Paytm from India is a smaller, more robust version of Ant

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A worker adjusts a hoarding of Paytm, a digital payment company, in Ahmedabad, India on January 31, 2019. Photo taken on January 31, 2019. REUTERS / Amit Dave – RC1C2463DEA0

MUMBAI, July 20 (Reuters Breakingviews) – India’s payments poster is a smaller, more robust version of its main funder, Ant. Paytm filed Friday to raise some $ 2.2 billion in what is expected to be the country’s largest initial public offering in rupees. The company founded by Vijay Shekhar Sharma is well positioned to grow rapidly in financial services without encountering the kind of brutal regulatory shock that has derailed the Chinese fintech giant’s own IPO plans.

The prospectus confirms the scope of Paytm. It rose to prominence with a banknote ban in 2016 and now serves 333 million consumers and 21 million merchants. Paytm allows users to send money to friends, pay bills, buy groceries, reserve tickets, and open a bank account. They can also use wealth management products and, through the company’s financial partners, borrow money. Paytm derives most of its revenue from billing merchant fees and commissions.

Its net loss declined 42% in the year through March, although operating income contracted by more than 10% as a pandemic-induced slowdown weighed on its business operations. Paytm has increased the gross value of merchant payments by a compound annual growth rate of 33% over the past two fiscal years, despite reducing marketing and promotion spend by a much higher percentage. Scale has helped reduce its payment processing bill, and more and more customers are using at least two of its services.

This is a glimpse of a powerful network effect. Research firm Bernstein calculates that Paytm has higher earnings for each of its monthly active users than its competitors; rivals include Google’s G-Pay and Walmart’s PhonePe (WMT.N), which have captured payments market share by leveraging the free digital infrastructure backed by the Indian government. Paytm offers a greater range of products such as e-wallets, which are easier to monetize, and uses payments as a hook to sell higher paying services.

Still, to justify its $ 25 billion market value, Paytm would have to trade more than twice the combined sales multiple of Visa (VN) and Mastercard (MA.N). It looks rich, especially as it faces stiff competition. Next year, he will be able to apply for a banking license allowing him to offer low-cost loans on his own balance sheet. Ant got into trouble because regulators woke up late to the risks associated with his credit business. Paytm, at least, is used to jumping through official hoops.

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NEWS CONTEXT

– The Indian Paytm filed on July 16 an initial public offering which will aim to raise 166 billion rupees (2.2 billion dollars).

– Half of the shares for sale will be new shares. The company intends to use this product to grow its customer base, finance acquisitions and for general corporate purposes. Subsidiaries of Ant, Alibaba and founder Vijay Shekhar Sharma are among those selling an undisclosed portion of their existing shares.

– Paytm offers payment services, financial services, and commerce and cloud services. Some 333 million consumers are customers, as are over 21 million merchants.

– Morgan Stanley, Goldman Sachs and Axis Capital are global co-coordinators.

Editing by Antony Currie and Katrina Hamlin

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