Less than a week after confirming that E&Y is conducting a probe into an internal Paytm Mall scam, the company has now announced that the cashback fraud is in “double digits” and “INR 10 Cr for sure”. Paytm founder Vijay Shekhar Sharma told a news report that the company discovered the Paytm Mall scam last year.
“Post Diwali , what my team saw was that there were some small sellers who were getting a large percentage of the cashbacks and we as a team asked our auditors to do a deeper audit. We found out that there were some sellers who were colluding with some employees at the junior-level and they, sort of, will get more cash back on their products,” the Paytm founder was quoted as saying in a news report
Paytm Mall Scam: Employees Fired, Sellers Delisted
The company has taken action against the “wrongdoers” which includes delisting “hundreds of sellers to ensure there are only brand sellers on the platform”. The company will now only allow authorised brand sellers to sell products on Paytm Mall
“We first used to believe that every seller should be able to sell on Paytm mall. Right now, we stringently clear only the authorised brand sellers. For instance, in a product like the iPhone, earlier a small mom and pop store could also sell it online. All such sellers have been removed and now only authorised brand sellers would be able to sell that,” Sharma added.
The company has also sacked “tens” of employees. Paytm Mall had partnered with E&Y to build a technology-based fraud prevention system.
The firm was roped in to investigate an alleged cashback fraud involving its staff members. However, the case hasn’t deterred Sharma’s belief in the cashback model. He still believes that the model is sustainable. However, he says that profitability may be some time away as it is spending more on on-boarding users and merchants currently.
Sharrma added that Paytm would not be profitable till its user base reaches 500 Mn from 300 Mn and merchant base swells to 40 Mn from the current 12 Mn.
Paytm Mall’s Rough Patch
It is notable that after a rejig of top-level management at Paytm Mall, the company has also followed it with over 80% cut down in cashbacks across its online marketplace categories such as grocery, electronics and fashion. The cut down had also led to reduction in the users of Paytm Mall, but considering the fraud that has come up, it may not have been a bad decision.
Paytm Mall has been losing market share, slipping from 5.6% of the market in 2017 to a mere 3% in 2018. App Annie data also showed that the company’s active users have halved to 4 Mn in March from the 8 Mn in October.
Paytm Mall reported a net loss of $245.65 Mn (INR 1,800 Cr) during the FY18, nearly 150 times its net loss of $1.86 Mn (INR13.63 Cr) in the previous financial year. The company’s finance costs also multiplied, reaching $6 Mn (INR 44 Cr) from $66,852 (INR 49 Lakh).
The saviour for Paytm Mall is speculated to be eBay. It is expected to lead a $160-170 Mn strategic investment as it looks to expand its offline-to-online commerce play in India.