Sep 28, 2016 09:03 PM
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Its simple.Paytm is not making profit. E-Commerce sites - where customer's come for discounts, to retain this you either need strong backing from investors or you are a dead meat.
Fortunately in case of Paytm, biggest investor Alibaba is not in hurry to make profits. Paytm is planning to achieve its break even( no profit, no loss) in 2016 and profit by 2017.
How will Paytm will make profit?
Paytm is trying to attract new customers by giving cashback( not discounts) on MRP. Margin on MRP is a myth in India. There is a high margin on branded as well non branded products. Once you get cashback, where do you use it ?
Online recharge is just 5% of 100, 000 crores recharge market. Paytm leads this increasing online recharge segment. 30% of the online recharge is done by Paytm. Imagine the commission they get.
- Since paytm is online marketplace, it takes commission from sellers as well. As their business will increase paytm also will.
Not to forget Paytm has got Payment bank license. You will see Paytm turning into bank in starting of 2016. Paytm will launch its netbanking and debit cards soon. They are planning to capture untapped rural market in India where banking has not reached yet. More money in, more business.
Will Paytm continue to give cashback?
They have 2 options. Either create value or give cashback. Increasing number of active users is a value creation. Recently in our college MISB Bocconi, CEO of JP Morgan discussed money model by paytm. He admitted that, paytm is entire new way of earning money for investors which investment banks ignored first.
Paytm will continue to give cashback but not on high end brands. But they continue to offer cashback on there products since its there business model. Hope I was able to answer this question. If yes don't forget to upvote this answer.
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