Most evenings, CoolCat Tifen is one of the busiest eateries in the Indian beach town of Pondicherry. The roadside restaurant doesn’t have seats — only standing tables, spread across an open space where a constant stream of tourists and locals pour in for masala chai and dosa. Even the most lavish dish costs no more than $5. The counter is festooned with QR codes for customers to scan and pay online. 

For the past six years, Deva Oli, CoolCat Tifen’s owner, has trusted only one brand for all of his digital payments: Paytm. In 2015, he created a digital wallet to accept payments at one of his restaurants through the service, whose name is short for “pay through mobile.” Pickup was slow at first, but then the fintech company splurged on cashbacks and marketing, sending adoption into overdrive. It turned the app into a household name, used to pay for everything from cigarettes to flight tickets. 

Today, all five restaurants that Oli operates in Pondicherry accept digital payments with Paytm QR codes, and he also uses card swipe machines provided by the company. “About 30-40% pay using Paytm, they don’t use cash. It’s increased, especially in the last one year during the corona period,” he said.

Offline retailers like Oli are part of a 21-million-strong merchant network across India, and a key part of Paytm’s pitch as it prepares to raise $2.2 billion through an IPO on the Bombay Stock Exchange, aiming for a valuation of up to $30 billion.   

Backed by Softbank and Alibaba, the payments giant was a pioneer in India’s digital wallets business, shaping itself in the image of its Chinese investor. Its early growth was dramatic, and by 2017 its ubiquity meant that “to Paytm” became a catch-all term for performing all types of online payments. But over the past few years, the company has seen its lead eroded by the introduction of a state-backed digital payments system and fierce competition from deep-pocketed rivals Google Pay and Walmart-backed PhonePe, which now make up more than 80% of the Indian payments market when combined. Paytm’s IPO filings show that while the company has narrowed its losses, its revenue fell by 10% in the first quarter of 2021.

As the company prepares to launch India’s largest stock market listing in more than a decade, it has to reorient itself away from its core payment business, which makes up three-quarters of its revenues, and into higher-margin financial services like loans, stockbroking, and investment products. None of those services are yet delivering the kind of breakneck growth Paytm needs to tip itself into profitability.  

“They do have a fantastic market share when it comes to payments, brand, and so on,” said a Mumbai-based venture investor, speaking on the condition of anonymity. “But I think they are still yet to demonstrate what that means in investor value.”

Visual China Group/Getty Images

Paytm was launched in 2010 as an online tool for users to recharge their prepaid phones. It subsequently added more use cases, including paying for Uber rides. The company’s founder, Vijay Shekhar Sharma, transitioned his platform into a digital wallet in early 2014, before bringing in Alibaba and its payments affiliate, Ant Financial, who invested a combined $680 million in the company. Paytm began to track Ant Financial’s path, creating a fully-fledged mobile wallet. By the end of 2015, the company had 50 million customers, thanks in large part to capital-fuelled promotions and discounts.

The company got a second boost in November 2016, when the Indian government suddenly decided to take 86% of the country’s cash out of circulation in an attempt to remove “black money” — untaxed income earned on the black market — from the economy. The move created havoc in the wider economy, but drove an exodus into digital payments. Paytm’s digital wallet grew from 125 million users to over 185 million in three months.


Six months later, Paytm closed a $1.4 billion funding round, led by SoftBank. At 39, the founder became India’s youngest billionaire with a net worth of $1.3 billion, and was featured in Time Magazine’s “World’s 100 Most Influential People” for 2017. 

The high was short-lived. In 2016, the Indian government began rolling out the United Payments Interface (UPI), a national payment infrastructure that allows real-time payments between banks at the tap of a button on a smartphone. The UPI removed the need to have a digital wallet to make mobile payments, and marked the beginning of a competitive squeeze for Paytm. “UPI was to payments what electric vehicles were to combustion engines,” Sharad Sharma, co-founder of iSPIRT, an Indian think tank that lobbied for the adoption of the UPI, told Rest of World in 2020. 

Overseas players saw the UPI as an opportunity to crack India’s 1.3 billion-strong consumer market. Google Pay, Facebook’s WhatsApp Pay, and Amazon Pay all came into the market. Walmart acquired PhonePe when it bought Flipkart, one of India’s largest e-commerce sites, in 2018, and has invested heavily in its growth. 

Paytm’s founder has tried to leverage the company’s identity as a homegrown champion, criticizing Silicon Valley firms, which he claimed were “colonizing payments” in India, and praising a ban on hundreds of Chinese apps by the Indian government as a “bold step in national interest,” even though his biggest investor is Chinese. The company is widely perceived to be an Indian brand, but in its IPO filing, Paytm declared it is “foreign-owned and controlled” and will continue to be so even after it lists.

UPI’s growth has eclipsed other forms of digital payments, such as debit and credit cards in India. From April through March, UPI transaction volumes increased to 2.73 billion, a 275% increase from last year. In the five years since its introduction, the new competitors have divided up the UPI market: Walmart-backed PhonePe commands about 46% market share, while Google Pay has over 34%. Paytm comes at a distant third with an 11.6% share.  

UPI allowed interoperability between payment platforms, cutting into Paytm’s digital wallets business and preventing it from replicating the walled-garden payment ecosystem that allowed Ant Financial and Tencent to become a powerful duopoly in China.To promote further adoption of digital payments, the government has prevented companies from charging any meaningful fees from merchants using UPI. This has limited the growth potential for Paytm from its core payments business, which currently makes up 75% of its revenues.

“They do have a fantastic market share... but I think they are still yet to demonstrate what that means in investor value.” 

“The thing that's happening in payments right now across Asia is what we call a ‘race to zero.’ It's bringing the cost of transfers to zero,” Zennon Kapron, director of fintech consultancy Kapronasia, told Rest of World. “The challenge [for Paytm is] if 75% of your existence — both in terms of duration and just overall business — is focused on payments, what's next? How do you pivot from that and provide more products and services?”

Company name:Paytm
HQ:Noida, Uttar Pradesh, India
Founded in:2009
CEO:Vijay Shekhar Sharma
Key investors:Ant Financial, Softbank, Alibaba, SAIF Partners India, Berkshire Hathaway
Total investment raised:$4.4 billion

But people with knowledge of Paytm’s operations argue that there is scope for the payments business to continue to grow and tip towards profitability. “Paytm is able to make money from payments because it has invested in its own payment instruments,” said a person close to the development. They pointed out that unlike competitors Google and PhonePe, Paytm is not completely dependent on UPI, and generates revenue from a host of payment instruments such as buy now, pay later, debit cards, payment gateways, swiping machines, and tags for vehicles to pay highway tolls. 

“When these instruments are used, Paytm makes money,” the person said, adding that total revenue from payments and financial services grew by 11% over the past 12 months, and that total revenue for the segment reached $289 million last financial year, about 80% of which came from payments.

To shore up its prospects, Paytm has been trying to mimic Ant Financial’s early playbook. In China, Ant successfully moved up the value chain, converting digital payment users into users of other financial services, such as loans, insurance, wealth managers, and investments. 

Paytm has invested in trying to do the same. In 2018, the company procured a payments bank license to offer debit cards and investment products. However, it’s still restricted from issuing credit cards and originating loans off its own balance sheet. Sharma has been lobbying to convert Paytm’s current license into a small-finance bank license, which would allow it to offer lending products to small and medium-sized businesses. In 2018, they acquired an equity broking license which allows them to sell wealth management products, and in 2020, they received an insurance brokerage license, letting them distribute insurance on behalf of partner companies. 

“Paytm is the only properly licensed, full-stack fintech player in the country. They are the only bank in the ecosystem,” said Anand Lunia, General Partner at venture capital firm India Quotient. “They have the [banking] license which Google and PhonePe cannot hope to get because of the foreign ownership. [Paytm] has a regulatory advantage that has not been spoken about.” 

Ant Financial’s pivot to more complex financial products delivered rapid growth in revenues. By 2019, the company was making more than 50% of its overall revenue through its financial services business. Paytm is still some way off from proving that it can cross-sell into its 330 million-strong payments user base, however. Even a Paytm loyalist like Deva Oli of CoolCat Tifen, who has relied only on Paytm for half a decade, has been unwilling to take a loan from the company, despite receiving multiple offers from the company over SMS. 

Even as the public profile of Paytm and its founder continues to rise, the gears of its financial services flywheel haven’t turned fast enough. Paytm’s IPO filing showed that it has $700 million in assets under management across its investment products, including digital gold, mutual funds, and stockbroking. Zerodha, the country’s largest stockbroker, manages $700 million worth of assets just in its mutual fund distribution portfolio. 

The current exuberance in Indian public markets should buoy Paytm’s listing. The blockbuster IPO of delivery giant Zomato settled a longstanding debate in India on whether loss-making internet companies could ever list in the public markets. The stock is up 84% compared to its issue price. The strong price movement boosted the IPO plans of other digital majors: insurance aggregator Policybazaar, online beauty products startup Nykaa, and logistics firm Delhivery are all slated to go public this year. But, analysts told Rest of World, the doubts over Paytm’s long-term sustainability makes it an uncertain prospect for investors.

“It’s an important IPO from an ecosystem perspective — size, stature, all of that,” said the Mumbai-based VC. “If you look at all the other candidates  — Zomato, Nykaa, Policy Bazaar, Delhivery — all of them have fundamentally robust businesses. I think [Paytm] has the most issues.”