cards.

"We have 14.8 lakh PoS machines in India and 7 lakh retailers are using PoS machines. There is only one PoS for every 1,785 people in the country. Paytm's App PoS eliminates the need for a point-of-sale (PoS) or a card swipe machine. We expect 10 million App PoS downloads by this weekend," Paytm founder Vijay Shekhar Sharma said at a press conference in New Delhi on Wednesday.

The company said merchants can sign up on the Paytm app and accept up to Rs 50,000 a month through mobile PoS without any fee till 31 December. Credit card fee, however, will be 2%, Paytm said. It hasn't clarified on the fee that Paytm will charge after 31 December, but said merchants can transfer the money to Paytm Payments Bank—which is expected to be launched by then—without any charge.

The move comes as the government's demonetisation decision earlier this month led to a severe shortage of cash and prompted people to increasingly use digital payment options including Paytm. Here are some highlights of Paytm's announcement today:

Paytm in numbers

According to Sharma, Paytm is on its way to complete $2 billion in transactions this year. The company said it has 15 lakh merchants on its platform, and with this new launch expects the number of merchants to grow 10-fold to 1.5 crore by this weekend.

Earlier, Paytm was adding 1 lakh users a day. Now, thanks to demonetisation it is witnessing 5 lakh users registering on its platform a day and daily average transactions growing at 140%. Paytm claims it has the highest traction in Hyderabad and Chennai followed by Delhi, Mumbai and Bengaluru. Earlier, customers were doing three transactions a week on average; now they are doing three to four transactions a day.

Payments Bank

Sharma admitted there has been a delay in the launch of the payments bank. "We have been working with the Reserve Bank of India for the past few months on completing the process. We delayed the launch timeline that we expected, which was Diwali, so we can't give any timeline for payments bank launch. But we expect the launch to happen anytime between December and January," he said.

Separately, Mint newspaper cited Sharma as saying that he and Paytm parent One97 Communication Ltd have together invested Rs 220 crore in Paytm Payments Bank Ltd to date. The investment could go as high as Rs 400 crore. Out of Rs 220 crore, Sharma has put in Rs 112 crore, the report said.

Alibaba Group's stake in One97 Communication will be transferred to the e-commerce business. Techcircle earlier reported that Sharma will hold a 51% stake in the payments business because the payments bank licence was issued in his name, and 49% stake will be held by One97.

Meanwhile, telecom operator Bharti Airtel Ltd on Wednesday announced the launch of 'Airtel Bank', becoming the first payments bank in the country to go live.

Marketing investments

Given the backing from investors, Paytm has a huge marketing budget. Last year, the company spent nearly Rs 2,046 crore in acquiring customers, and has set aside an additional Rs 500 crore for its marketing spends for this year alone.

On marketing budget, Paytm said it is working toward acquiring as many customers as it can because ultimately they will also become Paytm Payments Bank customers.

"We haven't left any corners," said Shankar Nath, senior vice president at Paytm. "Our annual budget is Rs 500-600 crore a year. But we keep some funds aside for exceptional circumstances such as demonetisation. Whatever our ideal monthly budget is we are spending three times more this month," Nath added.

Business model, losses

Sharma also talked about the company's business model, and said Paytm incurs costs of about 1-2.5% on every transaction users make on the Paytm network.

"We earn by keeping a margin of up to 1-15% from cinema tickets, bus tickets booked on our platform." Paytm posted a net loss of Rs 1,548 crore in the financial year ended March 2016 on revenue of Rs 830 crore, and there is no likelihood of the tide turning this year.

Sharma said the company doesn't look at losses but at cash flows. "I believe that looking at the current spend pace we have enough cash to keep us going for next two years. But are we comfortable with this? The answer is that we will be launching payments bank so we will have a new revenue channel and we will not be spending too much on that. The payments bank will make money in two years' time. Our current focus is acquiring customers for that."

"We are currently on investing mode, and we see a big market opportunity for us. Any technology company that has made consumer product has never made money in first five years," he concluded.