Digital payments war costs companies $900 million in loss

The fight for dominance in digital payments has caused a collective loss of nearly $900 million (Rs 6,500 crore) for Paytm, PhonePe and Amazon's payments unit in India for the year ended March 2020. Two of these firms reduced cashbacks, but marketing & promotional spends and other costs remained high.

The total loss for the three units translates to around Rs 18 crore per day. Compared to the financial year ended March 2019, the cumulative loss has gone down by 9-10%, but it is still more than double the loss in fiscal year 2018 (Rs 2,729 crore).

Data for PhonePe sourced from business intelligence platform Tofler shows the Bengaluru-based company’s revenue rose by 73% to Rs 427 crore in 2019-20, while losses declined by 7% to Rs 1,771 crore. PhonePe’s losses had more than doubled in the year before as it spent heavily on cashback rewards. The jump in PhonePe’s revenue was on account of its financial services vertical starting to generate revenue, and earnings through distribution of coupons and banner ads on its platform.

Its losses remained high as it continued aggressive spends on marketing and promotions, and to scale its feet-on-street operations to widen the merchant network in rural India. It has Bollywood actors Aamir Khan and Alia Bhatt as brand ambassadors promoting the company through television commercials.

Google Pay operates through a Singapore unit whose financials could not be determined. Google Pay spent almost Rs 1,160 crore for rewards to its users in 2019-20. If this is some indication of its losses for the year, the cumulative loss of the biggest digital payment players would surpass $1 billion.

The large losses of the consumer-focused payments companies is similar to what’s been happening in the e-commerce space with Walmart-owned Flipkart and Amazon India, both of who have been fighting to corner new users.