Loot On Streets As Fintechs & Banks Battle For Paytm’s Merchant Base

Following the RBI clampdown on Paytm Payments Bank and the absence of any respite to the Vijay Shekhar Sharma-led entity, several banks and fintech startups’ executives are now on the roads projecting themselves as the replacement of the payments juggernaut. The reason behind this is clear – there’s a loot for the company’s market share.

In Bengaluru, for example, almost every merchant is witnessing an influx of field agents trying to convince them to switch to their platforms, open a current account with them or purchase their soundboxes.

Interestingly, Paytm executives have not given up yet. Speaking with Inc42, a Bengaluru merchant said that Paytm field executives, too, are approaching them in a bid to stop them from switching the platform. These executives are assuring that merchants will be able to use soundboxes even after February 29. 

Currently, Paytm seems to be working overtime to save its 37 Mn-strong merchant base, which it has been building since 2019. It is this endeavour that gave the company a rock-solid foundation in India’s digital payments market, which otherwise is dominated by Walmart-backed PhonePe and Google Pay.

Why Does Paytm Want To Keep Its Soundboxes Buzzing?

Despite occupying only 14% of the UPI market share, Paytm’s strength lies in its 37 Mn-strong QR code network deployed across the country. 

The fintech major has been able to create this kind of network with the help of thousands of its field executives, who helped even the smallest of merchants adopt a QR scan code for accepting digital payments from customers.

This is how Paytm made money — Getting merchants to use QR codes, selling sound boxes and POS devices, charging monthly subscriptions on sound boxes, and receiving an MDR fee on payment gateway services. 

Paytm launched its soundbox at INR 900 per piece a few years ago. A new variant of this device called Tap and Pay currently costs INR 999, including monthly subscription charges.

“There are possibly 1 Cr soundboxes in the market. Of these, 85 Lakh would have been deployed by Paytm. We believe in the potential of this market and feel that there will be 4-5 Cr soundboxes deployed in the next 3-5 years. Paytm will be key in expanding the market,” said Bhavesh Gupta, president and chief operating officer, One97 Communications, in a media briefing last year.

With an eye on this market, PhonePe launched its smart speakers at a price of just INR 50 for installation and monthly rental of INR 50 per month. Google Pay, however, has far more expensive daily/yearly subscription plans for its soundboxes at INR 499 (one-time settlement and then daily rental of INR 5) and INR 1,499 per year (one-time annual subscription).

As per Paytm’s annual report for the financial year 2022-23 (FY23), its total merchant subscriptions grew to 68 Lakh in FY23 from 29 Lakh in FY22.

It added that sound boxes and POS devices, which small and mid-size retailers use, are the main sources of revenue from subscriptions.

In its Q3 FY24 financial report, Paytm said its merchant subscriber base rose by 14 Lakh during the quarter to 1.06 Cr.

Notably, the merchant acquisition paved the way for Sharma to build his financial service business to where it was lending in partnership with banks and NBFCs.

According to multiple industry sources, the RBI has derailed Paytm’s path to profitability on all the above fronts. 

Currently, Paytm is in talks with several banks to chart out a strategy for quick partnership so that it could stop its 37 Mn merchants from migrating to other platforms.

“They still have two more weeks but they might be also trying to convince the regulators that the scale of disruption for small and mid-size retailers in India will be huge. So, we might expect some softening of the stand from the RBI on that front, although media reports suggest otherwise,” a senior executive working with Paytm said.

However, according to the most recent alarm sounded by RBI Governor Shaktikanta Das, there is ‘hardly any room’ to review action on Paytm Payments Bank.

On February 13, brokerage firm Macquire said Paytm has an “arduous task ahead” due to customer exodus. The brokerage firm forecasts a sharp fall of 60-65% in Paytm’s revenue.

What Do Merchants Say?

Various trade bodies that Inc42 spoke with stated that they have issued state-wise advisories to small retailers to make cash withdrawals from Paytm Payments Bank accounts and switch to the QR codes of other banks like State Bank of India, HDFC Bank and Axis Bank.

“But there are multiple challenges in this because a small retailer would not know how to make a switch readily. To resolve this, field teams of various banks are actively reaching out to traders,” Praveen Khandelwal, general secretary of Confederation of All India Traders told Inc42.

CAIT claims to represent 80 Mn traders across the country.

Khandelwal mentioned that even if Paytm somehow ties up with banks before the deadline, the process of making the retailers move to another bank account will not be easy.

“One of the major reasons why Paytm QR codes were adopted widely was due to the swift real-time payment settlements, which happened with merchants having accounts with Paytm Payments Bank. Now, if a third player comes into the picture, this is going to just add to the operational burden for both Paytm and merchants,” Khandelwal added.

He further said that traders have been advised to adopt QR Codes/ sound boxes of banks rather than fintechs since the former are well regulated and there is no risk of losing money.

As of now, rivals PhonePe and Google Pay have partnered with multiple banks like YES Bank, ICICI Bank, Kotak Mahindra Bank and HDFC Bank. Meanwhile, Paytm, too, is in talks with various banks to mitigate any disruption.

India’s largest state owned lender, State Bank of India according to multiple reports has also aggressively been expanding its sound box network by partnering with homegrown and overseas tech firms and capture a share of this growing market.

A former senior official at SBI stated that the banks will eye current/ saving account openings as well as the deployment of devices to boost businesses at this critical juncture.

However, Paytm told Inc42 that it expects minimal to no disruption past the February 29 deadline as the talks with banks are accelerating.

“Over the last two years, we have been working with multiple third-party leading banks. We are expanding these relationships, and they are progressing positively. We continue to operate (and have been in the past) with not just one partner but multiple banking partners for a host of services including Paytm QR,” a Paytm spokesperson said in response to Inc42’s queries.

“In the instances where our associate Paytm Payments Bank operates as a back-end bank, these services can seamlessly be transitioned to other partner banks. This means that for our merchant partners, there will be no disruptions, no need to revisit existing setups, and no additional effort. We’ve communicated this widely,” the spokesperson added.

PhonePe, Google Pay, CRED pay, Amazon Pay, TataPay,  and HDFC’s app SmartHub Vyapar are some of the options that Paytm merchants currently have.

Speaking with Inc42, a clothing merchant in Bengaluru, said that some banks and companies are offering sound boxes at half the price compared to Paytm. 

“Even subscription amounts have been reduced so that the merchants onboard these apps. But except for banks, we are unsure of how the RBI will handle fintechs like PhonePe and Google Pay in future,” the merchant added.

Amid claims and counterclaims, all eyes are on the release of the frequently asked questions (FAQs) by the central bank on the Paytm Payments Bank issue. The FAQs, slated to be released this week, will provide clarity on how the transition will be managed so that end users do not have to suffer.

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