Why write a blog post on it?
Yesterday, on Facebook, I shared a post which aimed to show people how a company like PayTM makes profit from small transactions, made numerous times.
Largely due to the vague nature of the post, most people missed the message it aimed to convey.
Nevertheless, let us start right from the beginning.
PayTM Payment Gateway And Its Business Model:
Like any decent company, PayTM charges for the services it provides, and makes a profit out of it.
And as you may know from experience, it does not charge you. Instead, it charges the seller a commission (1-3% as reported here) and after deducting the commission, pays the seller his due.
Whom does it profit?
A large number of consumers, of course. People now need not worry about cash or card, as long as they have their smartphones with them, at least when shopping in malls and eating in large eateries.
Which brings us to the next biggest beneficiaries, large businesses with a large customer base. Businesses which will now be able to attract more consumers given the ease of payment that they are giving their customers.
Here, the service is beneficial for the seller, the consumer as well as PayTM.
It benefits everyone.
Whom does it harm then?
Smaller businesses. Businesses, that had no good reason to adopt PayTM, as in their case, the number of customers would barely increase, because ease of payment is the last thing on our minds when we go out to buy bread.
Businesses, that had to adopt PayTM and pay for its services, thanks to demonetization, because POS machines are costly and internet banking is clumsy.
Allow me to explain using an example. I’m a shopkeeper, who sells products worth Rs. 10,000 in a day.
I have a profit margin of 30%, thus I profit Rs. 3000 per day.
I have five skilled employees, each of whom I pay Rs. 200 per day, thus Rs. 1000.
I take out Rs. 500 everyday, for the Rs. 15000/month rent that I pay.
In the end, I’m left with Rs. 1500 a day, using which I have to sustain myself and my family.
Rs. 45,000/month.
Now, with PayTM:
I’m a shopkeeper, who sells products worth Rs. 10,000 in a day.
I pay 3% commission to PayTM, that is Rs. 300, every day.
I have a profit margin of 30%, thus I used to profit Rs. 3000 per day, but now, I profit Rs. 3000 – Rs. 300, that is Rs. 2700 every day.
I have five skilled employees, each of whom I pay Rs. 200 per day, thus Rs. 1000.
I take out Rs. 500 everyday, for the Rs. 15000/month rent that I pay.
In the end, I’m left with Rs. 1200 a day, which is 20% less that what I used to earn before PayTM.
My monthly earnings are now Rs. 36,000 using which I sustain my family.
20% is bad, but is that all?
Of course not, yet smaller businesses have yet smaller profit margins. In addition to that:
a. They may not already have a smartphone, or the education and funds required to operate one.
b. Costs of using a smartphone, and internet.
c. All their customers may not have a smartphone, or the education and funds required to operate one.
Do I have a problem with PayTM making profits?
Of course not, it has given us an incredible service, as well as free coupons and goodies.
Do I have a problem with small businesses making losses?
You bet, I do!
Is demonetization to be held accountable for their losses?
I think, yes. Dreaming of a cashless economy and crushing poor people under our shoes on the path to our dream, is not acceptable to me.
Earlier, businesses that found it profitable to have PayTM payments on their shops had it.
But now, thanks to demonetization, almost everyone who can, has a PayTM account, and surprisingly people are taking pride in it.
They did not choose to have a PayTM account, they were forced out of necessity.
A simple analogy would be applauding westernization of a society, if all ethnic wear were banned one fine day. Or vice versa.
People have to wear something. People have to earn somehow.
Was there a better way?
Maybe if people were more educated, and the government had apps like PayTM which were free of commissions and such hidden costs.
But even with that, there are so many sellers and consumers alike who use neither cards nor smartphones.
This is something that is open for discussion.
But being old fashioned as I am, I am inclined to think that there is no transaction as simple as giving my grocery guy, a clean crisp note.
Unlike our Government, I am fond of criticism and debate.
Please fire away!
Of destinations, destinies & everything else! 