PayTM Business Model & How does PayTM Make Money
PayTM is one of those companies which have evolved over a relatively short span of time and oh boy have they evolved good. They came in from payment gateway to e-commerce to wallet and god knows what all. Post which they have conquered it thanks to the enormous amount of VC funding that they have received. Let’s find out more about their various revenue lines and allied business activities to find out more about PayTM Business Model.
About PayTM, Facts, Founders, Funders & Funding
Total Funding received by PayTM: Appx 1.5 Billion USD. (as of Janurary 2016, Excluding the Credit of Working Capital Loan from ICICI Bank of 300 Cr).
PayTM Founder: Founded in 2000 by Vijay Shekhar Sharma (VSS as he is called in the circle). PayTM is owned by One97 Communications Ltd.
Valuation of PayTM: as of Jan 2016 Appx 4 Billion USD.
Funds that have invested in PayTM include those of the Likes of Alibaba of China (via its Ant Financial Holdings Entity).
PayTM Business Model & How does PayTM work
Following is the total coverage of the topic on PayTM Business Model and How does PayTM work, we will include the direct and indirect revenue lines used by One97 (its parent company). While it is important to note while reading this is that PayTM is not your traditional E-Commerce cum Payment Gateway player, it is a full fledged Payments Bank Company (they are one of the receivers of the Payments Bank License issued by RBI). The various revenue lines that they have can be broadly classified into the following sub-categories:
- PayTM.com (Web E-Commerce, App-Commerce etc)
- Payments & Wallet Integration & TDR (Transaction Discounting Rate)
- Seller Services
- Payments Bank (Yet to Launch as of the date of writing this Analysis)
To Start with let’s see how PayTM Makes Money from sale of goods on their platform.
How Does PayTM work (Shopping) : PayTM (You have to search for the product in the search bar to shop for any physical product as they are focusing more on their Payments Vertical so they have changed entire landing page to payment processing) an e-commerce portal, B2C shopping Portal, for at-the-moment, customers ordering goods for deliveries in some parts of India. The base model here is a MarketPlace : List Sellers for selling their products > Get shoppers browsing through the product categories > Dole out discounts to shoppers in the name of customer acquisition > Customer buys the desired products > Seller has to ship the product to the customer > Product once Accepted & Not returned back until the timeline for returning is over > Seller gets his agreed price of the product minus the commission charged by PayTM for generating a customer. Thus the crux of the Model is “X% commission on the total sale value given to the seller for a particular product”
This sale can happen via any channel as given and approved by PayTM listed below & For all the orders sold by PayTM for every seller on their platform PayTM will charge a percentage (%) cut on the total sale amount pre-tax.
- Sale via Website
- Sale via Mobile Website
- Sale via Mobile App (Android or iOS or others)
- Sale Via Affiliate networks (Bloggers, Coupon Websites, Review Websites etc)
The percentage of commission that PayTM charges varies on the category of product that PayTM is able to sell. It ranges anywhere between 0% to 20% of the sale value (excluding taxes and discounts). The following image will show you how the receipts of PayTM will look like once the sale is recorded in PayTM’s books of accounts:
E.g. Customers A, B & C Purchase 5 Products from PayTM which are a Book, a Stereo, A Fridge, A Mobile Phone and a Bed sheet from 3 Sellers. Total Payout by PayTM and Receipts look like as they do in the below table (Click to Expand):
The total of Col I (4315.00 INR) is the total revenue of PayTM from sale of goods. This is one of the basic revenue models for PayTM. There are other Revenue Lines as well that PayTM has. These are outlined and explained in details below.
You may also be Interested in Reading: How does FlipKart Make Money
Business Model of PayTM (Company One97 as a Whole)
- Web Portal (E-Commerce : Already Explained above so will not get into the depth of this model again)
- Listing Fee and Convenience Fee (Sellers are charged listing fee for selling on PayTM and onboarding fee for doorstep service of explaining everything related to selling online – pretty self explanatory so won’t nose dive into this either.
- OTA Bookings: PayTM recently ventured into Online Travel Agency Model (OTA) where it is providing air, bus etc ticketing and hotel booking services (the model here is again commissions similar to e-commerce model highlighted above)
- Payments Integration: You can now use your PayTM wallet to pay all sorts of utility bills including cable, internet, mobile, gas, electricity etc.
- Mobile Wallet: Integrating its wallet across major e-commerce and e-payment enabled online sellers (replaces a traditional payment gateway with the exact same business model but lower fee and Transaction Discounting Rates (TDR) ).
How does PayTM Work with Payments Integrations
This is pretty similar to the way a Mobile Recharge guy along the corner of the street of your house works! He makes sure he is present there when you need a recharge, and gets 2-4% commission on the recharges that he makes to your number. Same is the case here – PayTM provides an alternative to the street corner based guy who does your recharges and since the bargaining power of PayTM is higher as compared to that poor chap (because of large number of transactions) PayTM ends up getting higher commission from these vendors.
PayTM does recharges and bill payments for DTH, Internet, Prepaid Phones, PostPaid Phones, Insurance Premium Payments, Loan EMI Payments, Delhi Jal Board Payments, Delhi Metro Payments and many such more. While Government entities may not entertain commissions to PayTM they surely hook the customer to PayTM’s wallet for other payments including this one because PayTM gives CashBack on all of these in the form of Wallet Cash which can only be redeemed against any payment made via its network and can’t be withdrawn into one’s bank account.
It is important to note here that PayTM negotiates hard on the Settlement time to these vendors i.e. there is a time lag in which you pay PayTM and PayTM pays the Vendor. Assume Your Due date for payment of Light Bill is 1st of the Month – You pay it by that date, PayTM will release the same money to the vendor by say 8th of the Month (Your Electricity will not be disconnected because PayTM has given confirmation to the vendor that the payment has been settled) and thus PayTM in turn will make money out of the interest that it earns out of the lying deposits in the wallet.
PayTM Business Model with Wallet based Payments
PayTM integrates its Wallet at most places where other companies integrate their payment gateway infrastructures. It works in the exact same way as that of payment gateways i.e. by discounting the value of the transaction by 1-3% and giving the rest to the merchant.
Interesting to Read this as well: How Payment Gateways Make Money!
Interesting to Read this as well: How Venmo Makes Money!
I hope you have enjoyed the post on PayTM Business Model, if there are any questions wrt the business model of PayTM I will be happy to answer them, please post your questions in the comments section below.
Disclaimer: The analysis of the PayTM Business Model or How does PayTM Make Money is of the Author’s himself, neither the company (PayTM) nor its affiliates have confirmed the same to the author and the descriptions, stats, facts and figures are either obtained through secondary web research or interrogation of the users / sellers or other resources on the web. Please use your own discretion to use this info when required and by continuing to read you agree to indemnify the author from all liability arising out of using this info on your own.