Exclusive: Bruised by cashbacks, Paytm Mall takes a call to scale down; shifting focus on B2B

It seems like cashbacks won’t be the flavour of 2019 after all. Paytm’s e-commerce play Paytm Mall powered massively by cashbacks so far, is very close to scaling down its B2C consumer business.

After a series of internal brainstorming meets and recent discussion between the board members, the company has taken a call to focus on B2B business, said three sources aware of the development.

“Paytm Mall has been failing to find volumes as well as unit economics in the consumer-facing e-commerce segment. Ultimately, its key backers, Alibaba and SoftBank have realised that cashback driven commerce is going nowhere. Now they find no merit in concentrating effort and capital on it,” said two sources on the condition of anonymity.

“Monthly volumes have been falling for the company from a past couple of months,” added sources. Additionally, a couple of logistics partners of Paytm Mall have also confirmed the volume drop angle. They requested anonymity given their relationship with the Noida-based firm.

Sources also indicate that Amit Sinha who was spearheading the Paytm Mall business has moved to look after the insurance vertical at Paytm.

Hived off from the parent entity - One97 Communication in late 2016, Paytm Mall took one of the shortest durations to become a Unicorn. This was achieved on the back of the tried and tested cashback model of Paytm itself, a model that sadly failed to work for Paytm mall.

However, investors remained optimistic and the company raised about Rs 2,900 crore ($445 million) on a valuation of Rs 14,000 crore ($2 billion) in April last year.

Since that round, Paytm Mall has spent about Rs 2,000 crore, excluding expenses like customer access fee and royalty paid to the parent entity. According to a Mint report, the company had spent Rs 500 crore alone on cashbacks during the festive season. Further, it had a monthly burn of about Rs 170 crore between April to July, which adds up to Rs 680 crore worth expenses during the 4 month period.

An analyst from a research firm who tracks e-commerce estimated that post July Paytm Mall had controlled monthly burn to about Rs 100 crore (except expenditure for Diwali sales). It means it had spent about Rs 800 crore in the last 8 months. If we add all aforementioned expense, it comes to Rs 1,980 crore.

For perspective, Paytm Mall had a loss of Rs 1,787 crore as per RoC documents filed by the company in FY18. About 42 per cent (Rs 712 crore) of its total loss was incurred towards just royalty and customer access fees paid to an unknown entity, likely One97 Communications.

Considering that the B2C entity also paid Rs 1.8 crore worth consumer access fee in the 7 operational months of FY17, it is likely that the company will pay the royalty and consumer access fee this fiscal year as well. Even though the amount cannot be predicted, if we take it to be anywhere around the FY18 figure, the company has already burnt Rs 2,600 crore in FY19.

According to the aforementioned sources, many senior and mid-level employees of Paytm Mall have been exploring options to move from the company as it changed its focus.

Entrackr’s detailed queries to Paytm Mall on Friday remain unanswered till the time of publication of this post. We will include the responses as and when they come in.

While Entrackr is unable to ascertain the tentative plan of Paytm Mall for B2B commerce, since April last year, it has been experimenting with a model that allows small merchants including kirana stores to buy stocks directly from large sellers and manufacturers.

At the time of announcing its foray in wholesale supply segment, the firm also hinted that it may begin financing working capital for procurement through Paytm Payments Bank. If it does so, Paytm Mall would be mirroring Udaan’s strategy, which is largely based on financing working capital to merchants for procurement of goods.

Sourcing, logistics and lending: How Udaan packages them to disrupt B2B e-commerce

When Paytm Mall threw the hat in online retail, its timing was favourable as Snapdeal and Shopclues weren’t in good shape. However, despite the advantages and backing from the formidable duo - Alibaba and SoftBank, it has never been able to get a stable ground.

With the larger market dominated by Amazon and Flipkart, and there too, tremendous concentration in a category like mobiles, Paytm Mall found it difficult to sustain growth.

“Right from the beginning, Paytm Mall has failed to execute its strategy well. It kept on shifting focus from Bazaar, O2O to offer mind-boggling cashback on iPhones and selling FMCG products among others,” said two of the above sources listing factors behind Paytm Mall’s inability in establishing commerce business.

“Moreover, Paytm never had the DNA of retail and it didn’t onboard and attract right expertise to drive e-commerce business,” they added. Although this might seem a little harsh, in retrospect, there is no arguing the fact that Paytm Mall has seen none of the success and appreciation Paytm earned for itself in its early phase.

Market-wise, the scaling down of Paytm Mall’s B2C vertical will also alter the existing e-commerce landscape in the country. In fact, it will back to how it used to be three-four years ago. The fray to win horizontal e-commerce will now be limited to the top two - Flipkart, Amazon and a resurgent third - Snapdeal.

With Snapdeal 2.0, the firm has bounced back by rejigging its focus on unorganised retail and long tail. Unlike past, it’s focusing on improving unit economics and slashed losses by over 87 per cent in FY18. Experts and industry analysts believe that gradually it’s reclaiming the third spot in Indian e-commerce segment.

ShopClues, on the other hand, has been going through a very tough phase and appears to be out of the game.

Sources further emphasised that Paytm Mall’s bid to raise capital on a B2B premise is also not going well. “It had pitched existing investors for wholesale e-commerce. However, SoftBank and Alibaba remain unconvinced so far,” revealed above sources.

The failure of Paytm Mall in decoding B2C segment will also raise questions on the strategy of Alibaba for e-commerce in India. The Internet conglomerate had first bet on Snapdeal and then concentrated its resources on Paytm Mall.  

With both the bets failing to come off, it will be interesting to see just how the Chinese giant evaluates its e-commerce ambitions in India, where it undoubtedly intends to dominate.