Five Reasons Why PayTM Is Miles Ahead Of Its Competition

With over 100 million users a year ago, PayTM was way ahead of its competitors well before the Nov. 2016 demonetization of high value currency notes in India. On the back of the push for #CashlessIndia consequent to #CurrencySwitch, the Alibaba-backed mobile wallet has increased its lead over other mobile wallets (e.g. MobiKwik, PayZapp) and account-to-account money transfer apps (e.g. UPI). Today, PayTM boasts of 150M users (Source: Wikipedia).

Based on my personal experience and anecdotal evidence, I advance five reasons to explain PayTM’s overwhelming popularity.

#1. Ease of Onboarding Merchants

Merchants can sign up for PayTM without a bank account. They can receive money into their PayTM wallets without a bank account. They can even spend their wallet balance by shopping at other merchants that accept PayTM payments. It’s only when they want to cash out their money from their PayTM account that they need a bank account.

As a result, PayTM was / is able to sign up hundreds of thousands of merchants that don’t have bank accounts. These merchants could sign up for PayTM immediately after the demonetization announcement, start accepting payments and visit banks in parallel to open their accounts as their PayTM account balances were growing.

This was / is not possible with competing e-wallets, which insist that merchants link their bank accounts (or debit cards or credit cards) at the time of installing and onboarding their respective apps. As a result, PayTM’s competitors were not in a position to sign up financially-excluded micromerchants at the point they desperately needed to accept cashless payments. They lost this huge market to PayTM.

#2. Viral Distribution

When PayPal launched in the late 1990s, it incented existing users to send money to non users. When users sent money to their friends and family members (that were not on PayPal), PayPal sent them an email saying “Collect $$ by signing up for PayPal”. This give non-users a far more compelling reason to join PayPal than any direct advertising or PR efforts and generated a massive viral distribution for PayPal.

PayTM has copied this approach. And has reaped the rich rewards à la PayPal.

PayTM’s Viral Distribution Strategy

Surprisingly, PayTM’s competitors haven’t followed this approach. They insist that payments can be made only to people that have already signed up to their e-wallets.

To take the example of UPI, to receive payments, you need to have a Virtual Payment Address (VPA) from your bank. Assuming that you’re thorougly sold on UPI and decide to create your VPN, you’ll need to contend with your bank’s systems to actually generate one. This adds a big moving part, which doesn’t always work. Just today, I got an SMS from my bank saying they can’t issue new MMIDs – an integral part of IMPS, the payment rails on which UPI works – for the next five days. There’s no guarantee that you’d still be interested in UPI five days later.

A few PayTM competitors I spoke to told me that sending money to a non-user would be tantamount to putting the cart before the horse. Indeed, it would. But, as I’ve said time and again, Putting Cart Before Horse Does Work. PayTM and PayPal get it. Many of their competitors don’t.

#3. Feet On Street Approach

In the weeks following #CurrencySwitch, PayTM salespersons made daily rounds in retail hotspots asking storekeepers if they wanted PayTM.

I’ve seen this personally in my building storefront that’s dotted with teawallah, fruit juice vendors, pan-cigarette sellers and other micromerchants.

I also heard more details of PayTM’s aggressive merchant acquisition drive from a Uber driver.  According to this cabbie who accepts PayTM on his personal name – PayTM is also Uber’s official digital payments partner – PayTM sales reps ride on their motorbikes up and down a street near Pune Airport where hundreds of Uber and Ola taxis are parked, asking drivers if they wanted to sign up for PayTM. When a driver says yes, the rep connects the driver’s smartphone on his own 4G network using tethered WiFi hotspot, downloads the app, installs and onboards the driver on PayTM. All this in 5-10 minutes. Without being judgmental about whether the driver is tech savvy or not. And at no data charges to the cabbie. This Uber driver is so conversant with PayTM’s onboarding process that he even knows the PayTM rep’s sales quota (10 merchants a day)!

In sharp contrast, most competitors of PayTM haven’t harnessed the power of feet-on-street approach to recruit small merchants. To see just how detached they are from market realities, an investor in a digital payments company placed the focus of merchant acquisition of his investee company on self-service. In his MEDIUM article, he said,

Merchants should be able to go to an Amazon or Flipkart site or a Croma store and just buy a terminal at their own cost and link their bank account and start accepting payments.

Well tried. Even if they’re tech-savvy, crazy busy merchants just don’t have the time for self-service, especially when they’re busy getting pampered by the nation’s #1 mobile wallet company!

As a result, most micromerchants I’ve quizzed are not even aware of UPI, BHIM and other competing e-wallets.

#4. Frictionless Payments

By design or default, the Sign Out link in PayTM’s mobile app is buried deep inside the app. As a result, many users have never seen it and stay logged into their app all the time. This means they’re able to make a payment without a password or PIN.

This creates a significant security vulnerability in PayTM. But it also makes the mobile wallet’s CX that much more frictionless, which matters a lot when people need to use it to make payments several times a day.

Security is a hygiene factor. Convenience trumps security. Everytime. Even in India.

PayTM has capitalized on this element of consumer behavior. Its competitors haven’t.

#5. Miscellaneous

As I’d highlighted in Hiding Your Secret Sauce, PayTM preloads its wallet on the fly without user intervention. As a result, users wary of having to topup prepaid mobile wallets before initiating payments find the PayTM experience superior to that of mobile wallets, which bump them off with a message asking them to load enough money into their wallets first and then reattempt the payment.

PayTM is also very well funded and is able to absorb losses on every transaction.

While these factors contribute to PayTM’s dominance of the digital wallet space, I tend to believe they’re secondary to the aforementioned ways by which PayTM has differentiated itself from its competitors.

With PayTM’s lead over other e-wallets and the reasons for that out of the way, let me come to its detractors who point out that PayTM’s dominance is only a thing in the present. I agree with that.

Some of the detractors have gone to the extent of predicting PayTM’s demise in view of competition from BHIM, a government-sponsored m-wallet. I think that’s highly exaggerated.

That said, PayTM does face a few headwinds:

  • Sustaining relationships with merchants with daily sales of INR 50K+. This category of merchants includes vegetable vendors and fruit sellers among others who find its cap (INR 20K per month without KYC, INR 100K per month with KYC) too low. I know at least two merchants that have bailed out of PayTM for this reason. (Interestingly, they’ve gone back to cash, which suggests that PayTM’s competitors couldn’t recruit them either)
  • Willingness of PayTM’s Chinese backer to fund the company’s cashbacks and mounting losses.

As they say, past performance is no indication of future success. This maxim is as true for PayTM as any other company. Only time will tell how long India’s #1 mobile wallet will hold on to the top spot.

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