MUMBAI -- Indian digital payment startup Paytm, whose parent One97 Communications is heading for a $2.2 billion initial public offering, is undergoing a change in its business model with an eye toward increasing revenue by over three times to $1 billion for the next two to three years, sources with knowledge of the matter said.
The company, whose services are used by around 330 million people, is planning to expand its focus beyond online and offline payments to financial services such as lending, mutual funds, insurance and gold sales.
"Although we will continue investing in growing merchant payments, financial services will be shown as a separate vertical in a couple of years," a source told Nikkei Asia. "With increased revenue from financial services, we hope to reach $1 billion in revenue and be EBIDTA-profitable," the source added, referring to earnings before interest, depreciation, taxes and amortization. The source said the company should break even in the next 12 to 18 months, with costs coming down significantly and revenue from these new businesses trickling in.
Paytm declined to comment.
One97 Communications' consolidated revenue fell 11% to 31 billion rupees ($429 million) for the fiscal year that ended in March, from 35 billion rupees a year ago. Payments and financial services together comprised 75% of this revenue. Paytm clocked a major part of its revenue from transaction fees that it collects from 21 million merchants.
Paytm faces intense competition from unified platforms such as Google Pay, PhonePe and WhatsApp. © Getty Images The company's consolidated loss, though, shrunk 42% to 17 billion rupees.
Launched in 2001 as a directory assistance and mobile content business for telecommunications operators, the company has at various stages provided services such as mobile recharging and making utility payments. In 2014, the mobile wallet was launched.
The company is currently facing stiff competition from unified payment interface-based platforms such as Google Pay, PhonePe and WhatsApp.
The further diversification into financial services seems to be in response to this increasing competition. Not that the wealth management and insurance businesses do not have significant players to stand against, but the source said Paytm sees India's highly underpenetrated market as an opportunity.
"Our USP [unique selling point] is that we will be selling these services completely on digital platform. There will be no call center insisting people to buy these products. That way, our cost of selling insurance will be minuscule. That will be the differentiator," the source said. "What we are trying to achieve is to be a financial services-led 'superapp.'"
He said that in every new area Paytm has entered, it has been able to grow the market and customers have thronged in the tens of millions.
"These businesses are already growing in double digits, so if we call sell the product efficiently, a 30-times to 40-times growth is very doable in the next three to four years," he said.
On the payments side, the company is constantly updating its technology to improve point-of-sale devices with offline merchants, besides updating its software for better customer experience. In this, Reliance Retail, run by Indian billionaire Mukesh Ambani, will be a strong competitor given its model of connecting offline merchants to its online e-commerce platform.
Meanwhile, investors are keenly waiting for the IPO, which is expected to be launched in October, around the time when India celebrates one of its biggest festivals, Diwali.
The $2.2 billion IPO could be the country's biggest ever, after state-run Coal India's IPO in 2010, which raised more than 150 billion rupees.
One97 Communications, which counts China's Alibaba, Japan's SoftBank and Berkshire Hathaway's Warren Buffett as its marquee investors, is offering to sell 83 billion rupees of new shares, according to draft documents filed with the Securities and Exchange Board of India. Another 83 billion rupees' worth of shares have been offered to existing investors.
According to the documents, the company plans to spend around 43 billion rupees of the proceeds on merchant and customer acquisitions, while 20 billion rupees would be used in new businesses and strategic acquisitions.
Paytm previously raised $1 billion in funds from a group of investors led by asset manager T. Rowe Price. The funding round also attracted existing investors such as Ant Financial, Discovery Capital and SoftBank Vision Fund.