B2B MARKETING

PROJECT REPORT

MARKET PENETRATION STRATEGY

OF PAYTM IN MSME VENDOR SPACE

Submitted By:

GROUP 7

Dev Setia - MBA/0087/58

Sanyam Chhangani - MBA/0382/58

Sakshi Sharma - MBA/0273/58

Anusha Vajpayee - MBA/0221/58

Nancy Bansal - MBA/0303/58

Srikar Gokavarapu - MBA/0152/58

Thanmay G - MBA/0133/58
Company Background
Paytm is a digital payments and financial services firm headquartered in Noida, India.
Customers can use the company's mobile payment services, while retailers can accept
payments using its QR code, point of sale, and internet payment gateway products. Paytm, in
collaboration with financial institutions, provides financial services to its clients and merchants
such as micro-loans and buy now, pay later. In addition to bill payments and money transfers,
the company offers ticketing, retail brokerage goods, and online gaming. Paytm began
providing lending products on its platform in 2018, in collaboration with prominent lenders,
beginning with Paytm Postpaid (Buy now, pay later) and eventually extending to immediate
personal loans and merchant/business loans. In March 2019, the company introduced Paytm
First, a subscription-based loyalty club, and later that year, it teamed with Citibank to launch
the Paytm First credit card.
In collaboration with NBFCs and banks, Paytm has digitised the process, from loan application
to approval to disbursement, with no additional documentation required. According to the firm,
loan repayment is collected mostly from the merchant's daily settlement with Paytm, and there
are no prepayment penalties on these loans. In January 2022, Paytm and Fullerton India
launched a collaboration to extend digital lending to MSMEs and consumers in smaller cities
and villages. The firms intend to develop unique merchant loan solutions based on consumer
payment behaviour and Fullerton's knowledge of the market.

Challenges faced in the MSME Vendor space:

It has been Paytm’s constant endeavour to empower MSMEs across the country with the best
payment acceptance and reconciliation solutions to help them join the digital ecosystem.
Paytm aims to enable MSMEs with innovative tech solutions that help them manage their
records effectively and expand their businesses. However, they faced certain challenges in
their journey to make MSME’s self-reliant:

1. Vendor Education & Adoption of Digital Payments: Most small vendors did not have the
knowledge or resources to operate a mobile-wallet or a card-swipe machine. They were
heavily reliant on cash transactions and were reluctant to switch to digital payment modes.
This was a major roadblock for Paytm in onboarding small business owners onto their
platform. Following demonetisation in 2016, these small businesses were severely impacted
because of the sudden cash crunch and lack of infrastructure like digital payment systems.
This nudged them towards adopting digital payment alternatives, but they still needed to be
educated in order to understand the nuances of digital payments, and the opportunities it
presented to expand their businesses.

2. Tracking & Account Management of Digital Receipts: MSMEs also face many problems
in payment reconciliation with the advent of multiple internet technology platforms and various
payment options like net banking, UPI, digital wallets, cards, etc. These small businesses find
it challenging to deal with multiple service providers, interfaces and expensive solutions, which
are beyond their affordability and ability to understand. It adds complexity and confusion while
making and collecting payments in the business. It becomes exceedingly difficult for small
business owners to track and manage multiple transactions each day, and many of them
cannot afford to employ dedicated staff for accounting.
Paytm initiated a joint venture with one of the biggest enterprise solution providers in India,
Marg ERP, to develop a new integrated payments solution called ‘MargPay’ - that can process
20 billion invoices worth USD 100B per year. MargPay has a user-friendly interface, so that
small businesses can integrate it with their existing billing and accounting systems with
minimal effort.

3. Micro Financing & Poor Terms of Credit: In a cash economy, traditional banks often
overlook small businesses and merchants due to a lack of reliable records and credit history.
Paytm aimed to address that pain point by using its technology to create a robust and reliable
view of its business users — their cash flows, their customers, their daily balance sheet status
and so on, which can help small businesses establish their credit worthiness. In addition, they
are helping banks acquire new, credit-worthy business and personal customers that simply
didn't exist in the mainstream economy before the digitization of payments.
Paytm has partnered with scheduled commercial banks and NBFCs to offer collateral-free
instant loans of up to ₹500,000 at a low-interest rate and also offers a unique daily EMI product
customized for small merchants. The loans can be availed from the 'Merchant Lending
Program' in the Paytm for Business app, and the entire loan application, approval and
disbursal process is completely digitized. An algorithm determines the credit-worthiness of the
merchant based on his daily transactions and arrives at a pre-qualified loan offering.
Segmentation, Targeting & Positioning

Segmentation
Relevant criteria for customer segmentation -
1. Macrolevel Bases of Segmentation -
a. Characteristics -
i. Size of retailer - Small retailers, general trade, modern trade
ii. Geographic location - metro, tier-1, tier-2 cities
b. Service Application - End market served - grocery/pharmacies/restaurants
c. Type/Stage of buying situation - New purchase or repeat purchase
2. Microlevel Bases of Segmentation -
a. Demographics - education/acceptance about digital payments
b. Key criteria - % of customers desiring online payments, formalizing sales
Merchant customers vary in size and requirements. We can thus segment the merchant
market in the following way -

Targeting
The target retailers in this research are small and entry level retailers. The smallest retailers
need education, are sceptical about the digital payment infrastructure and require liquidity for
their working capital needs. They generally buy the soundbox after reaching a certain
threshold of digital payments. This segment is being targeted for its network effects that will
roll over in increasing the number of individual consumers, and thus, the number of merchants
again. This will finally lead to an increase in revenue.
Positioning
Paytm is positioned as small businesses' overall payments and capital needs solution. It
provides services ranging from payments to loans and BNPL. These system selling services,
combined with cross selling opportunities lead to customers being tied to Paytm.

Situation Analysis

Customers
Paytm segments its customers into 2 broad categories:
1. Retail customers (75 million)
2. Merchants (25 million)

Among merchants, our target group is small retailers & entry level merchants - these include
mom & pop stores, kirana stores, small shops etc.

Customer Segment Value Added Services Mode of Payment

Entry Level Merchants None Free Mobile QR

Small Retailers Sound box for order tracking Subscription Based -

for device use, loyalty & other
services

Upon carrying out primary research, we identified primary pain points for these MSME
merchants to be:

1. Revenue in UPI, costs in cash

“I buy from my suppliers in cash, but I have to report revenues digitally. This creates
tax implications for me. Would be much easier to have the entire value chain digital.”
2. High interest rates in credit options
“These payment companies offer loans, but it's obviously not for free. The rates
charged are very high.”
Competitors
Competitors of Paytm Wallet are centred around 2 broad categories:
1. E-wallets
2. UPI facilitators

Top competitors of Paytm are:

Non-Bank Players Banking Players

PhonePe ICICI Pockets

GPay SBI YONO

BHIM HDFC PayZapp

Amazon Pay BHIM Axis App

Context
Some prominent trends shaping the payments context in 2022, especially shaping MSME
merchant attitudes are:
1. Accelerated digital migration led by UPI
UPI saw about a 9x transaction volume increase in the past 3 years, increasing from
5 billion transactions in FY19 to about 46 billion transactions in FY22; accounting for
more than 60% of non-cash transaction volumes in FY22. [1]

2. Increased merchant acceptance of digital payments

Due to low setup & maintenance costs, as well as deal sweeteners like flexi-loans and
sound machines, QR payments are now accepted by ~30 million merchants in India,
a 12x increase from just 2.5 million merchants around 5 years ago.

3. Changing credit preferences & flexi-credit repayments emerging

With new digital disruptions like TPAPs & offerings like BNPL (buy now pay later), the
modes & formats of offering credit are changing, with more accessible & low paper
credit availability
Collaborators
Collaborators with Paytm exist within the following categories:
1. Merchants
Merchants are the biggest collaborators for Paytm for establishing presence in the P2P
& P2M space. These collaborations are serviced differently via different payment
options & different revenue streams.
2. Brand partners
These brand partners help Paytm service their merchants & customers with discounts,
loyalty programs etc. Paytm also serves as an advertisement channel for new brands
through its voucher programme.
3. Financial Service partners
This includes partners for business loans : HDFC Bank, ICICI bank etc., and business
insurance partners: ICICI Prudential, Bajaj Finserv etc.

Marketing Mix

Product
1. Defining the product: Paytm is a leading online payment company and an
ecommerce portal. Its primary product for the B2B segment is the payments wallet.
2. What does the product offer to the consumer: Using wallet, merchants can receive
payments from their customers and can also be used to pay their expense
3. Which audience is the product useful for: The product can be used by anyone
operating in India and is dealing with daily online transactions. But majorly it is used
by small businesses, MSME, mom and pop stores, leading unicorns to facilitate their
digital payments
4. How is the offering different from what already exists: Paytm payment gateway is
the only service provider to provide T+1 settlements to its merchants throughout the
year. It provides liquidity to small businesses
Price
1. How much is the target audience currently paying for a similar product: For QR
code payments in the store, the Merchant discount rates charged as per RBI mandate
to banks providing such facilities. They charge 0.3% per transcation or Rs. 200 per
transaction whichever is lower.
2. What has been the price offering by Paytm: Paytm does not charge any fees to
small businesses for the QR payments made in store. It also does not charge any
setting up or maintenance fees to merchants.

Place
1. Which places are relevant for selling your product: Place in Paytm’s context would
mean online payments and its accessibility. Making the oline payments accessible any
time, anywhere is relevant for paytm
2. Paytm’s availability: Paytm is available through Online platforms (website) and
mobiles (m-commerce). It makes the payments easier and efficient.
Promotion
1. Paytm has spent a whopping 203 crores for the title sponsorship rights for all cricket
matches, domestic and international, played in India under BCCI
2. Catchy phrases such as ‘paytm karo’ enabled paytm to be a household name
3. Campaigns such as ‘each one, teach one’ helped paytm spread the digital literacy and
develop a sense of belongingness with the brand
4. Paytm has been enthusiastically co-branding with apps like Uber and Meeru cabs.
These apps have been successful in fetching clients for Paytm
Value Chain Analysis
Paytm e-wallet value chain consists of primary activities where the real-time process happens
during a transaction, and support activities which ensure that smooth running of primary
activities through their constant effort from the back-end.

Primary activities
Transaction through Paytm can happen using either Net banking, credit/debit cards, e-wallet
or UPI. For simplicity, let’s study the former three as one value chain (as the process is more
or less similar), and the latter as another process.

i) Net banking, credit/debit cards, Paytm e-wallet: In all the three cases, when
a payer approves a payment through a payment gateway, the payment service
provider (PSP) authenticates the data and notes the issuer bank to debit the
payer’s account and once it receives confirmation from the issuer’s bank, it
sends a message to acquirer’s bank to credit the merchant’s account. The
issuer and acquirer bank settle all the payments at the end of the day. In case
if there is not PSP like Visa/Master card involved. The banks communicate and
settle directly between them. In case of Paytm wallet, Paytm assumes position
of the issuer bank.

ii) Unified Payments Interface (UPI): UPI is a set of common APIs (translators
or middlemen in software language) that provide payment services
 1. Say, a payer needs to send some money to a payee. The payer scans the UPI or enter
the VPA of the payee in the Paytm. The VPA of the Payee, the payer’s account
information and transaction details are securely sent from your phone to your PSP’s
server (PSP – Payment service provider handles authentication of the user and the
connectivity between the user and NPCI, In case of UPI, only banks are allowed to
assume the position of PSP). They are forwarded to the UPI interface (at NPCI).
2. UPI forwards this to the Payee PSP. The PSP responds with the account details of
the Payee (merchant), using its in-house mapping of VPA to account number.
3. UPI forwards the account details of the payer, obtained in step 2, to their bank and
asks them to debit the account. The bank responds to UPI after debiting the account.
4. UPI then instructs the merchant’s bank, aka beneficiary bank, to credit the payee’s
account (obtained in step 4). The beneficiary bank responds with a success to UPI
after having credited the payee’s account.
5. UPI responds to the payer’s PSP with a success confirmation. The payer get a
notification on your phone saying the payment is successful!

Support activities
1. Firm Infrastructure: This includes all the activities under finance, legal services,
quality management, planning and general management.
2. Human Resources Management: Apart from the resources required for the support
activities mentioned, Paytm also requires on field agents to acquire and onboard
merchants on its platform, to fully realise the network effects. HRM activities include
hiring, training, compensation and development of human resources of the firm
3. Technology Management: Apps like Paytm need to work on a number of
technologies and APIs to support its activities. From product design, development,
 marketing and customer support, it needs to keep its application up and running
constantly.

Paytm MSME Penetration Strategy

With the digital payment space getting massive day by day in India, the growth now is more
focused on the MSME merchants, including small Kirana shops, general stores, eateries, and
even the GolGappawala's in tier 3-6 cities. Paytm has done an excellent job till now in
onboarding the merchants. The proof is the QR Code for Paytm that we see at most shops.
Rising emphasis on developing MSME’s from governments is also playing a significant role in
pushing the digital drive in this sector.

Solving the Merchants’ pain points

1. Easy Onboarding process - Paytm currently has a two-step onboarding process that
a merchant can do from home. The 1st step allows them to accept the payment as soon
as they enter some basic business details. For MSME merchants who are not tech savvy,
it is essential to keep the process simple. Also, the company provides proper help in case
they face any issues. If a person is not trusting a particular thing that much, it is the
minimum effort only that can get him onboarded, and that is what PAYTM is getting into.

2. Investing in merchant-based products – The requirements of the merchants are

being taken care of by Paytm. One of the most prominent examples is fraud prevention.
Recently when people were using fake screens to show payments to merchants. They
were losing heavily because they could not check every transaction when the payment
frequency was high, and ticket size was small. The introduction of the Paytm soundbox
was a game-changer there. It helped current merchants to verify the payments without any
extra effort. Similarly, other merchant products are also there, like the All-in-One QR Code
scanner.
3. Credit facilities – Credit supply to the unorganized MSME sector is still challenging in
India. The sector is very much under-penetrated. Paytm is providing their merchants with
accessible credits at easy terms, which they often require. This also helps attract new
merchants who need credit as they see easy credit at low-interest rates from Paytm. In
November 2020, Paytm expanded collateral-free loans of up to Rs. 5 Lakhs at low-interest
rates to MSMEs. In December 2020, Paytm partnered with Suryoday Small Finance Bank
to offer instant digital loans to MSMEs, making the process easier.

4. Merchant Offers – Paytm provides various cashback and other offers to the merchants.
This helps in attracting a new crowd to the platform. Paytm launched a loyalty program for
Kirana stores to promote digital payments as a rewarding experience. Based on the
number of transactions, merchants using Paytm all-in-One QR can earn unlimited reward
points. The reward points earned can be instantly redeemed for a voucher or buying
merchandise such as soundbox on Paytm for business app. There are other offers that
are given to the new onboarded merchants as well.
Analysis of Impacts & Gaps in the Solution
1. Working capital requirements
Cheques and cash have been traditionally modes of transactions in small vendor payments.
They generally serve a dual purpose, not only acting as a method of transaction, but also a
mode of working capital requirements. This issue has been exaggerated by the mode of digital
payments. This is because the digital payment happens instantly, which eliminates the
common practice of post dated cheques which helped in serving the working capital needs for
60-90 days.

2. Value chain not digitalized & resulting tax implications for MSMEs
Primary research with small vendors on campus & in Kolkata unveiled a common problem that
Paytm, and other digi-payments contemporaries have not been able to address:
Wholesale suppliers operate in cash, while the end consumer operates digitally.
This brings the revenues of MSMEs in the tax net, while their costs largely remain outside it,
which disincentivizes them to carry out sales digitally, because this unequally penalises them.
Paytm was not able to address this concern with its existing penetration strategy.
Challenge of possible replication by competitors not addressed

3. Challenge of lower margin clientele not initially addressed, offer fewer value-added
services vis-a-vis competitors
With thinning margins of digital payments, most of Paytm’s contemporaries entered value-
added services like investment facilitation & innovative credit offerings more dominantly than
Paytm. While Paytm’s strategic shift towards lending has happened gradually, more focus
needs to be on foraying into higher-margin services to make vendor penetration relatively
permanent & differentiated.

4. Lack of trust in digital payments

Rural vendors especially lack trust in digital payment ecosystem. This is due to lack of
education on digital payments infrastructure, facilities provided by the payment companies,
and general societal distrust in internet based payments due to presence of frauds etc.
Recommendations
1. To counter the lack of trust in digital payments, especially for merchants in rural India,
Paytm can partner with community organisations and civil society leaders to co-create
solutions.
2. Paytm should offer a customised user experience for wholesale suppliers, who usually
transact in larger volumes than small B2C MSMEs like kirana stores.
3. Working with small businesses across the country requires an app to be present in
multiple-languages. Providing services with vernacular languages would boost
Paytm’s popularity.
4. Providing videos explaining how to set up a merchant account. This would improve
ease of setting up an account.
References
[1] Digital Payments in India: A US$10 Trillion Opportunity
[2] Investor Presentation
[3] In a relief to PhonePe and Google Pay, UPI apps may get more time to comply with the
30% cap on market share | Business Insider India.
[4]https://timesofindia.indiatimes.com/blogs/voices/trends-that-rule-digital-payments-in-rural-
india/
[5]https://www.outlookindia.com/website/story/business-news-can-fintech-companies-make-
rural-india-digitally-savvy/407192