The Indian fintech industry is on track to become a market worth $2.1 trillion by 2030.This massive advancement in the finance space has changed the financial landscape. Gone are the days when you had to go to the bank to make a transaction, or you had to go to some shop to recharge your mobile phone.
Thanks to fintech companies like Paytm and PhonePe, these financial tasks are now just a click away,we are just one click away to pay credit card bills, electricity bills and DTH bills. Paytm has made complex financial procedures easy to understand. They have made the finance market accessible, efficient and user-friendly.
But how are they doing so? What is their business model? How does Paytm and PhonePe make money?
In this blog, we will do a breakdown of Paytm business model and their revenue strategies,all within the framework of a well-thought-out strategic plan.
The Platform and Operations
Paytm and PhonePe,two prominent fintech companies provide merchant services to stay upfront in the digital economy. Do you wonder what the merchant service means ?
It's nothing but handling of electronic payment transactions that empowers small and medium enterprises (SMEs).Both Paytm & PhonePe offer merchants with QR codes, POS(point of sale)machines and UPI to accept digital payments and to manage their transactions efficiently. This creates an easy to pay experience for customers as it reduces their friction to pay. When customers make a payment using an app’s QR code that app charges a small commission on each transaction also known as MDR (merchant discount rate).
Do you wonder how they make digital transactions secure and convenient?
By leveraging technology, both of them have made transactions so convenient that with just one click you can transfer money, you can make purchases or even pay your electricity and DTH bills from the comfort of your home. One can make payment anytime as they are accessible 24/7. They offer innovative ways that make cashless transactions not only convenient but secure as well. Digital transactions have reduced the dependency on physical cash minimizing the risk of theft or loss of money. These enhancements align with their strategic objectives of providing secure and efficient financial services.
When small businesses often struggled to get loans from banks due to the lack of collateral,fin-tech apps like Paytm and PhonePe led the charge and gave loans to the small business owners without any collateral. “But isn’t it risky to give money without assessing whether the borrower can pay back the money or not?”Both companies use borrower's transaction data to check their creditworthiness. They analyse the revenue of the business through transactions and make a data based decision on that. This helps the small business owners to fulfil their need of expanding operations, purchasing new inventory or managing their cash flow. Borrowers also choose them as their lenders because the speed of providing them money is much higher than doing a long process in banks. These innovative lending practices reflect the importance of strategy execution in their operations.
Do you think these measures are sufficient in today's digital landscape?
Paytm and PhonePe are not limiting themselves only for digital payments or lending money. They have expanded their business model into e-commerce platforms. They have expanded their business into e-commerce platforms ,collaborating with brands like flipkart, Puma, Nike, FBB, Sports Station and Bewakoof. This means they will earn commission on every order made through its platform. This serves these businesses as an additional revenue stream.
Do you believe this diversification is a smart move within the context of strategic planning?
Additionally, both companies offer investment platforms for their users to manage their finances and make informed decisions. They offer a wide range of investment options, including mutual funds, exchange traded funds (ETFs), stocks, bonds and many more.
Do you think providing tools for users to conduct their research is empowering?
They don’t ask you to invest in some specific stocks or mutual funds, instead they provide you with information and research tools so you can conduct your own research and make informed decisions regarding your investments. Each time you buy stocks, mutual funds or bonds through their platform they get commission on it. This aligns with their strategic objectives of providing users with tools for informed decision-making.
The Business Model and Revenue Generation
Paytm and PhonePe, in the world of fintech, have crafted a remarkable business model that's reshaping how we interact with financial services.Paytm and PhonePe follow a freemium business model, where basic services are offered for free and premium features or services are charged for. It attracts a large user base and generates revenue from those who are willing to pay for additional features or services.
Their commitment to providing secure and efficient digital payments has made everyone's life so much easier. Have you ever wondered how Paytm seamlessly handles transactions and simplifies bill payments?
It's no wonder they have become the go-to platform for all financial transactions. But did you know they've also ventured into e-commerce and merchant services, creating diverse revenue streams while ensuring that users enjoy a hassle-free experience? What really caught everyone's attention is their innovative lending approach—offering loans to small businesses without the need for collateral. They use data analysis to assess creditworthiness, a game-changer for entrepreneurs. Additionally, their investment platforms have empowered them to make informed financial decisions. And who can resist those exciting cashbacks and offers? It's clear that both companies value user loyalty and convenience.
With a focus on accessibility, their business models are driving the Indian fintech industry to new heights. How do you think this model will continue to evolve?
Have you ever wondered how much a transaction fee is charged by Paytm and PhonePe?
Paytm and PhonePe charge a transaction fee of 1-2% on each transaction processed through their platforms. For example, if a customer makes a payment of ₹1000 using Paytm or PhonePe, the merchant will typically pay a transaction fee of ₹10-20.MDR (Merchant Discount Rate)varies depending on the type of transaction and the merchant's category. They generate a significant amount of revenue from in-app advertising. In 2021-22, Paytm generated ₹1,220 crore from in-app advertising, while PhonePe generated ₹730 crore from in-app advertising.
Both of the companies earn a commission on each loan and investment that is made through their platforms. The commission rate varies depending on the type of loan or investment. For example, Paytm charges a commission of 2-3% on personal loans, while PhonePe charges a commission of 1-2% on mutual fund investments.
These companies charge merchants a fee for providing them with services such as QR codes, POS machines, and UPI to accept digital payments. The fee varies depending on the type of service and the merchant's category.They also generate revenue from other financial services, such as insurance and wealth management.
Customer Acquisition and Retention
Cashback and exciting offers is a marketing strategy used by both Paytm and PhonePe to attract and retain customers. When potential users see an opportunity of earning a reward they are likely to sign up and try out the services. Providing cashbacks is one of the best ways to enhance the relationship with customers. This cashback strategy helps these businesses to have regular transactions. For exciting offers-there are various ways companies do that. Paytm,for instance,has this “product for 1” feature where you have to redeem points to get products like face wash, hair wax, highlighter or even hair growth oil for 1rs.
Doing this drastically increases customer experience with the product and giving such offers often lead to high word-of-mouth marketing. Do you think these strategies enhance customer loyalty?
Do you think in-app advertising is effective in reaching their target audience?
Due to their large customer base, brands pay heavily to place their ads on their app. With the amount of data they have, brands can deliver their product to their target audience effectively. In-app advertising helps monetize their app,thereby contributing to their revenue strategies.
Provision of a variety of services to merchants , such as QR codes, POS machines, and UPI to accept digital payments helps them to attract and retain merchants, which in turn attracts more customers.
Building a data-driven and concise business model sets the foundation for sustainable growth for your business.
If you are looking to learn more about business modeling and use tools to deliver them,Get Early Access now.