The fraud, which involved fake transactions between merchants and employees to make undue gains from cashback offers, is estimated to be to the tune of ₹10 crore, Sharma said on the sidelines of a press meet in Mumbai on Tuesday. “I don’t know the (exact) amount but, it will be ₹10 crore for sure," said Sharma.
Since its inception in April 2017, Paytm Mall has raised $650 million from Alibaba, SoftBank and SAIF Partners, with Alibaba group arm Ant Financial holding a 42% stake in Paytm Mall. Alibaba also holds a large stake in Paytm’s parent, One97 Communications.
On Monday, news agency PTI reported that the company had appointed consulting and audit firm EY to investigate the cashback fraud. The investigation has been going on for almost a fortnight and some employees have already been fired, it added.
“We found out that there were some sellers who were colluding with some employees at the junior level and they sort of got more cashbacks on their products, so we blocked those sellers and fired those employees," said Sharma.
The online retailer plans to make its seller registration process more stringent in order to curb such frauds in the future.
“We first used to believe that every seller should be able to sell on Paytm Mall. Right now we are stringently clear that only authorized brand sellers will be allowed," said Sharma.
According to Sharma, even as the platform continues to delist fraudulent merchants, it does not plan to revoke cashback offers.
Paytm currently has 12 million merchants, and over 300 million customers. It continues to spend most of its cash in acquiring new merchants and customers.
“We don’t want to be profitable till we have acquired 500 million customers and 45-50 million merchants," he said
The fraud at Paytm Mall comes at a time when the e-commerce company has been struggling to make its mark in a market dominated by Amazon and Walmart-Flipkart, despite being one of the fastest internet companies in India to reach $1 billion in valuation.
According to Forrester Research, Paytm Mall’s market share fell from 5.6% in 2017 to 3% in 2018.
In April, The Economic Times reported that Paytm Mall reported loss of ₹1,787.55 crore on a total revenue of ₹774.86 crore in 2017-18, citing regulatory filings.
The newspaper added that the company’s largest backer Alibaba was uncomfortable to pump in more capital to support its cashback based e-commerce business model.