India’s Prosperous Unicorns Or Impoverished Set Ups?
BY ANANYA JAIN
Unicorn is the term used in the venture capital industry to
describe a privately owned startup company with a value of over $1 billion.
In November 2016, when the Indian government decided to
demoneAse Rs.500 and Rs. 1000 currency notes, Paytm became the star of India’s
fin-tech universe and tech startup ecosystem almost overnight. During the first
few weeks aJer demoneAsaAon, Paytm’s business grew manifold and got recognised
as one of the most trusted brands of 2016. But over the last four years, the
emergence of newer technology and global lead-feet, such as Google, Amazon,
Walmart, and WhatsApp, have leJ Paytm stranded from its market posiAon. Moreover,
the Indian government’s unified payment interface (UPI), which allows users to
transfer money directly from bank accounts, has eliminated the need to add
money into digital wallets.
In January 2021, Paytm secured third place aJer Walmart-owned
PhonePe and Google Pay in terms of the number of online money transfer
transacAons.
Despite creaAng a separate enAty called Paytm Mall for its
e-commerce business in 2017, the company hasn’t been able to make a mark in the
sector, owing to its excepAonally well performing compeAtors, Amazon and
Walmart-owned Flipkart, which together account for over 85% of the market
share.
Ideally, the diversificaAon should have yielded results as
Paytm had a customer base of 100 million to bank upon. However, the intense
compeAAon forced the company to spill money into cashback and markeAng, making
it hard to lower its burn rate.
Although the company has managed to constantly raise funds to
bridge the gap, yet that wasn’t sufficient. Fundraising strengthens the company
for a longer fight but isn’t indefinitely sustainable- buying customers with
cashbacks and discounts and throwing more millions of dollars at them when the
market heats up. Customers are temperamental and use mulAple apps and payment
systems. Paytm has an unsustainable cash burn, while its intent is to get to
profitability. Another $1 billion isn’t necessarily going to balance its books.
In fact, the Noida-based company has been on a loss-making spree.
Experts believe that venturing deeper into financial services
space could further squander Paytm’s coffers. Financial services is a demanding
business with pracAcally idenAcal product offerings by many players thereby
making it all the more indispensable now for Paytm to maintain its customer
trust and user base that it built with a huge investment in its tech pla_orm
and by expanding its payment and partner network.
Uncertainty to the long term impact of Paytm’s diversificaAon
and discounAng strategy sAll remains; currently it is on a sAcky wicket.
Being present across mulAple sectors has made it paramount
for Paytm to constantly inject more funds into the business. So far, it has
managed to do this precy smoothly, but it could become cumbersome now.
Paytm’s colossal investors like Japan’s SoJbank and China’s
Ant Group are currently in a Aght spot. While SoJbank is loss-laden due to its
current investments like WeWork, Ant Group’s owner Jack Ma is facing agitaAon
from Chinese authoriAes. The fundamental obstacle that remains in order to turn
the company’s overall huge losses to profits over the next few years is, who
will provide more funding for Paytm if SoJbank has been weakened, and Ant’s
investments are restricted. Impossible to neglect the fact that Ant Group is
its biggest stakeholder, Paytm’s problems only mulAply due to the the conAnued
anA-China senAment in India crippling the company’s image, despite its founder
trumpeAng the naAonalism card.
Even aJer becoming the brand of trust and gaining flair aJer
demoneAsaAon, Paytm was actually making losses up unAl 2020. Having Ratan Tata
and Alibaba as its star investors, Alibaba owning a 25% stake in the company,
paytm seems to be under performing.
While on the one hand, it is losing market share to
compeAtors like Mobikwik, on the other hand its diversificaAon tacAcs into
unknown territories is not reaping fruit. However its founder and CEO, Vijay
Shekhar Sharma shows his opAmism by saying, “We are planning to go public in
12-14 months aJer we break even on the losses.”
Credit-card payments app CRED entered the Unicorn Club by
raising fresh funds, towering its valuaAon from $800 million to $2.2 billion in
a span of just 3 months.
The most compelling fact about CRED is that it posted a loss
of Rs 360 crore on a mere revenue of Rs 52 lakh in FY 2020, semng off a debate
on dusky business models. The fin-tech enterprise posted an income of almost
INR 18 crore, INR 17.56 crore of which came from interest earned on deposits.
Even with the revenue generated from deposit interests, the company incurred a
loss of INR 320.31 crore over the past year.
Despite procuring investments worth over $2 billion and
expanding its user base to 5.9 million credit cardholders with top-notch credit
scores, the company hasn’t been able to moneAse its operaAons.
CRED, an app for users to pay their credit card bills and
earn rewards in the process, does not have a single, clear source of revenue so
far. Its earnings are from mulAple products:
• credit card payments,
• Rentpay - where users can seek monthly rent on credit cards
for a small fee,
• CRED Cash - instant credit line,
• STORE - an e-commerce pla_orm where CRED coins can be used
to make purchases, and
• CRED Pay - merchant payments gateway.
Witnessing
no clear winner on the moneAsaAon channel of the startup, ambiguity to the
success of its vague business model is a big mystery.