Identity crisis: Paytm Mall faces uphill task against e-commerce leaders Amazon, Flipkart

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April 09, 2019 8:05 PM

Alibaba-backed Paytm is perhaps realizing why India's around $39 billion e-commerce market either doesn't have space for a third front or it would need more than just Chinese capital and seeking 'inspiration from' Alibaba's Tmall to become a visible alternative to Amazon and Flipkart.

Paytm Mall claimed over 200 per cent growth in its O2O business in the last six Months. (Image source: Paytm Mall)

Alibaba-backed India’s leading digital payments company Paytm, which had launched its e-commerce unit Paytm Mall to take on incumbent giants Amazon and Walmart-owned Flipkart, is perhaps realizing why India’s around $39 billion e-commerce market either doesn’t have space for a third front or it would need more than just Chinese capital and seeking ‘inspiration’ from Alibaba’s e-commerce arm Tmall to become a visible alternative to Amazon and Flipkart.

Going Nowhere?

Paytm Mall’s market share was down by almost halved to 3 per cent last year from 5.6 per cent in 2017 at a GMV of $1 billion, as per data by Forrester Research. The e-commerce entity, which Paytm had spun off in 2017, had posted a hefty loss of Rs 1,800 crore in FY2018 on revenue of Rs 744 crore, as per a report by Kotak Research.

Market experts believe that the company’s strategy to turn to online-to-offline (O2O) model to create differentiation in the e-commerce model is, in fact, isn’t quite a differentiation.

“Paytm Mall’s positioning has not been very clear in terms of its offering — whether they are focusing on giving discounts to customers or looking at better customer service and why should customers come to them repeatedly,” Senior Forecast Analyst Satish Meena told Financial Express Online.

Unlike Paytm Mall customers have reasons to go to Amazon, Flipkart, Myntra etc., as they position themselves as largest online shopping stores and fashion store respectively. “There is no strength area and no single or multiple reasons for customers to come to Paytm Mall. They never invested in loyalty building. They wanted to run a marketplace model without investing in other things which are important for customers,” Meena added.

Paytm Mall didn’t respond to email queries sent by Financial Express Online for this story.

Capital Burning

Along with the differentiation factor, the basics of funding in the private market is also at play here. Investors back players whom they see as clear market leaders — something that looks like a long shot for Paytm Mall.

E-commerce is a market where one has to constantly invest capital for an extended period of time but FDI-backed players attracting capital purely on the basis of e-commerce play won’t be possible with the new norms by the government banning such players from selling products of the companies where they hold stakes and ban exclusive marketing arrangements.

However, “Between Alibaba and Softbank, Paytm Mall raised $424 million in 2018 and it hasn’t raised a large round since. We believe they’ve burned through most of their capital and are in the market to raise more. But investors are unlikely to back a third or fourth player in a well-capitalized market. In the marketplace model, it is unlikely to succeed among incumbents in this space and potential entrants such as Reliance,” business signals platform Founder Vivek Durai told Financial Express Online.

Wrong Mindset

Paytm Mall’s O2O model allows customers to walk into offline stores, scan Paytm Mall’s QR codes with respect to the products and pay using its app. However, experts opine that being a cashback driven model, O2O would be tough to crack.

“Whatever growth has been there it is because of cashbacks. Paytm Mall’s brand recall is in its cashbacks. They need a lot of shelf space to offer customers more choice and that is not happening currently,” Counterpoint Associate Director Tarun Pathak told Financial Express Online.

Meena echoes the cashback mindset. “Customer is still not ready for O2O kind of thing, they are not still very mature. Without cashbacks, there is nothing new for customers in that. So the problem lies in the offering itself.”

While Paytm is reportedly in talks to raise up to $2 billion from Softbank Vision fund and Alibaba’s Ant Financial but would that help Paytm take on Amazon and Flipkart in the long term? It might not seem so since the problem has been in the business proposition instead of the scale. Hence, Paytm Mall will be back to square one once the investment fizzles out.

However, Alibaba is not very keen on investing aggressively into the Indian market as of now. “Alibaba is not showing any intention of putting billions of dollars again as of now. They are focusing on capturing Southeast Asia before looking at India completely,” said Meena.

The only way now seems for Paytm Mall to come back in the e-commerce space, said Durai, is if they regain their footing in their home market, that is, payments. However, Paytm had claimed 33 per cent share in UPI payments with over 137 million transactions in September last year.

“With UPI becoming ubiquitous, we’re seeing a lot of players without significant differentiation. Google and PhonePe appear to be fighting for leadership of this market at the cost of Paytm. You cannot lead in payments by starting multiple businesses and trying to make them work together,” said Durai.

On contrary Paytm Mall in a company statement on Monday had claimed growth. “To support this (200 per cent) growth, we have re-aligned some of our teams and have added 200 more people for the business. We further plan to add an additional workforce of 300 people across business, technology, and product in the next few months,” said Srinivas Mothey, Senior Vice President, Paytm Mall.

Paytm Mall claimed that it has witnessed over 200 per cent growth for their O2O business in the last six months with a strong base in tier II and III cities.

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