Young investors should focus on ETFs, and develop a structured trading process instead of one based on emotions or gut feel
Within three years, Paytm Money has emerged as one of India’s leading wealth management portals for mutual funds, stocks, initial public offerings (IPO), digital gold, futures and options (F&O), and exchange-traded funds (ETFs). The fintech major has more than 7 million users and has registered more than 20 million annual transactions over the last 2.5 years. In an interview, chief executive Varun Sridhar offers a sneak peek into Paytm Money’s journey and emerging wealth patterns in India’s financial sector, besides sharing his view on global peer Robinhood. Edited excerpts:
How is Paytm Money positioning itself in the market? What makes you stand out among peers?
Paytm Money hopes to provide everyone easy access to all investment options. Over a period of time, we aim to evolve to become India’s top digital wealth management platform and a one-stop app for savings, investment and trading requirements of up to ₹1 crore for all retail investors. Today, our platform provides investment opportunities in equities, IPOs, ETFs, F&Os, MFs, and digital gold. Our ability to make a scalable, resilient, and simple platform has helped us acquire 7 million users in 2.5 years, with more than 20 million transactions annually. Our client acquisition is simple and low-cost, given Paytm’s large, deeply interactive client base, and this has allowed us to get scale quickly. We recently started experimenting with Hindi and Gujarati IPO content, which has been a big hit among users and allowed us to get financial inclusion like never before.
Considering that most products are free, while charges are minimal for other products, how is Paytm Money generating revenue?
We expect Paytm Money to break even in two-three years. Our business model involves running a scalable, tech-based platform with low cost and passing the benefits to users. We don’t spend much on marketing and, thus, our cost of customer acquisition is far lower than the competition. We think that at scale, revenue per customer from products such as equity and that we continue to add every month will allow us to easily break even. We strongly believe a profitable and sustainable business model is essential.
What are the emerging patterns on Paytm Money?
We have been in the financial services space for around three years and it has been an exciting journey. The most crucial of all aspects is that India is changing and doing so rapidly. More and more Indians want to manage their wealth and income, and come equipped with knowledge. As India makes its way to a $5-trillion economy from $2.5 trillion as of now, 2020-30 is poised to become a significant decade for wealth management. Indians are rapidly changing in what they invest in and how they do it. We have seen a significant shift of MF assets to equity, inflows in gold and MFs and a sharp increase in equity and debt ETFs, international equity funds, and digital gold. Most importantly, the time spent by customers on managing their money is up by 30-40%. Across asset classes, we have seen 25-50% growth in the last 12 months. Within equity trading and F&O, customers have started trading extensively on our platform given the ₹10 pricing intraday and the easy availability of advanced charts and tools. We launched six months ago and are have topped 200,000 trades a day.
Global peers of Paytm Money, such as Robinhood, were accused of gamification of investing. How is Paytm Money different?
Robinhood has created a very intuitive and engaging trading platform that has been able to draw in millions of young users who might have otherwise avoided the financial markets. The primary concern is that ease of investing, combined with modern-day tools, often encourage unsophisticated investors to take unwarranted risks.
Paytm Money puts investor’s interest at the heart of everything it does. We aim to on-board more than 100 million first-time investors over the next three years and it is crucial for us to ensure that our users are well protected. We intend to do this by constantly educating users and building sophisticated tech that will act as a check against unwarranted risks. Our product highlights key numbers and risk parameters that a user should be wary of before investing. In MFs, we have multiple rating agencies giving feedback on every scheme, while in trading, the stop loss/margin calculator and profit calculator are easily available. We are also working on integrating investor education into all our products.
What do you think young investors should focus on to win big in the stock markets?
We have 3 recommendations for young investors. First, learn before you start. The generation today is impatient, wants instant gratification, and has great aspirations. However, spending some time learning the basics is critical. Time invested in learning has a direct correlation with a user’s portfolio returns over the long run.
Second, focus on ETFs. These are a great and low-cost way to manage risks and get upside in the markets.
Third, control emotions. We see our knowledgeable young investors do a fantastic job of placing 7 great trades and then get the 8th trade goes so wrong that the profits of all previous trades are gone. It is crucial to be able to control greed, fear, and FOMO (fear of missing out). Young investors should develop a structured trading process instead of one based on emotions or gut feel.