Paytm founder and chief executive officer Vijay Shekhar Sharma. Photo: AFP

Digital payment firm Paytm hopes to be profitable after two years as it looks to monetize its assets and its cut losses.

Founder and CEO Vijay Shekhar Sharma, who heads One 97 Communications – the parent company of Paytm – told the Press Trust of India that it is eyeing financial services as its next major frontier for growth.

Sharma said Paytm’s growth is divided into three phases – the first three years to find the right product-market fit, the next was revenue and monetization and the last phase would be about profitability and free cash flows. “We are in the second phase of that journey,” he told the news agency.

In 2015, Paytm started deploying QR codes and by 2018-19 completed its product-market fit. From 2019-20 onwards, it is monetizing.

“I would say at least two years because we are also a large dominant market share company and we wouldn’t want to lose market share while becoming profitable next quarter,” Sharma said.

Sharma said Paytm had trimmed losses in the last 12 months because of monetization and not reckless cost-cutting. He claimed that Paytm Payments Bank, commerce and cloud were already profitable, while Paytm FirstGames and Paytm Mall was “close to profitability.”

When asked about businesses under One 97 Communications that were draining profitability, Sharma said investments were focused on expanding the offline merchant base. “Overall, offline merchant expansion and technology is where the investment is happening,” he said.

Earlier this month, Paytm said it aimed to add close to 10 million merchants to its platform over the next 12-18 months. It now has more than 16 million merchants across unorganized and organized sectors. The company has already introduced a new all-in-one payment gateway and business solutions as well as an Android-based point of sale machine.

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Last November the company raised US$1 billion and the funding was led by US-based asset management firm T Rowe Price, while existing investors Alibaba, SoftBank and Discovery Capital also participated. Alibaba’s subsidiary Ant Financial invested $400 million and Softbank $200 million. The company was valued at about $16 billion.

Paytm plans to invest about 100 billion rupees ($1.4 billion) over the next three years to expand financial services.

After starting as a prepaid mobile recharge website in 2010, Paytm hit paydirt on November 8, 2016, when Prime Minister Narendra Modi made a controversial announcement banning high denomination currency notes.

For cash-starved people and traders, Paytm became the preferred alternative over other modes such as checks and credit cards. Soon its domination over the digital wallet space became formidable.

However, with the entry of Google Pay in 2018 and the takeover of Flipkart and its digital wallet arm PhonePe by Walmart in the same year, Paytm began feeling the heat.

The introduction of the Unified Payments Interface, an instant real-time payment system developed by National Payments Corporation of India to facilitate inter-bank transactions, also took the shine off digital wallets, which involved multiple legs, including the transfer of money from a bank account to the wallet and then to the beneficiary.

While the acceptance of the Unified Payments Interface began increasing among the Indian public, the dominant position of Paytm started eroding. The digital wallet market more or less stagnated.

According to a report by fintech firm Razorpay, in 2019 Google Pay contributed 59% of digital transactions to the Unified Payments Interface platform, followed by PhonePe (26%), while Paytm transacted a mere 7%. The report also pointed out that for the first time the payments interface had overtaken the usage of credit and debit cards. It has now become the preferred choice, not only for peer to peer payments, but also for peer-to-merchants’ payments.

Paytm will also face competition from Facebook-owned messaging service WhatsApp, which is expected to roll out its services in the country by the end of this year. The messaging service giant has nearly 400 million users in India and it hopes to tap into them for its forthcoming payments services.