1/3/2020 Business Model

Group Project

Business model research of

Paytm

Submitted to:
Prof. Prashant Salwan
Submitted by:
Group No. 08
Rahul Kumar 2018PGP085
Aninda Dutta 2018PGP065
Kilaparthi Ramesh 2018PGP076
Dubbaka Vineeth 2018PGP022
Suman Sarkar 2018PGP094
Letter of Transmittal

Group 8
IIM Sambalpur
Odisha

Date: December 11, 2019

To,
Prof. Prashant Salwan
IIM Sambalpur

Subject: Project report on Business model research of Paytm

Dear Sir,

We are grateful for proving us the opportunity to work on the Business model research of Paytm
project. This document is submitted as the project report towards the Business Models course
group project titled “Business model research of Paytm”. Kindly consider this report as our
official submission towards group assignment component.

Thanking you

Yours sincerely,

Group 8
IIM Sambalpur

1|Page
 Table of Contents

Introduction................................................................................................................................2

Digital Payments (From 2010-11 to 2017-18).............................................................................4

Value Creation and capturing of PayTM From 2010-11 to 2017-18......................................5

External Industry Analysis for the year 2010- 2011.................................................................7

External Industry Analysis for the year 2017- 2018................................................................12

Key Success Factors & Competitor Analysis...........................................................................17

Competitive Profile Matrix for PayTM- Payments (2017-18)...............................................20

Competitive Profile Matrix for Paytm- e Commerce (2017-18)............................................21

Developing the logic of the firm..................................................................................................22

Customer value proposition........................................................................................................22

Creating and Sustaining Competitive advantage....................................................................27

Business Canvass of Paytm.........................................................................................................32

Business Model in 2017-18..........................................................................................................33

References......................................................................................................................................35

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Introduction

Fintech Industry

A Financial-Technological system is an electronic system used to settle financial transactions

among different individuals/parties using digital currency. It includes all the financial
instruments, institutions, standards, rules and procedures that make its exchange possible. It
consists of four dimensions: first, the products themselves which are nothing but the financial
instruments; second, the financial institutions that exchange the products; third, the regulatory
bodies that govern the transactions using some rules, standards & procedures; lastly, the
technological layer which helps in facilitating the transactions.

Starting from digital payments, Fin-Tech consists of a variety of services like robo-advising,
social-trading, crypto-currency, etc. Digital payments are apps or software that facilitate
economic transactions among users and businesses. Robo-trading is a class of automated
software that provides financial advice or investment management to clients (whether individuals
or business). This is quite different from wealth management services (offered to high net worth
clients which are highly tailored to the consumer needs) because this contains very standard rules
or algorithms which don’t need a manual intervention thus providing a low-cost alternative to
human experts. Social-trading is a type of investment strategy in which common people can
learn & follow the trading behaviour of their peers or industry experts. Cryptocurrency is a type
of digital currency which is strongly coded to control the creation of individual units protects
financial transactions. In contrast to the traditional currency which has centralised control, this is
highly decentralised.

Digital Payments Industry

Digital payments industry primarily consists of players who offer digital wallets. Apart for
traditional digital payment methods like debit cards, credit cards and internet banking, there has
been a rise of modern techniques like digital wallets, UPI, etc. which has overcome the nuances
of physical money. Now, consumers don’t need to carry much cash even for making small
transactions in Kirana stores, mom-&-pop stores, etc., buying goods online, booking a cab or
ordering food online. Every product or service which they need is just a click away.

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Digital wallets consist of two components: an ID and crypto storage. The ID ensures the
authenticity of the owner of the wallet and provides the safe, secure & seamless transactions of
money across different stakeholders. The crypto storage stores the money in a coded value so
that hackers can’t misuse it and also increases the efficacy of utility thus increasing the overall
satisfaction of any purchase.

There are many players currently operating in the digital payments industry for example PayTM,
PhonePe, Google Pay, Mobikwik, etc. who are trying to capture as much value as possible from
the disruption created by digital technology in the financial space.

PayTM

PayTM which started as a digital peer-to-peer payments business, has transformed itself to be a
digital payment marketplace, virtual bank & gold e-wallet business. It has close to 20 different
subsidiaries under it and manages them as a diversified group company.

It was started within the initial investment of Rs 10 crore ($ 2 million) by Vijay Shekhar Sharma
as One97 Communications Limited in August 2010. One97 Communications Limited provided
news & information on sports, media, etc. and the PayTM branch of the company offered digital
peer-to-peer payments to the public. Since, then it has diversified itself into various businesses
like PayTM Mall, PayTM payments bank, PayTM smart Retail, PayTM Money, Gamepind, etc.

In 2017-18, it generated consolidated revenue of Rs. 3314.8 crore and suffered a loss of Rs.
1603.34 crore because it was investing all its gains to various businesses to power its aggressive
growth. With total assets of Rs. 3997 crore, it is valued by the market at Rs. 60,000 crores ($ 10
billion), thus showing a brand value/assets of close to 15 times (Generally, what a typical IT
company is valued).

It offers various services which now span across multiple industries like PayTM Mall, PayTM
payments bank, PayTM money, PayTM Smart Retail, Gamepind, etc. PayTM payments are
present in the digital payments industry while the PayTM Mall competes in the e-commerce
industry. PayTM money provides wealth management services while PayTM smart retail
provides PoS solutions.

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Digital Payments (From 2010-11 to 2017-18)

Total
2017-18 2010-11
Revenue 12780.89 2
Profit -2187.17 0

brand value 230389.6 0

assets 15356.31 11.25
Value/revenues 18.0261 0
profit/assets -0.14243 0
The digital payments industry is highly competitive as well as shareholder value destructing at
least in the short term; but, it will create enormous value in a long time. If we map the Value-
Creation Value-Capturing performance of the industry over the decade (from 2010-11 to 2017-
18), we find out that although the industry has been creating enormous value for the customers, it
has been performing very poorly in the capturing of value. According to our analysis, the
industry has been producing close to 18 times more value (brand value) compared to the
revenues it has been generating but losing close to 14 % of the value it has presently.

Digital Payments Industry

0.00
0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 16.00 18.00 20.00
-0.02
-0.04
Value Capturing

-0.06
-0.08
-0.10
-0.12
-0.14
-0.16
Value Creation

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Value Creation and capturing of PayTM From 2010-11 to 2017-18

In 2017-18, it generated consolidated revenue of Rs. 3314.8 crore and suffered a loss of Rs.
1603.34 crore because it was investing all its gains to various businesses to power its aggressive
growth. With total assets of Rs. 3997 crore, it is valued by the market at Rs. 60,000 crores ($ 10
billion), thus showing a brand value/assets of close to 15 times (Generally, what a typical IT
company is valued). The company has created an enormous amount of value for the customers
but not captured enough value for the shareholders at present. But that’s because the company is
positioned in the Nightmare zone (Value-Creation Value-Capturing Framework) and it’s
aggressively investing all its profits in diversifying into various businesses to capture as many
customers as possible. Right now, the strategy of the company is to lock-in as many customers as
possible through network effects, and later build a sustainable business on it.

  PayTm PhonePe GooglePay Mobikwik

  2017-18 2010-11 2017-18 2010-11 2017-18 2010-11 2017-18 2010-11

Revenue 3314.8 1 42.79 0 9337.7 0 85.6 1

-
Profit 0 -791.03 0 407.2 0 -200 0
brand value 1603.34
60000 0 770.22 0 168078.6 0 1540.8 0
assets 3997 10 51.35 0 11205.24 0 102.72 1.25
value/revenue 18.10 0.00 18.00 0 18.00 0 18.00 0
s
profit/assets -0.40 0.00 -15.41 0 0.04 0 -1.95 0
Red (just Blue (didn't Green (didn't brown (just
  line started) line exist) line exist) line started)

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 Digital Payments Industry
Players
Value Capturing

20.00
-20.00

Value Creation

External Industry Analysis for the year 2010- 2011

When Paytm started way back in 2010, the socio-political environment was not very ripe for Fin-
Tech based business. Surely, there was an opportunity, but technology hadn’t matured enough in
India to support Fin-Tech companies. Internet & mobile phone penetration was low that too
mainly in 2G connection; government support for digital payments was not there; very few
people trusted online payments (most preferred Cash-on-Delivery options) and many companies
had their app for recharges, bills payments, etc. Threats were present, but not very critical
because most companies kept their data safe through layers of encryption; also, very few people
had an online presence or their data in the cloud. So, although the industry was in nascent stages,
with the growth in internet penetration, it surely was an opportunity coming up in future.

EFE Matrix for Paytm in 2010-11

KEY EXTERNAL FACTORS WEIGHT RATING WEIGHTED

SCORE
Opportunities
1. Rapid penetration of Internet 0.20 4 0.80
2. Rising mobile phone penetration in India 0.15 4 0.60
3. Customers don’t want to carry too much 0.25 5 1.25
physical money
4. Customers want a one-stop option for all 0.20 4 0.80
kind of recharges (mobile, DTH)
Threats

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 1. Cyber-attack on digital wallets 0.30 3 0.90
2. Failure in transactions due to poor 0.05 3 0.15
internet
3. Lack of Trust to online payment services 0.20 4 0.80
4. Lack of awareness of digital payments
5. Data theft & misuse
TOTAL 1.00 2.40

Industry Analysis (Porter 5 forces) in 2010-11

During 2010-2011, the Fintech industry had just started in India, and there was not much
competition among existing players. The threat of new entrants was low because not many
companies were venturing into this space. But, the threat of substitutes was still high. Paper
money was very common and people didn’t trust virtual money that easily. The bargaining
power of the buyer was high as the public didn’t view online transactions very safe and secure.
So, they had to be brought in through some subsidisation like coupons, buybacks, etc. And, until
customers come to the platform, sellers also wouldn’t come to the platform. So, the bargaining
power of suppliers was also a bit high. So, overall the industry seemed very competitive but was
actually in the early stages.

Threat of entrants Yes No (–)

(+)
1) Do large firms have a cost or performance advantage in your X
segment of the industry?
2) Are there any proprietary product differences in your industry? X
3) Are there any established brand identities in your industry? X
4) Do your customers incur any significant cost in switching suppliers? X
5) Is a lot of capital needed to enter your industry? X
6) Is serviceable used equipment expensive? X
7) Does the newcomer to your industry face difficulty in accessing X
distribution channels?
8) Does experience help you to continuously lower costs? X
9) Does the newcomer have any problems in obtaining the necessary X
skilled people, materials or supplies?
10) Does your product or service have any proprietary features that X
give you lower costs?
11) Are there any licenses, insurance or qualifications that are difficult X

8|Page
to obtain?
12) Can the newcomer expect strong retaliation on entering the X
market?

Bargaining power of buyers: (to what extent are your customers Yes No
locked into you?) (+) (–)

1) Are there a large number of buyers relative to the number of firms in X

the business?
2) Do you have a large number of customers, each with relatively small X
purchases?
3) Does the customer face any significant costs in switching suppliers? X
4) Does the buyer need a lot of important information? X
5) Is the buyer aware of the need for additional information? X
6) Is there anything that prevents your customer from taking your X
function inhouse?
7) Your customers are not highly sensitive to price. X
8) Your product is unique to some degree or has accepted branding. X
9) Your customers’ businesses are profitable. X
10) You provide incentives to the decision makers. X

Threat of Substitutes (Some Other Product May Perform the Same Yes No
Job) (+) (–)
1) Substitutes have performance limitations that do not completely X
offset their lowest price. Or, their performance is not justified by their
higher price.
2) The customer will incur costs in switching to a substitute. X
3) Your customer has no real substitute. X
4) Your customer is not likely to substitute. X

9|Page
Bargaining Power of Suppliers Yes No
(+) (–)
1) My inputs (materials, labor, supplies, services, etc.) are standard X
rather than unique or differentiated.
2) I can switch between suppliers quickly and cheaply. X
3) My suppliers would find it difficult to enter my business or my X
customers would find it difficult to perform my function in-house.
4) I can substitute inputs readily. X
5) I have many potential suppliers. X
6) My business is important to my suppliers. X
7) My cost of purchases has no significant influence on my overall X
costs.

Determinants of Rivalry Among Existing Competitors Yes No

(+) (–)
1) The industry is growing rapidly. X
2) The industry is not cyclical with intermittent overcapacity. X
3) The fixed costs of the business are a relatively low portion of total X
costs.
4) There are significant product differences and brand identities X
between the
competitors.
5) The competitors are diversified rather than specialized. X
6) It would not be hard to get out of this business because there are no X
specialized skills and facilities or long-term contract commitments, etc.
7) My customers would incur significant costs in switching to a X
competitor.
8) My product is complex and requires a detailed understanding on the X
part of my customer.

Overall industry rating

Favorable Moderate Unfavorable Remarks

1)Threat of new 5 4 3 Low
entrants
2) Bargaining power 4 3 3 Low

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 of buyers
3) Threat of 1 1 2 High
substitutes
4) Bargaining power 1 3 3 High
of suppliers
5) Intensity of rivalry 1 3 4 High
among competitors

External Industry Analysis for the year 2017- 2018

In 2018, the online payments & fin-tech industry was booming. Smartphone & Internet
penetration has been recorded high as smartphone prices keep dropping and telecom wars keep
pushing prices down. Government has also come in support of such initiatives (like digital India)
and ignited others (through demonetisation). Not only is it now possible to make an online
payment for any recharges or bills, but it is also possible to book tickets for travel, hotels, shows,
etc. Furthermore, digital payments options are linked to various of apps for payments (like Uber,
Ola & Swiggy). With the coming of Aadhar UID, e-KYC is fast and straightforward and so is
linking with other bank accounts. Although there is a threat of data theft & cyber espionage with
the government and corporates investing heavily in data security, the security far offset the theft.
So, it is quite evident that the socio-political environment is very ripe and supportive of this
industry.

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EFE Matrix for Paytm in 2017-18

KEY EXTERNAL FACTORS WEIGHT RATING WEIGHTED

SCORE
Opportunities
1. User base boosted by Demonetization 0.20 4 0.80
drive
2. Governments are promoting Digital 0.15 4 0.60
money
3. Decreasing prices of internet tariff due to 0.25 5 1.25
introduction of Jio as well as cheaper
smartphones
4. Introduction of Payment Regulatory 0.20 4 0.80
Board under RBI to accelerate growth
5. Government support to BHIM and 0.10 3 0.30
promoting the cashless economy
Threats
1. Growing concerns about safety 0.30 3 0.90
2. Lack of awareness of digital payments 0.05 3 0.15
amongst rural India
3. Speculations for entry of Alibaba into 0.20 4 0.80
Indian e-commerce market
4. Large number of increasing competitors
TOTAL 1.00 2.40

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Industry Analysis (Porter 5 forces) in 2017-18

During this period the competition among existing players is super intensive with each player
trying to heavily subsidise the customers to join their platforms with heavy freebies. The threat
of new entrants is moderate, because even though it is easy to enter the industry because it’s not
very capital intensive, but it is difficult to lure customers from competitors due to network
effects. Also, the threat of substitutes is moderate, because even though people prefer cashless
transactions over cash, they have not been able to switch to cashless transactions completely. The
bargaining power of buyers is moderate because even though digital payments have locked-in a
lot of customers, fierce competition among existing players through freebies means customers
can sometimes switch to other platforms.

Yes
Threat of entrants No (–)
(+)
1) Do large firms have a cost or performance advantage in your
X
segment of the industry?
2) Are there any proprietary product differences in your industry? X
3) Are there any established brand identities in your industry? X
4) Do your customers incur any significant cost in switching suppliers? X
5) Is a lot of capital needed to enter your industry? X
6) Is serviceable used equipment expensive? X
7) Does the newcomer to your industry face difficulty in accessing
X
distribution channels?
8) Does experience help you to continuously lower costs? X
9) Does the newcomer have any problems in obtaining the necessary
X
skilled people, materials or supplies?
10) Does your product or service have any proprietary features that
X
give you lower costs?
11) Are there any licenses, insurance or qualifications that are difficult
X
to obtain?
12) Can the newcomer expect strong retaliation on entering the
X
market?

Bargaining power of buyers: (to what extent are your customers

Yes No
locked into you?)
(+) (–)

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1) Are there a large number of buyers relative to the number of firms in
X
the business?
2) Do you have a large number of customers, each with relatively small
X
purchases?
3) Does the customer face any significant costs in switching suppliers? X
4) Does the buyer need a lot of important information? X
5) Is the buyer aware of the need for additional information? X
6) Is there anything that prevents your customer from taking your
X
function inhouse?
7) Your customers are not highly sensitive to price. X
8) Your product is unique to some degree or has accepted branding. X
9) Your customers’ businesses are profitable. X
10) You provide incentives to the decision makers. X

Threat of Substitutes (Some Other Product May Perform the Same Yes No
Job) (+) (–)
1) Substitutes have performance limitations that do not completely X
offset their lowest price. Or, their performance is not justified by their
higher price.
2) The customer will incur costs in switching to a substitute. X
3) Your customer has no real substitute. X
4) Your customer is not likely to substitute. X

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 Yes No
Bargaining Power of Suppliers
(+) (–)
1) My inputs (materials, labor, supplies, services, etc.) are standard
X
rather than unique or differentiated.
2) I can switch between suppliers quickly and cheaply. X
3) My suppliers would find it difficult to enter my business or my
X
customers would find it difficult to perform my function in-house.
4) I can substitute inputs readily. X
5) I have many potential suppliers. X
6) My business is important to my suppliers. X
7) My cost of purchases has no significant influence on my overall
X
costs.

Yes No
Determinants of Rivalry Among Existing Competitors
(+) (–)
1) The industry is growing rapidly. X
2) The industry is not cyclical with intermittent overcapacity. X
3) The fixed costs of the business are a relatively low portion of total
X
costs.
4) There are significant product differences and brand identities
X
between the competitors.
5) The competitors are diversified rather than specialized. X
6) It would not be hard to get out of this business because there are no
X
specialized skills and facilities or long-term contract commitments, etc.
7) My customers would incur significant costs in switching to a
X
competitor.
8) My product is complex and requires a detailed understanding on the
X
part of my customer.
9) My competitors are all of approximately the same size as I am. X

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 Overall industry rating
Favorable Moderate Unfavorable Remarks
Not very
1) Threat of new entrants 5 4 3
high
2) Bargaining power of buyers. 5 3 2 Not high
3) Threat of substitutes 1 2 1 Low
4) Bargaining power of
2 4 1 Not high
suppliers
5) Intensity of rivalry among
3 3 3 Bit high
competitors

Key Success Factors & Competitor Analysis

During 2010-11

Paytm Moved to offer Recharge and payment services from VAS in 2009 and were the
foundation of Paytm laid down. It was launched as a Paytm payment platform and started its
operations. During 2010-11, when Paytm was offering its services under One97
Communications Limited, its major challenge was gaining trust among the users that the
payments they make among themselves are safe & secure. Overcoming the fear of making
transactions online was the most crucial factor required by a digital payments company. If a
customer had friends/family members on the platform, it was a driving factor, but it was not the
only factor. The ease of making recharges, and bill payments was also a driving factor as the
convenience of making payments from home attracted customers to the site as it enhanced the
Customer Value Proposition. Coupons & paybacks acted as a bonus for the customers. The
primary key success factors for Paytm in 2010-11 are as follows:

 Emerged as the one-stop solution for mobile recharge & DTH recharge
 Partnered with vendors like Homeshop18. Ferns and Petals to increase its penetration
 Focused on B2B & B2B both operations to expand its business
 Launched Mobile application so that customers have access to use it anywhere and
anytime
 It also started adding recharge for Toll cards for highways like in late 2011 it added toll
card recharge for Gurgaon Expressway
16 | P a g e
During 2017-18

In 2017-18, the industry quite outgrew the chasm stage. People started trusting on the services
provided by the Paytm. Also, with the increased penetration of the internet in India, the userbase
of Paytm grew a lot. By this time Paytm has200 million users onboard on it. During this
duration, It has penetrated well into the urban & middle class, and now the usual customers are
interested into the scope of platform, i.e. the various utilities available on the platform like
recharges (mobile prepaid, data card, DTH, metro, etc.); bill payments (mobile post-paid,
broadband, electricity, landline, water, gas, cable Tv, etc.); travel (bus, train, flight, hotels, etc.);
movies & events (movies, events, amusement parks, etc. ), deal & brand vouchers, mall
shopping, insurance, financial services, games, etc. It also got a licence from RBI to launch its
Payment bank. So, entered into financial services also which became another factor which is
imperative for the success of the platform which is linked to other apps for making payments. By
that time, Paytm also diversified into E-commerce business; it was directly competing with the
big players like Flipkart and amazons. So, the key success factors in 2017-18 were as follows:

 Diversified business: After making a good presence in Indian market it aimed in

diversifying its business into various segments like Recharge, Bill Payments,
Marketplace, i.e. Paytm Mall, Paytm Wallet, Paytm payments bank Buy n Sell. This
provided them to attract customers of various segments like B2B as well as B2C. It is
working in a way to become a full-stack payments service provider. With this, it attracts
the customers to transact through Paytm using whichever solution they like
 Ease of Onboarding merchants: It provides the facility of onboarding to Paytm platform
without having a bank account. This helped them to sign up hundreds of thousands of
merchants like local mom and pop store, street vendors tea shops, fruit stores, cigarette
sellers and other micro-merchants who don't have bank accounts. Other rivals in the
markets insist merchants link their bank account or credit /debit cards just after signing
up. Due to this constraint, the financially excluded people were not able to come on the e-
payment system. This help Paytm to capture the market share of the rivals
 Viral distributions: It followed the practices followed by PayPal. When any person sends
money to them to their near and dear who are not on Paytm, It sends them a message
saying that “Collect $$ by signing up for Paytm". This strategy helped Paytm to attract

17 | P a g e
 the customers and reap the rich reward. Surprisingly, Paytm’s competitors did not follow
this approach. So Paytm got benefited from this.
 Feet on the street approach: Paytm started aggressive merchant acquisition drive to
onboard as many merchants on the platform as they can. For this, the Paytm salespersons
visited retail hotspots daily asking storekeepers if they wanted Paytm. In contrast, most of
the competitors of Paytm haven't harnessed the power of feet-on-street to recruit
merchants. Instead, they expect that the merchants will sign up on their platform in self-
service mode.
 Frictionless payments: For a customer to be on a platform like this, convenience and
security is the hygiene factor every time and everywhere in India. Paytm captured this
consumer behaviour very clearly and built on this.
 Facility to link to other apps for Payment: It provided customers with a one-stop solution
for all transactions. For example, if we are ordering food from Zomato, we get an option
to pay through Paytm. For this, we need not have our debit card/ Credit cards/ net-
banking credentials. So, this attracts customers to pay through Paytm.
 Governments initiatives & regulations like cashless India played a significant role in its
success

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 Competitive Profile Matrix for PayTM- Payments (2017-18)

Paytm Google Pay PhonePe

Weighted Weighted Weighted
Critical Factors Weight Rating Rating Rating
Score Score Score
Market Share 0.20 4 0.80 3 0.60 4 0.80
Sales Promotion
0.15 5 0.75 3 0.75 3 0.75
(Cashbacks)
Advertisement 0.11 4 0.44 3 0.33 2 0.22
Market Penetration 0.11 4 0.44 3 0.33 3 0.33
Ease of Payment 0.10 4 0.40 3 0.30 3 0.30
Merchant Acceptance 0.08 4 0.32 3 0.24 3 0.24
User acceptance 0.08 4 0.32 3 0.24 3 0.24
Customer Loyalty 0.08 3 0.24 3 0.24 2 0.16
Brand Reputation 0.06 4 0.24 3 0.18 2 0.12
Customer service 0.03 4 0.12 2 0.06 3 0.09
Total 1.00 4.07 3.27 3.25

Competitive Profile Matrix for Paytm- e Commerce (2017-18)

    Paytm Flipkart Amazon

Weighted Weighted Weighted
Critical Factors Weight Rating Rating Rating
Score Score Score
Market Share 0.16 1 0.16 3 0.48 4 0.64
Delivery time 0.13 1 0.13 3 0.39 4 0.52
Customer Loyalty 0.11 1 0.11 4 0.44 3 0.33
Advertisement 0.09 1 0.09 4 0.36 4 0.36
Customer service 0.09 1 0.09 4 0.36 4 0.36
Brand Reputation 0.09 1 0.09 4 0.36 4 0.36
Ease of Replacement 0.08 1 0.08 3 0.24 2 0.16
Market Penetration 0.07 1 0.07 3 0.21 4 0.28
User experience 0.07 1 0.07 4 0.28 4 0.28
Price 0.06 4 0.24 4 0.24 4 0.24
Competitiveness
Payment 0.05 2 0.1 4 0.2 3 0.15
Total 1   1.23   3.56   3.68

19 | P a g e
Developing the logic of the firm

Customer Value Proposition (CVP)

Target customer
Job to be done
Offering

(CV

posi
tion

tom
Cus
Pro

Val
ue
P)

er
Profit Formula
Revenue model
Cost structure
Margin model
Resource velocity

Key Resources Key Processes

People. Technology. Brand Processes
Equipment. Channels Rules and Metrices
Information. Partnerships Norms

Customer value proposition

 Target Customer: Indian Consumers who want to do cashless transactions

 Benefits: Not carrying paper money; safe & secure digital transactions

 Offering: One-stop payment options for all kinds of digital transactions (recharge, bills,
travel, tickets, etc.); linking with all bank accounts; secure KYC & Aadhaar link

The pain point observed by Paytm is that, Indian consumers who are willing to convert their
transactions into cashless. This is mainly because of two reasons: the number of merchants and
businesses accepting online/cashless transactions in day to day life of an Indian consumer are
very low, and the online transaction services mainly present are debit/credit card services and
internet/mobile banking. It is difficult to start using these services, especially for the younger and

20 | P a g e
rural population to open a bank account with card and online transaction services as financial
inclusion was very low in India. In 2011, 65% of Indian adult population did not have a bank
account. And India also has one of the highest shares of inactive bank accounts.

Activities like paying for and recharges and phone data at physical stores and stalls were time-
consuming and contributed to poor customer experience as not every store offered recharges for
every operator. Initial value proposition solved the inefficient problem process of recharging
phone balance and mobile data was simple than physical stalls and mobile operator websites.
Paytm was able to bring mobile operators as well as customers on board as it made the process
easy for both the business and consumers. Similarly, Paytm also allowed the customer to pay
various types of bills from Paytm, which saved a lot of time to the consumer. Availability of
mobile application along website was important as the solution provided to the consumer was
smooth transactions from anywhere.

Paytm then also had solved smooth transaction between consumers, businesses, merchants,
friends and family by creating e-wallet. Paytm wallet provided for P2P transfers (peer to peer).
The purchases were made simple as usual banking legacy systems did not back them. The value
to the customer increases as more individuals start using the service, creating and network effect.
As smartphone usage in India increased Paytm became more valuable and shared among the
Indian consumers. One of the primary use-cases of Paytm among customers is bill payments,
especially bill payments to the large and unorganised retail store segment in India. But these
retail stores merchants do not have internet connectivity to accept online transactions. This was
also one of the main reasons for the lower acceptance of card-based transactions along with high
costs associated with it. But the customers paying for bills and goods do have internet
connectivity. When a customer pays for a bill using Paytm, internet connectivity is not necessary
to the receiver. Instead, an SMS is received a confirmation message that transaction of a certain
amount was successful — Paytm launched a QR code option, with which transactions are made
more accessible to both customers and merchants.

As Paytm started providing other services, like bill payments, ticketing, banking, e-commerce,
etc., customers found everything on a single platform, and Paytm was able to cross-sell different
services efficiently.

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Profit Formula
As of Aug 2019, Paytm has a valuation of ~ $15 Billion which includes a stake of one of the
global leaders of the marketplace model, Alibaba. It has about 14 million merchants across India
using Paytm services 

The Paytm Revenue model can be divided into various categories they Include:
 Recharge Services  Bill Payments
 Paytm Mall  Payment Solutions
 Paytm Wallet  Digital Gold
 Paytm Bank

Recharge Services
Initially, the Paytm Business Model consisted just of mobile recharge and bill payment services.
Slowly it diversified its offerings into online recharge services for mobile subscriptions, TV
channels subscriptions, data-card etc. it charged the commission from the operators for each
transaction.

Bill Payment

Paytm, in addition to recharge services, it offered payments services such as of the multi-utility
requirement such as electricity, broadband, gas etc. Paytm also had a tie-up with large financial
institutions and educational institutes which lets the customers pay their education, insurance and
other related payments in instalments. The revenue from these is generated by the charging the
commission to the providers just like it had for the recharge services

Paytm Mall

Paytm is the first company which had taken the first step of introducing the mobile as a market
place in India. With a user base of around 50 Million users. Commission and fees from the
sellers generate the revenue from Paytm mall. These charges are different for different category
of products.

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How payout for sellers are calculated by Paytm mall

Payment Solutions

Paytm offers payment solutions for various merchants. It allows merchants to collect payments online via
Paytm. Although the setup for payment options comes at free of cost for merchants, the merchants need
to pay commission to the Paytm for every transaction at 1.99%

Paytm Wallet

Paytm wallet is approved by RBI, it allows customers to store currency in the digital format, and it can be
used to buy goods and services at pre-identified merchant locations (like petrol pumps, movie hall etc.).
These merchants have a contract with Paytm to accept these payment instruments. The interest generates
the revenue it earned through average payment deposited on an average of 58 weeks. As per RBI rules
Paytm Wallet in an Escrow Account with a partner bank and the bank determines the interest rate and
Paytm. However, this account comes with an operating charge of 1-3% for the payment gateways. The
interest in Paytm is paid after deducting these charges.

Digital Gold

Paytm has joined with gold refiner MMTC-PAMP to promote ‘Digital Gold’. It facilitates the people to
buy, store and sell gold with free of cost. The user also can order gold online get it delivered at low cost.
Each user has a gold account and gold is stored in digital format. It encourages the user to transact various
other services provided by Paytm through digital gold and thereby making money.

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Paytm Bank

The Paytm bank lets you open an account at zero deposit for both saving and current account. And it
gives Four percent per annum interest on savings account and overdraft facility on the current account.
There is no restriction on the amount of money deposited but deposits over one lakh moved to a fixed
deport with a partner bank which gives 7% interest per annum to the account holder

Cost Structure of Paytm

Paytm caters numerous clienteles that is the reason why it is so cost-driven. Most of its expenditures are
connected to its platform and customer acquisition. Design of the platform enables Paytm to bring
services to new customers close to zero marginal cost. The Paytm budgeted money is invested in this
process is higher than the income it makes through its initial purchases. The majority of its cash budget is
spent in strengthening its security and to avoid the risk of fraud as it has to handle a million customers in
its platform. This also includes a system that protects customers from any money laundering risk.

Key Processes

The merchants can onboard with Paytm without any bank account making with the process hassle-free
unlike traditional KYC processes. The merchants are given Paytm wallet and they can use this wallet to
transact with other merchants. In case only when any merchant needs physical cash, he needs to open a
bank account. This resulted in thousands of merchants Signup with Paytm. The get further accelerate this
process the Paytm followed Fleet on street approach to add more merchants to its business. The
salespeople make daily trips to retail hotspots to asking whether they needed Paytm. The sign-out link is
buried deep in the mobile app; the user always logged in to the app; they don’t need a password or pin to
initiate a transaction. It made the process frictionless and customer find the app user-friendly.

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Key Resources

One of the critical resources of Paytm is its user-friendly android, iOS applications and website.
These platforms are designed for easy usage to include large under-educated user segment of
India in its customer base. A platform like Paytm is also subject to security and fraud risks.
Paytm continuously improves its platform to secure its platform and also to accommodate its
fast-growing customer base.

In August 2015, Reserve Bank of India gave Paytm license of payments bank which led to the
launch of Paytm payments bank. Paytm has started to open physical branches to provide full-
time services and launched “Paytm ka ATMs” at few merchants and businesses. The license is
also critical as it allowed Paytm to avoid different regulations.

Developers and Salespersons are key people of Paytm. Sales teams were responsible for bringing
in large merchant base under Paytm. Key partners include banks, merchants, service operators,
sellers and various businesses like IRCTC, Airlines, movie theatres, co-branding companies etc.
Many organisations are also in Paytm to collect their bills.

The brand is also one of the key resources of Paytm. Paytm is one of the early entrants into the
online payment services market. Paytm has the highest brand recall in the market.

Changes that fuelled growth of Paytm in India

Demonetisation

On 6th November 2016, Government of India led by Prime minister Narendra Modi announced
its decision to ban Rs. 500 and Rs. 1000 notes post-midnight. This move was mainly to stop
black money circulation in the economy, stop fake notes circulation, increase digital transactions
and stop terror financing. This move has sent ripples across the nation as it made the small and
medium-size enterprise very hard to operate with no large currency in circulation, daily wage
workers were impacted and most of the Indian citizens found the daily life of those few weeks
disrupted.

But Paytm became one of the biggest beneficiaries of demonetisation in India. The user base of
Paytm was doubled in a year. The downloads of mobile application and usage of Paytm wallet
started increasing almost instantaneously. The merchant network of was also increased

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phenomenally due to demonetisation. The issuance of new notes of Rs. 500 and Rs. 2000 was
started almost immediately, but cash shortages persisted for many weeks due to cash supply was
limited. Lengthy queues formed in both banks and ATMs for depositing old currency and
withdrawing new currency. Day to day life of people was disrupted. Paytm was the best way for
the peer to peer transactions mainly in urban areas during demonetisation. In preparation for
demonetisation, financial inclusion program ‘Pradhan Mantri Jan Dhan Yojana’ was launched
for affordable financial services access to Indian citizens and unified payments interface
commonly known as UPI was also launched to boost cashless transaction in the economy. But
UPI was introduced through BHIM only which had not big reception due to low penetration in a
short time. And the population were looking to avoid long queues of ATMs and were relatively
incentivised to go cashless. So Paytm became the largest beneficiaries during that period.

UPI

Introduction of UPI by the Indian government has bought sizable competition in Peer to Peer
transaction and merchant transaction services. Paytm had also started UPI transaction services in
2018. Other major transaction service providers in the country include Google pay (introduced as
Tez), Phonepay, BHIM, Amazon pay, Jio money and various other e-wallets and bank
applications (such as Kotak 811 and SBI buddy). These other apps have peer to peer transaction
service market competitive. Paytm has started to focus on other services and started to reposition
itself as “One stop solution” providing ticketing, P2P, e-commerce, recharge, utility payments, e-
wallets even banking, wealth management and other financial services. Paytm has also since
started to launch cobranding marketing campaigns with companies like Coca-cola and Pepsi co.

Jio

Reliance Jio was introduced in 2016 with huge introductory benefits and later reduced internet
data charges drastically challenging existing Indian mobile operators. Jio had added 100 million
consumers in its first seven months. Paytm again gained huge boost because of an increased
internet population of the country. Aadhar made the Know Your Customer (KYC) process
easier. Estimated loss up to 31 March 2020 is to around ₹2,100 crores. This surge in losses is
attributed to focus on aggressive expansion with other giants such as google, amazon, Walmart
(Flipkart), and major Indian banks competing in grounds of same markets. Paytm has increased

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its marketing efforts to capture market share. And is biggest online payments service in India as
of January 2020.

Creating and Sustaining Competitive advantage

The competition in the e-commerce payment segment is significantly high with Paytm, PhonePe
and Google Pay competing for newer customers through coupons, discounts and cash backs.
New users are targeted at, through incentives to join from existing ones. The network effect
made sure that existing customers do not opt for a competitor. Also, cash backs and other loyalty
offers were locking in customers for long. Also, customers were not very able to evaluate similar
proposals on different platforms. Paytm, being an early mover, was able to lock in a multitude of
customers through its innovative customer value proposition of cashless payment. Safety
measures taken by Paytm reduced the initial anxiety of payment security. Also, the network
effect alleviated customer adoption anxiety and helped the industry to cross the chasm. Once the
value was created, it was sustained by network effect, high industry growth, high smartphone
and internet penetration rate, and loyalty programs. Customers felt that they might miss out on a
convenient payment platform, which they have been accustomed to if they opt-out of out.

With increasing smartphone and internet penetration rate, and growing disposable incomes,
supported by government initiatives like “Digital India”, the industry overgrew. This helped
companies to increase in size in spite of increasing competitive rivalry. Economies of scale
helped companies manage their cost. Paytm improved its value proposition from a primary
payment portal to accommodate a range of functionalities like mobile recharge, ticket bookings
and hotel bookings. This made sure that Paytm is at par with its competitors. The upgradation of
its app made the user experience better and faster. This helped it to stay competitive and sustain
its value. Some of the strategies to remain competitive and sustain its value are mentioned in the
following section.

Diversification

Paytm initially started as a platform to pay DTH and prepaid mobile bills. Then, it introduced
Paytm Wallet. Initially, Indian Railways and Uber accepted payments from Paytm Wallet. With
time, the scope for payment increased. Then, it has introduced Paytm mall, movies and events
ticketing, Paytm Gold, etc. Some have paid off, and some did not. For example, Paytm mall did

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not fare well-facing competition from Flipkart, Snapdeal, Amazon, etc. But, diversification has
reduced the risks. Also, it has increased its scope for new growth opportunities. Successor
failure, it proved to be a learning curve for Paytm. This learning helped to create path
dependency in favour of Paytm and enabled it to make future strategic decisions better. Also,
with increasing revenue and economies of scale, it can afford to make investments in areas where
future growth potential is present. This will ensure that the revenues flow in the future.
Diversification has paid off most of the time. Ticketing, Bill payment, etc. has created more
value for the customers. It has become more of a one-stop portal for all digital transactions. This
has helped Paytm to stay competitive and sustain its value with time.

Alignment towards the company’s goals

All its decisions are around its company’s goals to enhance user experience and grow its market.
Major decisions include:

 Loyalty programs, coupons and cash backs to improve customer satisfaction and loyalty
 Partnering with Uber, Mother Dairy, etc. to enhance shared values
 Diversification into other business to grab future growth opportunities
 App improvement for seamless and convenient user transactions

All these are aligned with the company’s goals. All these strategic choices are reflected in their
goals. It is committed to its goals. So, it can sustain the value it has created.

Self-reinforcing value loop

Paytm’s revenue was reinvested into the business. This helped it to diversify and grow to newer
markets. This further increased the profitability with diminishing costs due to economies of
scale. As a result, it generated higher revenue, part of which was later re-invested. This created a
self-reinforcing value loop for Paytm that helped it to grow over time and sustain its value.

Robustness

Robustness can be validated by evaluating Paytm’s ability to deal with imitators, substitutes,
hold-up and slack.

Sustaining threats from imitation

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Imitation like PhonePe and Google Pay reduced the market share of Paytm. But the market size
has grown tremendously since its inception in 2010. The industry is growing at a CAGR of 19%
in the last few years with a market size of around $ 500 million. This has made the industry very
attractive for new entrants. The threat of new entrants is moderate, because even though it is easy
to enter the industry as it’s not very capital intensive, but it is difficult to lure customers from
competitors due to network effects. Causal ambiguity and path dependence deter imitation.
Incumbents like Paytm are sitting on a heap of data that is reflected in their corporate strategy.
Imitators will find it challenging to do things right. As mentioned earlier, diversification helped it
to add more value to the platform by loading new things on the platform. This created ambiguity
for the imitators, as to whether similar loadings will create value for them or not. Such loadings
take time to come upon the platform, and the new customers looking for those features will find
more value on Paytm for the time being. This is a benefit that Paytm enjoyed and it locked those
customers in for long due to switching costs and network effects.

Sustaining threats from substitution

Substitutes like banking apps help in money transfer. But their scope is limited due to bank to
bank transfer only. Also, their primary purpose is to facilitate banking and not make payments.
This differenced positioning of payment portals like Paytm created more value for the regular
people, who like to go cashless and transact online. The scope of Paytm goes beyond making
bank to bank transactions. It has many more facilities like mobile recharge, hotel booking, tickets
for the train, bus and flight, bill payments and many more.

Moreover, there are loyalty programs for frequent use. Paytm ties up with other companies to
create shared value. For example, it has discount coupons for purchase at Mother Dairy. Here,
both are benefitted as Mother Dairy pays Paytm the average acquisition cost for its customer and
Mother Dairy gets new customers. All these tie-ups made Paytm more profitable and thus
facilitated to grow in size with high economies of scale. Substitutes like cash are always there.
But the transaction share of it is declining. Cash has an advantage of being traditional and safe
for those who fear online transactions. It is because Paytm provides a superior customer value
proposition. Transaction is fast, convenient, flexible, etc. Also, the geographic distance between
the peer do not matter. Demonetization increased the cash crunch and this resulted in a spike in

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adoption of digital payment platforms like Paytm. It is because of the superior customer value
proposition of Paytm that helped it grow in size. People have liked and adopted it with time.

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Sustaining threats from hold-up

Its partners include banks, merchants, customers, retailers, etc. All of them are integrated into the
Paytm System network for seamless information and payment transfer. Paytm is giving business
to merchants and retailers by making buying, selling and payments more accessible and more
convenient. They are getting new customers beyond geographical boundaries; that is, the market
size is increasing for them. Also, the cash shortage is not an issue. Therefore, the partners are
very much a part of the platform ecosystem. Their stakes lie on the platform. So, its key partners
are focused on increasing the shared value created. This reduces the holdup.

Sustaining threats from slack

Paytm is focussed on improving the platform with time through technological innovations. App
development teams are striving to make the user experience as swift and hassle-free as possible.
Since it is a fin-tech company; its technology gets upgraded with time to match competition.
Internal teams are focussed to adding more payment options with time. It has added movie
booking, ticket booking, hotel booking, etc. with time. It has brought in loyalty programs to
increase customer lifetime value and deter competition through increased switching costs. Paytm
diversified into e-commerce retailing through Paytm Mall. With time, it has tried to improve on
itself. Feedback or complaints are addressed through a designated team of individuals. They try
to sort things out quickly and effectively. Its slack is minimal due to all these.

In this way, Paytm created and sustained competitive advantage.

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 Business Canvass of Paytm

Key Partners Key Activities Value Proposition Customer Customer Segments

1. Bank with Escrow 1. Fund transfers 1. Recharge Relationships 1. Retail customer

services 2. Enhanced business 1. Customer service 2. Non-payment

2. Hotels security 2. Paytm Wallet centre Banks

3. Insurance company 3. Fraud 3. Payment Bank 2. Payment platform 3. e-wallet users

4. Movie Theatres Protection 4. e-commerce 4. Smartphone users

5. Shopping Centres 4. Service Design 5. Digital Gold

Key Resources Channels

1. Technology 1. Paytm website

platforms 2. Client sites

2. RBI License 3. Vendor Sites

Cost Structure Revenue Streams

1. Customer acquisition 1. Commissions

2. Maintaining payment bank licence 2. Escrow accounts

3. Data security management 3. Digital Gold

4. Service development 4. e-commerce

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Business Model in 2017-18

PayTM is a platform which connects and facilitate transactions between buyers (end consumers)
and sellers (telecom providers, billing companies, travel & tourism companies, event
management companies, etc.); and like any platform one side wouldn’t join the network unless
the other hand comes. So generally, in the cases of most platform businesses, the most important
decision in the initial stages is to subsidise the side which is more important to the other. In the
case of PayTM as consumers join the platform to make peer to peer payments or small utilities
like pre-paid recharges or electricity bills other sellers would also like to be a part of the
platform. So, initially, they focused on providing coupons & paybacks to drive traffic to the
platform by subsidising the consumers. As the installed base increased, they charged the sellers
instead of buyers to sustain network effects because sellers would automatically come if the
consumers come.

The next step in any platform business after it has gained a critical mass is to enforce networks
effects which are positive (+ve) or virtuous and dampen network effects which are negative (-ve)
or viscous. So, the platform should re-invest its money in developing control systems which
curate the platform from bugs, cyber-attacks or unethical users which diminishes the value
created by the platform. So, PayTM eventually invested in fraud detection and feedback system
by which it could improve upon the services provided and also track unusual or unethical
behaviour present in the platform.

Choices Consequences
Re-invest high profit Improved platform
Improved platform Fraud detection
Improved platform Feedback system
Fraud detection More sellers
Fraud detection More buyers
Feedback system More sellers
Feedback system More buyers
Re-invest high profit Linking with banks
Re-invest high profit Linking with other apps (uber, swiggy, etc.)

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 Rigid Consequences
Key
Virtuous
Learning from the case study

Business Model Changes

Business Model Changes Examples from your focus firm study
New Products /Services Diversify from Fin-Tech to Financial Services
Enter into the
Insurance business
Mutual Funds
Although they offer these services on a very
small scale, we recommend them to spin-off a
separate SBU (Strategic Business Unit)
dedicated to provide Insurance as well as
Mutual Funds
New market/Customers (For B2C) Customers seeking complete
Financial package (Payments Bank, Digital
Wallet as well as Insurance)
(For B2B) Clients acquiring funds pooled in
massive amount of money from Customers
willing to invest small amounts from wallets 
Changes in the value chain A separate app/platform for Insurance seeking
 Changes in how value is generated customers
 Changes in how value is captured A separate app for Mutual Funds
(i.e. change in revenue model) Pricing the Insurance companies who are
coming to the platform to sell insurance
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Changes in key activities
Changes in key resources
Changes in cost structure
Pricing the companies asking for funds from
their Mutual Funds portfolio
App development & maintenance for
Insurance
App development & maintenance for Mutual
Funds
Human Resources
Servers
Shared Capital of users
Significant cost occurred will be in
subsidizing the side which is more favourable
to the other
So, Insurance buyers will have to provided
incentives to coming to the platform
Similarly, for Mutual Funds will have create a
separate fund where people can invest as low
as Rs. 10 every day from their wallets.

Common investment in both

App development & maintenance
Servers  
 
Strategizing actions
 
Strategizing actions   Examples from your focus firm study
Strategy development process   Moving from Organic growth to alliances 
Growth strategy (Organic, M&A, Insurance they should go for organic growth
Combination)   because they already provide these services
with their payment services but they should
spin it off as a separate business where they
should provide all kinds of insurances in one
package

For Mutual Funds they should form alliance

with other Mutual Funds or other companies
in Fin-Tech to pool money from customers
willing to share money from wallets to funds 
Expansion across business model dimensions They should expand across South-Asia (not
( Product lines, customer segments , just India) and if possible South-east Asia
distribution channels, value-creating activities In insurance they should cover all insurance a
, geographical markets )   customer
Policies and measures regarding quality   Curation mechanism for keeping the platform
free from bugs, illegal activities or unethical
participants

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 Fraud detection for transactions
Feedback system for users 
Policies and measures regarding cost About 20 -30 % should be spent on
structure   developing the platform or app including
servers
70-80% should be spent on subsidizing the
side more valuable to the other

Changes in cost structure  Slowly lowering the spending on

subsidization of one-side and spending more
on platform development
 
Critical capabilities
Critical capabilities    Examples from your focus firm study
Recognizing Business opportunities     A separate team focusing on identifying
opportunities not just in Fin-Tech industry but
also Financial Services
Experimenting with new ideas /Business  A separate VC fund be made to invest in
opportunities    ideas (internal) or other companies (external)
Acquisition and allocation of different types  Raising Financial Capital through debt &
of resources (Human, financial, intangible equity both
etc)
Leadership style   Risk-taking and innovation-based
Characteristics of corporate culture    Transparency, Open-minded and welcoming
ideas from all directions, integrity  
Interaction of owners –manages –  Employees be given stock options to make
employees   them feel like owners of the business (any
profit made is shared)
Management be given freedom to take risks
for long-term and not just focus short-term
increase in shareholder value

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 References
1. Reinventing Your Business Model by Mark W. Johnson, Clayton M. Christensen, and
Hennning Kagermann, Harvard Business Review, November 2008
2. How to Design A Winning Business Model by Ramon Casadesus-Masanell and Joan E.
Ricart, Harvard Business Review, January-February 2011
3. Sustaining Superior Performance: Commitments and Capabilities, by Professors Pankaj
Ghemawat and Gary Pisano, the President and Fellows of Harvard College, 1997
4. https://en.wikipedia.org/wiki/paytm
5. https://www.feedough.com/paytm-business-model-how-paytm-makes-money/
6. https://www.denis-oakley.com/paytm-business-model-canvas/
7. https://blog.paytm.com/paytm-flashback-fc8400789a0
8. https://paytm.com/about-us/our-policies/#
9. https://www.finextra.com/blogposting/13576/five-reasons-why-paytm-is-miles-ahead-of-its-
rivals

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