21 October 2017
Ketharaman Swaminathan

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Ketharaman Swaminathan - GTM360 Marketing Solutions

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Five Reasons Why PayTM Is Miles Ahead Of Its Rivals

20 January 2017  |  10858 views  |  9

With over 100 million users a year ago, PayTM was already ahead of its digital payment competitors before the Nov. 2016 demonetization of high value currency notes in India. On the back of the push for #CashlessIndia consequent to #CurrencySwitch, the Alibaba-backed mobile wallet has increased its lead over its other mobile wallets (e.g. MobiKwik, PayZapp) and account-to-account money transfer apps (e.g. UPI). Today, PayTM boasts 150M users (Source: Wikipedia).

Based on my personal experience and anecdotal evidence, I advance five reasons to explain why PayTM is miles ahead of its rivals.

#1. Ease of Onboarding Merchants

Merchants can sign up for PayTM without a bank account. They can receive money into their PayTM wallets without a bank account. They can even spend their wallet balance by shopping at other merchants that accept PayTM payments. It's only when they want to cash out their money from their PayTM account that they need a bank account.

As a result, PayTM was / is able to sign up hundreds of thousands of merchants that don't have bank accounts. These merchants could sign up for PayTM as soon as they had a compelling need to accept cashless payments i.e. immediately after the demonetization announcement, start accepting payments and visit banks later to open their accounts after their PayTM account balances started growing.

Contrast this with competing e-wallets, which insist that merchants link their bank accounts (or debit cards or credit cards) to their apps right at the time of installing them. As a result, financially-excluded merchants couldn't sign up for them when they had a compelling need. PayTM's rivals lost this market to PayTM.

#2. Viral Distribution

When PayPal launched in the late 1990s, it incented existing users to send money to non users. When users sent money to their friends and family members (that were not on PayPal), PayPal sent them an email saying “Collect $$ by signing up for PayPal". This give non-users a far more compelling reason to join PayPal than any direct advertising or PR efforts could have and generated a massive amount of viral distribution for PayPal.

PayTM has copied this approach. And has probably reaped the rich rewards à la PayPal.

Surprisingly, PayTM’s competitors haven't followed this approach. They insist that payments can be made only to people that have already signed up to their e-wallets. They probably think sending money to a non-user would be tantamount to putting the cart before the horse. Indeed, it would. But, as I’ve said time and again, Putting Cart Before Horse Does Work (hyperlink removed to comply with Finextra Community Rules but this post will appear on top of Google Search results when searched by the title). PayTM and PayPal get it. Their competitors don't. Instead, they put their prospective users at the mercy of their respective banks to gain signups.

To take UPI as an example, to receive payments, you need to have a Virtual Payment Address (VPA) from your bank. Assuming that you're thorougly sold on UPI and decide to create your VPN, you'll need to contend with your bank's systems to actually generate one. This adds a big moving part, which doesn't always work. Just today, I got an SMS from my bank saying they can't issue new MMIDs - an integral part of IMPS, the payment rails on which UPI works - for the next five days. There's no guarantee that you'd still be interested in UPI five days later.

#3. Feet On Street Approach

In the weeks following #CurrencySwitch, PayTM salespersons made daily rounds in retail hotspots asking storekeepers if they wanted PayTM.

I’ve seen this personally in my building storefront that’s dotted with tea shops, fruit stores, cigarette sellers and other micromerchants.

I've also heard more about PayTM's aggressive merchant acquisition drive from a couple of Uber drivers.  According to this cabbie who accepts PayTM on his personal name – PayTM is also Uber’s official digital payments partner - PayTM sales reps ride on their motorbikes up and down a street near Pune Airport where hundreds of Uber and Ola taxis are parked, asking drivers if they want to sign up for PayTM. When a driver says yes, the rep connects the driver’s smartphone on his own 4G network using tethered WiFi hotspot, downloads the app, installs and onboards the driver on PayTM. All this in 5-10 minutes. Without being judgmental about whether the driver is tech savvy or not. And at no data charges to the cabbie. This Uber driver is so conversant with PayTM’s merchant acquisition program that he actually knows the PayTM rep's sales quota (10 merchants a day)!

In sharp contrast, most competitors of PayTM haven't harnessed the power of feet-on-street to recruit merchants. Instead, they seem to expect merchants to sign up in self-service mode. An investor in one of these PayTM competitors actually said this in a MEDIUM article:

"Merchants should be able to go to an Amazon or Flipkart site or a Croma store and just buy a terminal at their own cost and link their bank account and start accepting payments."

Well tried. Even if they’re tech-savvy, crazy busy merchants simply don’t have the time to shop for terminals and learn how to make them work - especially when they’re getting pampered by the nation's #1 mobile wallet company!

As a result, most micromerchants I’ve quizzed are not even aware of UPI, BHIM and other competing e-wallets.

#4. Frictionless Payments

By design or default, the Sign Out link in PayTM’s mobile app is buried deep inside the app. As a result, many users have never seen it and stay logged into their app all the time. This means they're able to make a payment without a password or PIN.

This creates a significant security vulnerability in PayTM. But it also makes PayTM's CX that much more frictionless, which makes a lot of difference when people use it many times a day.

Security is a hygiene factor. Convenience trumps security. Everytime. Even in India.

PayTM has understood and capitalized on this element of consumer behavior. Its competitors have totally missed it.

#5. Miscellaneous

PayTM is very well funded and is able to spend big bucks on advertising as also absorb losses on virtually every transaction.

PayTM makes every effort to enhance UX. For example, as I’d highlighted in Hiding Your Secret Sauce, PayTM preloads its wallet on the fly without user intervention. As a result, users wary of having to topup prepaid mobile wallets before initiating payments find the PayTM experience superior to that of other mobile wallets, which bump them off with a message asking them to load enough money into their wallets first and then reattempt the payment.

----------

With the reasons for PayTM's lead over other e-wallets out of the way, let me come to its detractors who're predicting that PayTM and other prepaid mobile wallets will become extinct on the face of growing competition from BHIM, a government-sponsored m-wallet. While I agree that PayTM's dominance is only a thing of the present, I think stories of PayTM's demise are grossly exaggerated.

That said, PayTM does face a few headwinds:

  • Sustaining relationships with merchants with daily sales of INR 50K+. This category of merchants includes vegetable vendors and fruit sellers among others who find its cap (INR 20K per month without KYC, INR 100K per month with KYC) too low. I know at least two merchants that have bailed out of PayTM for this reason. (Interestingly, they’ve gone back to cash, which suggests that PayTM’s competitors couldn’t recruit them either)
  • Willingness of PayTM’s Chinese backer to fund the company's cashbacks and mounting losses.

As they say, past performance is no indication of future success. This maxim is as true for PayTM as any other company. Only time will tell how long India’s #1 mobile wallet will hold on to the top spot.

Full Disclosure: Other than being a user of PayTM - among other e-wallets - I have no personal or professional interest in the company.

a member-uploaded image TagsCardsPayments

Comments: (14)

Ganesh Guruvayur
Ganesh Guruvayur - Intellect Design Arena - New Jersey | 23 January, 2017, 05:47 Ketharaman.. Excellent take on the success story of the leading wallet provider in India. I feel that the disintermediation brought about by wallet providers in India is a transient story. Once UPI based access to bank accounts gets full steam, especially with the increased focus on rapidly moving towards a cashless economy, the need to store value outside of ones' bank accounts would go away. This coupled with the cost of UPI enabled transaction acquisition coming down, the country is likely to witness a phenomenal uptick on direct account access based transactions. Digital vault (one of the highlights of India stack ) is expected to accelerate merchant onboarding for banks, allowing them to be more aggressive in scaling up on merchant relationships through mobile onboarding. With the wide use of data science,leading banks are showing the path forward on contextual banking, emphasising on quality and depth of merchant relationships (through frequent weeding of unscrupulous accounts) more than quantity.
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Charmaine Oak
Charmaine Oak - Shift Thought Ltd - Bristol | 23 January, 2017, 13:01

Another important factor that goes both for and against is over 40% shareholding (aiming for 70%?) from Chinese Alibaba Group/Ant Financial with their immense experience through Alipay, which long ago claimed more consumers than PayPal. In these days of privacy/cybersecurity risks, foreign ownership of a payments wallet considerably differs from that of ownership of Maruti.

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Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 23 January, 2017, 16:40

@GaneshGuruvayur:

TY for your kind words. Personally, I don't expose my bank account or my debit card to any payment transaction, online or offline. I fund mobile wallets like PayTM and PayZapp strictly via my credit card. But there are only 27.3M credit cards in India. So my behavior is not representative. Now, let's take the holders of 739.3M bank accounts / debit cards. They have no choice but to expose their bank accounts / debit cards to payment transactions. Had an A2A payment method like UPI preceded a PayTM-like mobile wallet, these people might not have had any compelling need to store value on mobile wallets and PayTM might have been dead on arrival. However, PayTM preceded UPI, has amassed 150M users, and is funded heavily enough to take losses for a few more years. It won't go away so easily, if ever: Notwithstanding the superior features of UPI, I'd never underestimate inertia, resistance to change & incumbent advantage that PayTM enjoys. 

One more way of looking at it is via PayPal. Scores of A2A payment methods have been launched since PayPal came into existence nearly 20 years ago. If, as you say, "the need to store value outside of ones' bank accounts" had gone away, PayPal would be dead by now. But 20 years later, A2A payment methods haven't killed off PayPal.

That said, there's a twist in the tale: It's not necessary to load value into PayTM (or PayPal), as I've mentioned in my point #5.

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Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 23 January, 2017, 16:51

@CharmaineOak:

You've hit the nail on the head. I use PayTM quite sparingly for this reason. Ever after finding a compelling reason to use it, I've devised a roundabout way to contain the amount of my financial info that state actors can get without even having to hack it!

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Ganesh Guruvayur
Ganesh Guruvayur - Intellect Design Arena - New Jersey | 23 January, 2017, 18:03

For account access based transfers to be viable it is critical to have real time DDA platforms in place. This is largely the case in most of the banks in India unlike the home market in which PayPal operates (Lack of real time DDA is also the reason why 'api'zation of payments and DDA services is still in the infancy there inhibiting account access).

Value does not need to be loaded on to these wallets but post transfer of a credit to the wallet, it lingers on for quite some time due to the intimidation posed by a cashout charge. With some wallet providers getting banking licence, the cashing out to the DDA account present in a 'wallet provider turned bank' may become free but may continue for other bank accounts. This backend load is a form of friction that you did not mention in your post in relation to the use of a wallet.

I guess the main reason for not going full throttle with widespread marketing of UPI and its mandatory embrace, is the realization and acknowledgement of the huge vulnarabilities in the Indian banking ecosystem to cyberattacks. There is a stark contrast in the awareness levels on the models of attack, the preventive measures and the resiliency from such attacks, between the top tier banks and those at the co-operative banks and even a number of national banks. Once these get addressed, likely to happen through the whole of 2017, direct transfers to accounts would become a widespread reality.

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Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 24 January, 2017, 08:50

@GaneshGuruvayur:

TY for your comment. 

  1. Okay, let me take UK then. The country has had realtime DDA via FPS since 2008. But PayPal hasn't died in UK, either. Why? 
  2. With all the realtime DDA products that India has been having for nearly 10 years, cash should've died but it  still accounts for >90% of retail payments. Why?
  3. When I said "It's not necessary to load value into PayTM", I meant there's no need to transfer credit into the wallet, as is clear from the example I've given in the linked blog post. Many PayTM users have a zero balance. When they need to make a payment, they make it from the debit card stored on file with PayTM. They essentially use PayTM to avoid the friction of having to enter debit card details for every transaction. The amount that passes through PayTM exactly equals the amount of payment to be made, so absolutely no money lingers in the wallet. 
  4. PayTM has not levied any cash out charge on merchants, at least not until 31 Dec 2016. Ditto UPI. If and when PayTM does, it will be 1%. This doesn't pose too much friction because UPI is not free either. MDR for UPI reportedly ranges between 0.7% and 2.5% (https://twitter.com/s_ketharaman/status/814765634043211776). 
  5. I've a very different explanation for why banks are not going aggressive on promoting UPI:They earn more money via PayTM than UPI. Counterintuitive as it might seem, a PayTM top up fetches a bank around 1.5% fees, whereas a UPI transaction earns it much less (on an average). If and when they do, PayTM is not exactly going to be sleeping and watching banks overtake it. 
  6. The bigger risk I see is if banks cut off PayTM from the payment rails they own. The nation's largest bank SBI has already done so. As a result, SBI debit card and bank account users have no use for PayTM (although people can still execute PayTM transactions with SBI credit cards). If this trend spreads to other banks, PayTM will face an existential threat.
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Charmaine Oak
Charmaine Oak - Shift Thought Ltd - Bristol | 24 January, 2017, 09:12

Great coverage Ketharaman. Waiting to try out some of these services during my visit in a few weeks time. Pretty historic time for the development of payments, not just for India but for the world. User Innovation helped in the development of Mobile Money, now I'm eager to see how it rapidly shapes services in India and helps in growth.

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Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 24 January, 2017, 17:48

@CharmaineOak:

TY for your kind words. It's indeed a momentous time for payments. As the Chairman of HDFC Bank put it, what we're seeing in India is compression of 5 years of payment digitization in 5 weeks. I've done a straw poll of 15 PayTM users and 10 PayTM merchants. While most of the users have heard of UPI, none of them has installed it. None of the merchants have heard of UPI. When you're in India, you should try out PayTM, PayZapp, PhonePe, UPI, etc. and, if possible, conduct a straw poll of your own - I'm eager to compare notes of our findings!

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Ramanuj Banerjee
Ramanuj Banerjee - Globe-Smart Ltd - Thatcham | 24 January, 2017, 18:43

Ketharaman, I hear what you say but mobile based authorisation of server based funds transfer has been around for at least 10 years. Yet cash is still around.

I do not understand how PayTM or BHIM will cater for (a) those that do not want an account (server based account is the same whether it is PayTM or a bank), (b) Children who do not have a phone and (c) places where a rapid transaction is required such as on a bus (300mS)? This is where cash still wins.

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Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 24 January, 2017, 19:35

@RamanujBanerjee:

TY for your comment. 

I've written several posts about why cash will be around for a long time e.g. The Death Of Cash Is At Least 190 Years Away. While I don't disagree with your comment, this post is not about that subject. 

In the wake of the recent demonetization of high value currency notes in India, Indians faced a severe cash crunch, which led to explosive growth in PayTM and other e/m-wallets. In this post, I've tried to explain the dominance of PayTM over its rivals - not cash.

With that out of the way, let me answer your questions:

(a) PayTM can be funded with a credit card. BHIM / UPI can't. So even people who don't want an A2A transfer can use PayTM but they can't use BHIM.

(b) I don't have figures but, at least in my circle, children in the 12-18 year bracket are more likely to have smartphones than their elders.

(c) Even during the height of cash crunch, slower m-wallets never became popular in highly queued use cases like supermarket checkouts, where plastic ruled. If and when the cash crunch ends, I agree that cash will likely make a comeback in queued use cases like toll plazas. 

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Ganesh Guruvayur
Ganesh Guruvayur - Intellect Design Arena - New Jersey | 24 January, 2017, 19:43

Online DDA does not push adoption of the electronic payments. Lots of factors explain why cash is still the king in the country (availability of online DDA is definitely not one of them). If a wallet acts primarily as a container for card data that avoids rekey during a transaction, one can imagine its longetivity / ability to remain relevant..In fact one should start to get nervous about the safety of the card data given the upward swing in breaches beginning to be seen in the country. It would be enriching to compare the percentage of the growth in wallets accounts for a provider with prior periods, to gauge if the momentum.

Surviving, when along side a faster payments scheme in a country could be on account of smart business strategies such as

- like a neobank, provide competitive interest rates on the wallet balances,

- be part of a main story say stock trading, buy / sell of goods, risk participation in crowd lending where the cash leg settlement is not just instantaneous but retains all the richness of the transaction context, which a DDA based debit cannot match

The NPCI did not prohibit banks from launching their own UPI enabled apps that led to such a proliferation from banks that had the resources to lauch them on a quick time basis. With the unveiling of BHIM (that is seeing record number of downloads) these bank specific UPI apps are likely to take a backseat. Banks clearly understand that these revenue streams linked to swatiching fees / interchange (however you term them) are temporal in nature..Even card associations have read the threat from the emergence of Instant Payments, API based DDA access, R-RTPS. So it is not an India based trend alone. The MDR rates of today will see a scale down in days to come.

What we see and interpret as a steady amble for a provider might well be the start of a tapering down of a trend.

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Ganesh Guruvayur
Ganesh Guruvayur - Intellect Design Arena - New Jersey | 24 January, 2017, 20:10

The comparison of BHIM with an established wallets that have been in existence for some time looks premature. Credit cards solutions where expected to interface with a card switch and communicate using ISO 8583. With BHIM, the focus is weaning people away from cash and make it an easy and routine mode for monetary settlement against owned balance.

Credit card is in no way dominant instrument in the country and hence it did figure in the first wave of transformation using UPI. That is not to say that it will remain that way. From a bank's standpoint, if a core banking platform can interface with the NPCI switch, so can a card solution. BHIM has been enabled for feature phones. That in itself is a giant leap from a value store access standpoint.

Imaginatively speaking (probably subject of a new post Ketharaman), if the card based access to a credit card account (assuming debit cards have already been dealt a body blow) is kept aside for a moment, there is nothing stopping a DDA platform vendor from replicating a credit card module and all the essential ingredients of processing - min balance, statement cycle, due cycle, EMI etc (most of which are capabilities already available in a DDA solution). No dealing with an extra 16 digit number.. Pardon my deviation here..

With a no frill bank account that does has no min bal stipulation, that is enabled for electronic benefit transfer, carries an insurance cover, biometrics for authentication, we have not seen the last of the measures for stubbing out cash addiction (This is probably another deviation from the main theme of the post..)

All in all another great, well researched post from Ketharaman, that has stirred the mind and got the creative juices flowing.. Thank you Sir !!!

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Ganesh Guruvayur
Ganesh Guruvayur - Intellect Design Arena - New Jersey | 24 January, 2017, 20:15

Please overlook the grammatical boo boos in my last comment..

fast but fat fingers at work :)

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Ganesh Guruvayur
Ganesh Guruvayur - Intellect Design Arena - New Jersey | 25 January, 2017, 01:10 Here is a well formed comment The comparison of BHIM with established wallets, that have been in existence for some time, is a tad unfair. With BHIM, the focus is weaning people away from cash and make it an easy and routine mode for monetary settlement against owned balance. Credit card is in no way dominant instrument in the country and hence it DID NOT figure in the first wave of access using UPI. That is not to say that it will remain that way. It is important to note that BHIM has been enabled for feature phones. That in itself is a giant leap from a value store access standpoint and underscores the will in enabling the previously unbanked, underbanked to get acquainted with an innovative way to make micro withdrawals contributing to the cashless journey. Imaginatively speaking (probably subject of a new post, Ketharaman), if the card based access to a credit card account (assuming debit cards have already been dealt a body blow) is kept aside for a moment, there is nothing stopping a DDA platform vendor from replicating a credit card module and all the essential ingredients of processing - min balance, statement cycle, due cycle, EMI etc (most of which are capabilities already available in a DDA solution). No dealing with an extra 16 digit number. From a bank's standpoint, if a core banking platform can interface with the NPCI switch, so can a card solution. With the UPI interface, the new card module in a core banking solution can avoid ISO 8583 based interfacing with card switches opening up the credit card accounts that the module houses.. Pardon my deviation here.. Cashless volumes can come from the vast hinterlands. With a no frill bank account that does has no min bal stipulation, that is enabled for electronic benefit transfer, carries an insurance cover, biometrics for authentication, enabled for direct access, we have not seen the last of the measures for stubbing out cash addiction (This is probably another deviation from the main theme of the post..) BHIM, UPI, Payment banks, no frill accounts, India Stack are parts of the common theme envisioned to deliver on digital roadmap on an incredible scale. All in all another great, well researched post from Ketharaman, that has stirred the mind and got the creative juices flowing.. Thank you Sir !!!
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