Paytm can add 15 mn new customers for soundbox devices in next 2-3 years

Company has first-mover advantage in this space, but the competition is getting aggressive too

Fintech major Paytm could add 15 million new customers for soundbox devices in the next 2-3 years, said a Bank of America (BofA) Securities report, which admitted that competition is high but Paytm has a first-mover advantage in this segment.

“Paytm was the first company in India to start deploying Soundboxes at scale and in the process, created a new market. As a result, Paytm has first-mover advantage in this space,” said the report.

The report mentions that the target market for Soundboxes is 25 million medium-sized SMEs and 15-17 million smaller ones.

The reason for the opportunity is that India has 40-45 million merchants, of which 2.5 million are large merchants (who work with large banks), 20-25 million are tax-compliant SMEs, and 15-17 million are SMEs with smaller turnover, according to the BofA report.

Paytm’s ‘first-mover advantage’ matters in the soundbox space as vendors owning one typically don't need of another unless the merchant is large, the report added.

The fintech major has cumulatively deployed over 6.5 million soundbox devices since its launch.

Though Paytm is a first-mover in this zone, competitors PhonePe and BharatPe are getting aggressive too. PhonePe has deployed 2-2.2 million devices, while BharatPe has deployed 800,000-900,000 soundboxes.

Competition is not only from fintech players but also from banks. HDFC, SBI and IndusInd are focused on this segment as well.

But the BofA analysis points that the market is such that there is room for two-three players to co-exist and believes Paytm can continue to grow.

“In the past we've seen some competitors offering free soundboxes in order to poach the merchant. But such instances have come down as it is not economical for any company to do that,” the report added.

Of course soundbox is a segment where Paytm needs to invest first. Other than the cost of the hardware, Paytm incurs opex on feet-on-street staff, maintenance cost etc. The merchant pays about Rs 100 per month as a subscription fee for the device.

“Our conclusion is unless competition picks-up in a meaningful manner, this is a high margin and profitable business for Paytm. Indeed, the payback is 12-14 months. While we have visibility of 4-5 mn Soundbox additions a year for next 2-3 years, beyond this the growth may slow down,” said the report.

Soundbox and point-of-sale (POS) devices make up a major portion of Paytm's capex, the firm said in its FY23 earnings release. The company’s capex amounted to Rs 712 crore in FY23, whereas FY22 registered Rs 504 crore in capex. The rise in capex can be attributed to a higher deployment of devices in FY23.

However, the company did not provide a breakdown of revenue earned from soundboxes and point-of-sale (POS) devices until the time this news report went to press.

Additionally, the BofA report estimates that Paytm's business of soundboxes is poised to have a high margin and be profitable for the company in a market that lacks substantial competition.

As mentioned, the segment can face stiff competition from players such as PhonePe, which has raised $850 million this year and RIL’s (Reliance Industries Ltd’s) Jio Financial Services (JFS), which is expected to go public in the current year.

A soundbox is a portable speaker that lets merchants confirm payment notifications in a preferred regional language without requiring them to look into their phone or bank details.