India’s Top Payment Apps Spent Close To $1 Billion To Lure Customers In FY19

Paytm, PhonePe, Google Pay and Amazon Pay — spent around Rs 7,050 crore on advertising, marketing and promotional expenses.

Various payment apps displayed on Google Play Store. (Photographer: Anirudh Saligrama/BloombergQuint)

Cashbacks on your online shopping, utility bills and even on money transfers haven’t come cheap for the country’s top digital payment firms, who are battling it out to gain share of the country’s financial transactions.

The top four payment services and e-wallet providers — Paytm, PhonePe, Google Pay and Amazon Pay — spent around $995 million or Rs 7,050 crore on advertising, marketing and promotional expenses in the last fiscal year, shows data compiled by BloombergQuint from the annual filings of the four companies.

Spends in the advertising, marketing and promotional expenses categories doubled from Rs 3,400 crore in FY18 to Rs 7,050 crore in FY19. These categories include traditional advertising but also cashbacks and other promotional schemes intended to get a larger share of financial transaction volumes.

“Discounts and promotion are key ways to acquire new customers and also increase transactions per customer. These spends are linked to the overall discount-led growth models of many players,” Mahesh Makhija, partner and leader, digital and emerging technologies at EY, told BloombergQuint. “While the payment business may not be profitable on a standalone basis, if a good payment experience helps increase the proportion of completed transactions, that is very useful,” Makhija added.

PhonePe declined to comment. Emails sent by BIoombergQuint to Paytm, Google Pay and Amazon Pay went unanswered.

Who’s Burning More Cash?

Paytm spent the most in absolute terms but the least as a percentage of total expenses.

One97 Communications Ltd., the parent company of Paytm, spent Rs 3,451 crore on advertising and promotional expenses. These marketing and promotion costs account for 47 percent of all of Paytm’s total expenses. Paytm has accounted for these costs under ‘marketing and business promotion expenses’ and advertisement expenses.

PhonePe spent Rs 1,296 crore or 60 percent of total expenses on advertising and promotions. Amazon Pay spent 64 percent or Rs 1,277 crore on ‘advertising and sales promotion’ expenses.

For Google Pay, such spends stood at Rs 1,028.6 crore. Google Pay has recorded these costs under its ‘advertisement and promotional expenses’ as well as under ‘other expenses’ which includes the ‘cost of rewards,’ according to the auditors’ notes in its filing to the Registrar of Companies.

One97 Communications’ marketing and promotion expenses are not directly comparable, to that of its competitors, as it has 33 subsidiaries under its ambit. These include Paytm Money, Paytm Financial Services, Paytm Payments Bank and others.

Are The Spends Paying Dividends?

Each of these individual payment services have stepped up spends to try and garner a larger share of the UPI or Unified Payments Interface segment. Payments made via platforms built on UPI have surged ever since it was introduced in 2016.

The bank-to-bank payments network has processed nearly 5 billion transactions worth a little over Rs 9 lakh crore in the first six months of the current fiscal, data from the National Payments Corporation of India shows. In FY18, a total of 5.4 billion transactions worth Rs 8.76 lakh crore were processed on the UPI network.

The top four players are all battling it out in this segment and spending heavily on promotions to get market share.

As a result of the heavy promotions, revenues have increased but so have losses.

These four payment apps earned Rs 5,150 crore in revenues in FY19 compared to Rs 3,850 crore in FY18. Losses for the four payments firms more than doubled to Rs 7,028 crore or about $989 million in the financial year ended March 2019.

By design, UPI is interoperable which means that any merchant or payments service provider is able to access the network with ease and barriers to entry are low. Further, customers do not incur a charge for using the UPI system for person-to-person transactions, while there is a small fee to be paid when they make a person-to-merchant transaction.

As a result of this design, payments companies have little to no room to earn a profit on the transactions themselves. Nearly 90 percent of all UPI transactions are P2P.

Hence, payment firms try to garner a larger market share and hope to use customer data to be able to market third-party products. As such, gaining an edge in this segment depends, at least at present, on the ability to spend heavily on cashbacks and promotions. This could include discounts on e-commerce, financial services, travel, food and hospitality products that the wallet company partners with.

Makhija of EY said while the payment business may not be profitable on a standalone basis, the data that these firms garner is valuable. “The data can be used to increase the effectiveness of recommender algorithms that are core to e-commerce and internet businesses.”

DD Mishra, senior director analyst at Gartner, said “Cashbacks are leveraged in variety of ways as it is an important tool for retention and acquisition.” But for long-term sustainability, he said companies need to build innovative, creative and smarter models so that cashbacks can be monetised as research shows that younger consumers engage more through loyalty programmes, and personalised products and services than rewards and discounts.

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Advait Rao Palepu
<p>Senior Correspondent</p>... more