Opinion
Why Paytm’s long search for consistent profits continues
Summary
- While the company retains its strength in the payments sector, it still lacks a coherent business strategy and is yet to show market watchers which business it plans to build over time to deliver consistent profits.
Paytm recently announced it plans to build an AI system to help financial institutions identify risks and fraud, safeguarding them from emerging threats linked to AI advancements. Simultaneously, the company is streamlining its workforce by automating repetitive tasks and promoting AI adoption among its employees. It is reported to have laid off over 1,000 employees since October.
The company has said it “will be able to save 10-15% in employee costs as AI has delivered more than we expected it to. Additionally, we constantly evaluate cases of non-performance throughout the year".
While Paytm retains its strength in the payments sector, it still lacks a coherent business strategy and is yet to show market watchers which business it plans to build over time to deliver consistent profits.
The company launched its digital wealth-management product, Paytm Money, around 2018. Its mutual fund business has done moderately well, but competes against global and domestic banks and other specialised wealth-management platforms. The market is still assessing which entity will be able to bag the largest market share and serve them profitably.
Meanwhile, Paytm has flip-flopped on insurance. It now says, “Insurance and wealth will be a logical expansion of our platform, continuing our focus on the existing businesses. Having shown the strength of our distribution-based business model in loan distribution, we are expanding the same to focus on new businesses to drive scale."
This is surprising. As recently as September, Paytm said it had decided to not enter insurance after failing to conclude a deal for QBE Raheja Insurance. What caused it to change its decision within a few months?
In light of the RBI’s recent regulatory measures to tackle unsecured lending, Paytm could see subdued performance in its profitable lending segment involving loans under ₹50,000, which would hurt its revenues.
In light of this, the announcement of new business lines seems like an attempt to put on a brave face with an eye on its stock price. Shareholders and stock watchers could be expected to ask the company for a more coherent strategy and hold its management and board accountable. But there's likely to be less patience with the company’s tendency to change strategy and chase new ideas every now and then.
Paytm may say it is venturing into every conceivable financial product to boost revenue and profit, but that is unlikely to silence criticism about its lack of focus.
Macquarie wrote in a research report in November 2021, “Dabbling in multiple business lines inhibits Paytm from being a category leader in any business except wallets, which are becoming inconsequential with the meteoric rise in UPI payments. Competition and regulation will drive down unit economics and/or growth prospects in the medium term in our view".
Two years later, Paytm is still struggling to find its focus and prove it can deliver consistent profits.
