Paytm Business Model : How do they make money
If you ask people to list out the top startups in the Indian scenario that have grown rapidly, people will list out names like Flipkart, Snapdeal, Zomato etc. But, most of them will miss out on a very important name and that is Paytm. Paytm has grown to be the big fish in their own space having started very humbly. Paytm started out as a recharging service that helped people top up their pre-paid accounts and here they are competing with the biggest in the e-commerce space with the likes of Flipkart and Snapdeal.
So what is Paytm business model?
Paytm is in three businesses.
- The Recharge business
- The E-commerce business
- The Wallet business
1. The Recharge Business
This business is what they started off with. They create one of the earliest platforms for phone recharges, which were much simpler than the offline mode of it. For recharges Paytm earns a commission of 2 to 3% per recharge. The recharge market is worth millions of dollars. And Paytm controls about 30% of this market. This will hand them a handsome sum of money. This business will get stagnant after a while, when penetration has reached far enough and the subscriber base doesn’t grow. It’s constant money and more importantly, it’s traffic to the website. This business is what has fueled their growth and right now it provides traffic and a database to upsell their next business.
2. The E-commerce Business
Everybody is seeing the value of the e-commerce market place business. It’s a great way to earn a profit on the items sold and the online channel makes it much more potent than the online channel. Paytm has done just that. They got into the e-commerce business and promoted their e-commerce platform to their existing users. They’ve recently tied up with over 1,000 brands to set up mini shops within Paytm to truly create a marketplace. This would be run exactly like an offline channel, to explain it further it would be run like a mall. The brands would control their brands experience and Paytm would earn a percentage of every sale.
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3. The Wallet Business
This is the business that Vijay Shekhar Sharma(Founder of Paytm) hopes will take Paytm to the stratosphere. He believes that the wallet business of Alipay that grew into a $60 Billion business could be replicated in India. They got the license for a pre-paid wallet from the Government of India and are hoping to tap into the banked and the unbanked. This wallet would be the front for all payments where you could buy a movie ticket to paying the milkman with this wallet. It would be a one-touch payment for every sale, which makes it extremely hassle free. Having a service connected directly with a wallet is what Paytm believes will be a differentiator in e-commerce as well. They make commissions from the retailers for every transaction that is made through the wallet.
The advantage Paytm has is their Investor. Their majority Investor is Alibaba. Alibaba has a 40% stake in Paytm and calling them a behemoth would be justified. Alibaba is in no hurry and they are trying to capture all markets. Alibaba also has an extensive experience in payments and this could be very beneficial for Paytm. Would they beat all the poster boys of the Indian business story or would they be stagnant? Only time can tell.