These are exciting times and a proud moment for your company which was an unknown brand a couple of years ago. It has now become an unforgettable franchise. Are you excited, proud, happy or relieved?
Thank you for so many adjectives. Really appreciate the opportunity that India is offering and we feel absolutely lucky. I cannot say it in words how lucky I feel because all my batchmates were in the US or choosing jobs. When I got out of engineering college in the United States, everybody said why are you “stuck” in India? Today I can say proudly that I was here for the day when I could build something that India can be proud of, the world will be proud of.
Today, instead of being relieved, I see that new energy is being infused into us. There is a new energy that is giving us even more power to complete our mission. It is an incredible day. Paytm is a young startup. It is an incredible day for digital India, for India that a new-age company can go to the public market with an issue of that size, potential, opportunity to list or raise money from!
One values companies by looking at future cash flows and ultimate profitability. How would you define Paytm because its model and the revenue proposition is different?
It comes down to how well you serve your customers and what is happening in India is that there is a huge market opportunity in payments and financial services in particular as also in digital internet. A large number of Indians are not really served that well. There are millions of Indians who do not have access to digital payments, digital bank accounts, digital lending and so on and we know that technology is going to be the solution to solve these problems. So as soon as you have a confluence of those things — which is a large underserved market and technology having a role in serving that — very large technology companies can get created.
I think that is what people see in terms of the growth of Paytm’s business; the growth of our engagement with consumers and merchants, the amount of transactions that we do. I should point out that over the last six quarters, we have been significantly contribution positive. Investors take a lot of comfort that you can generate a significant amount of contribution money and effectively we are spending money right now on people costs and some marketing cost which over time becomes less and less as a percentage of revenue. Investors can see that we are on a path to profitability but at the moment the focus is how to grow access to financial services and once we are able to hit that tipping point, one starts generating significant cash flows.
So let us spend a minute trying to understand the unit economics and the contribution margin. According to the data available with us which you file with the regulator, it is now at 12.9% versus minus 7.9% which means that there is a positive change. Do you think the trajectory of this degree is likely to be maintained in future as well?
One of the things that technology companies typically go through and which is very much applicable on Paytm on this question would also be that the technology companies first bring a behaviour change to the customer. We have lived in a particular style or any industry retail, transportation or for that matter financial services and payments have functioned in a certain way. Paytm has brought about a particular kind of change that customers are significantly comfortable using — smartphones as a way to access financial services.
I believe that trend will continue. If today you and I are doing it, tomorrow everybody in our village and towns will do it and then once the journey starts, more and more consumer services using smartphones will become common. We believe this is a trend for which no incentive was given and this should logically not only continue but amplify. This is a typical behavioural change in customers. Obviously, the pandemic has swung this pendulum even faster.
Financial services is the juicy part for Paytm, both in terms of contribution and profitability. That number currently stands at about 5%? How do you see financial services as a segment going forward?
I will just want to add to the previous question. We filed our RHP last night which also has our June numbers and within that you will see that our Q1 June quarter contribution margin was 27%. So to answer your question, using some additional data which is available in the public domain now, that negative 8% that you said went to 13% in 2021 currently now at 27% at least for the June quarter. So yes, there is the ability to continue to move that contribution margin up and that is what will start to pay for the marketing cost and the people cost and so on more and more meaningfully.
We started financial services three years ago with Paytm Payments Bank which is an associate of Paytm. In four years, it has created about 65 million bank accounts so they are already following Paytm’s mission of bringing half a billion Indians to the mainstream economy. Obviously for associates it does not get consolidated in our revenue. About a year and a half ago, we started a lending business where we work with partners to make loans available to our consumers and merchants now that business has gone from being about three million loans last year to right now it is about 3 million loans a quarter.
So, it has basically quadrupled in scale from where it was last year. So, even within the overall Paytm ecosystem where everything is growing quite fast, financial services particularly lending is growing even faster. Part of the reason is it is a more recent business. We think that based on the current trends, financial services over time should contribute more and more of our revenues and so there is a massive opportunity for a vast majority of consumers and merchants who cannot get access to lending insurance or wealth, quite easily can do so on the Paytm app. So, it is also a huge opportunity for Paytm to partner with large high quality financials and create products which can be relevant to our consumers and merchants.
Markets always look at the future, like I always say focus on not where the puck has moved but where the puck would move. Paytm started as a wallet company; now it is a platform company with financial services and cloud services. Three years forward, what kind of architecture and what kind of vision do you have for Paytm because that will be the deciding factor as to where you move?
You have said it very well. As a technology company, one of the most important things for us has always been being relevant. In 2013-14, when we launched our wallet product, that was relevant and then we launched Paytm payment bank that was relevant. Today we are talking about a buy now, pay later product. I can only tell you that even though I may not know what three years forward the company’s shape would look like. But we definitely will be the most relevant and in the centre of that. That is what my personal ambition is. My personal commitment remains to our team.
The financial services moat that we have discovered, the conversion of financial services from physical distributed to the smartphone distributed, brings an incredible opportunity of deep integrating. For example, one can walk into a hospital and scan a QR and you can make payments from multiple asset classes, not just what you are seeing today and so on. There are a number of initiatives that in two to three years will start showing up and customers’ lives will become a lot more productive.
One can say that Paytm will become the absolute go-to platform for living a far more productive, far more yield generating, far more efficient financial life.
How would you deal with the push back which Paytm and Vijay often have to deal with? What about the liability franchise of Paytm? It is good to grow and add customers because it is a young company and technology adaptation has just about started, but how would you defend the liability franchise?
First of all, we have a payments bank which can take deposits on to Paytm Payments Bank and the whole idea of payments bank is to provide very simple zero cost banking services, digital obviously. We have 65 million customers. So digital zero cost and highly efficient, highly relevant services to hundreds of millions of Indians and that is on the deposit side.
On the lending side, the reason why we partner with people is because we want to enable financial institutions in India who are sitting on very large balance sheets to access hundreds of millions of customers. Consumers should have access to huge number of next generation products and in order to do that, we should work with every balance sheet in the country that is finding this customer segment relevant. But on the liabilities side, our Paytm Payments Bank grows quite nicely.
