Paytm (mat) karo!

So the D-Day is behind us. Biggest IPO in India got listed yesterday and what a debut! Down 27% on day 1 reminds me of another very infamous the then largest IPO in India’s capital market history- Reliance Power!

I was anyways not an investor in Paytm or any of these new pseudo-tech IPOs but yesterday’s interview of Vijay Shekhar Sharma on CNBC made me realise what money can do to someone’s mind. Until yesterday, I have thought of him as one of these founder promoters who are selling venture funded bubbles to another PE investors in the name of fintech revolution. However, yesterday I realised that the man is horribly arrogant and childish trying to be cool guy who got rich and can’t believe his luck. So I stopped using Paytm then and there

Let’s come back to what Paytm and his other App based fintechs are trying to do. They bring customer to make basic functions through their apps like money transfer, buy tickets, pay bills etc. Now you see all these things can be done through your YONO SBI or IMobile ICICI easily. Since most of the retail payments we use in India is done via UPI, which is developed by NPCI and is free to use, no customer will ever pay for it. So now these Paytm types go around town saying that they’re doing God’s work by financially including people who are now doing online payments. Well, in the past 7 years, over 40crore Jan dhan bank accounts have already been opened in India and thanks to Aadhar linkage, India’s level of financial inclusion is near universal. So these payment companies are only taking credit for what has been basically done by public sector banks because the fruit seller or gol gappe wala who’s now taking money through QR code on Paytm of PhonePe is able to do it because some public sector bank gave him a Jan Dhan account in the first place.

So now they’re saying, we’re not charging for payments( which they can’t legally charge) but for cross selling. We’re offering other products like insurance, mutual funds etc on our platform which the customer can buy for which we’ll get some commission. Well, isn’t it exactly what our banks do when we go for an FD, they sell you an insurance. The point is, everyone in financial services industry in India, your SBI, ICICI, ICICI Securities, BSE, NSE, realise that we’re an under penetrated market in terms of financialisation of savings. This means, people’s money is yet to be invested massively in financial products such as mutual funds, insurance, etc. The opportunity of this is huge and so everyone is banking on more Indians puting their money in stock markets inline their parents who bought gold or real estate. This is the absolute beginning of this whole premise.

Now, these Paytm types sell the story such as- India has 1.3billion people waiting to buy stocks or mutual fund, which they can through Paytm. Even if we capture 5% of this market, we’ll have 6.5crore Indians as customers. Even if each customer invest 100000rs a year, we’ll have 6.5 lakh crore AUM and if we can get .1% commission, we’ll make 650crores and then the number will keep growing and we’ll make billions and billions of dollars so that makes us a $100billion oppertunity. Well, great story, but too far fetched.

The reality is,most of banks are already doing this for decades. Most big brokers, including ISEC etc already earn a lot of their money by cross selling. So it’s not that it’s an innovation. So if Paytm is a fintech company, BSE is a daddy fintech as doesn’t matter where and what you buy, you’ll end up paying some part of it to BSE or NSE as the case may be. So this whole idea of only Paytm being a fintech and others as old lousy businesses is false. Also, if you begin to value ISEC which also is a huge distributor of mutual funds and loans etc, it should be valued not at 25000crore but 250000 crores as it has one thing Paytm will never have- real profits! Cash, hard cash. Paytm selling a 100rs thing for 90 and calling it revenue growth is a joke. This difference of Rs 10 is exactly what the investors paid for yesterday as India’s biggest IPO.

Worse than this cross selling types are the ones who will sell customer data to someone else and let they try and sell some loans to the customers. I know the only business model a lot of these startups is called- data monetisation. This basically means since they know what you’re buying or selling, they can sell their data to another Bank or someone who’s willing to buy it so that he can harass you with- you have a pre approved personal loan/credit card type calls.

Just a reminder- Reliance Power was issued at close to 450rs a share and post listing day, it never saw that price again and 14 years later, the company is officially bankrupt, promoter’s networth is zero and trades at close to 4rs a share. So much for India’s largest IPO!