Paytm cut marketing spend more than the competition: Bernstein report

The report adds that NPCI's recent norm that limits digital payment apps' share in the overall volume of transactions on the UPI at 30% would impact PhonePe and Google Pay more than Paytm

Paytm, whose initial public offering is expected later this year, has cut down its marketing spend as it focuses on building revenue, and competes with PhonePe and Google Pay in the super application (app) space, according to a Bernstein report.

"Within the UPI (unified payments interface) super-apps, PhonePe leads the pack on overall UPI market share and has grown market share relative to Google Pay and Paytm. Phone Pe and Google Pay continue investing in providing customer incentives and spend on marketing at 2.5-3.0x revenue (FY20 MCA filings). Paytm has streamlined marketing spend from 1.2x revenue in FY17, to 0.4x in FY20, and now at 0.2x of revenue (FY21), while growing merchant payments share across wallets, UPI, PoS, and online payments," said analysts Gautam Chhugani and Manas Agrawal.

The report further said the National Payments Corporation of India's recent norm that limits digital payment apps' share in the overall volume of transactions on the unified payment interface (UPI) at 30 per cent would impact PhonePe and Google Pay more than Paytm.

“This would imply PhonePe and Google Pay would have to dial down their customer incentives to bring their market share gradually towards the 30 per cent cap,” said the Bernstein analysts. The cap would not impact Paytm Payments Bank.

As per a communication from NPCI, starting from January, 2021, all UPI payment apps will be subjected to a three-level threshold monitoring by NPCI with some exemptions. At the first level, the TPAPs and payment service provider (PSP) banks will receive an NPCI communication on breaching the 25-27 per cent mark of transaction volumes. At the second level, between 27.1 to 30 per cent, they will receive a second alert, and the TPAP and must provide evidence of actions taken in compliance to the volume cap.

“The super-app battle is heading beyond just pushing marketing dollars for market share (PhonePe and Google Pay spend 2-3x revenue, as UPI market share caps kick in. What will matter is financial services monetization including delivery of credit-on-app and building a financial services suite – for both in-store and online merchants”.

The analysts also said Paytm was building a full-stack payments suite beyond UPI – point-of-sale (PoS), Paytm payments gateway, Paytm Payments Bank, and building a financial services platform – with focus on Pay-later lending (Paytm Postpaid) and wealth management/Insurance (Paytm Money).

Additionally, the biggest transaction driver in the UPI space is the P2M (person-to-merchant) segment in which Paytm has solidified its lead. Paytm has been “growing merchant payments share across wallets, UPI, PoS, and online payments,” said the report.