Paytm shares made a weak debut on Dalal Street on Thursday, opening on bourses at a discount of around nine percent. The weak listing of One97 Communications -- the parent of digital services platform Paytm -- comes after its mega initial public offer (IPO), though fully subscribed, failed to receive the kind of response enjoyed by several companies in the recent times.
Ramesh Mantri, Director-Investments at White Oak Capital Management shared his perspective on the same in an interview with CNBC-TV18.
“Paytm is a verb, no longer a brand,” he said.
Paytm has been an absolute pioneer in the digital space.
The concerns are valid on disruptions because with the advent of Unified Payments Interface (UPI), clearly wallets are becoming less valuable. At the same time, there are different set of leaders that have emerged on the UPI stack which is PhonePe and Google.
“So clearly while Paytm has been an absolute pioneer in digital payments space, yet they face challenges with new disruptions particularly UPI led disruptions,” he said.
He believes, India has already built the best payment stack.
“On a daily basis, our volumes are 80 percent higher than China on digital payments,” he said.
Payments is difficult to monetize but it is a great funnel to acquire customers, he noted.
“Because it is a very high frequency usage, it ends up being one of your top apps in your phone. So, there is high customer engagement and then the monetization model has to be around a lot of ancillary products in the financial services space and of course Paytm also has a play into some of travel and booking facilities. So the monetization model has to be in ancillary products apart from payments,” he shared.
“Payments is a great way to acquire customers and create deep engagement with the app. Paytm will succeed if they execute well on selling other financial services products. If they can scale up banking, lending, insurance, investment products,” he explained.
“It is unlikely that a platform like Paytm can compete in segments in lending where customers are very interest rate sensitive. But there are lot of products within lending space where customers are less interest-rate sensitive. That is the space for Paytm to scale up,” he said.
In collection aspect, there is one significant advantage Paytm has and that is its customer acquisition and operations cost where the physical banks have much higher cost because of the physical infrastructure.
“The younger generation in India there is significant preference for convenience and customer experience, which unfortunately the traditional banks don’t do a great job and that is where the fintech platforms do a great job. So, these platforms have advantage on customer acquisition and cost of operation. They will have to use a lot of data to improve underwriting practices, so they can create a competitive advantage by using the large data set they have,” he explained.
To improve underwriting, they clearly need to build some capabilities with collection.
The opportunity is large but the challenge is also quite large for fintech companies to scale.
Fintech is a very early space in India and there are no skilled players on the lending side.
According to him, the accounting losses will continue for some time. What matters is – are these companies able to acquire customers and create a profitable business over the long-term?
For the full interview, watch the accompanying video.
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