What does Paytm’s insurance foray mean and other key questions answered

On July 6, digital payments company Paytm entered the core insurance business after it acquired a small general insurance player named Raheja QBE. The acquisition in many ways is the code to Paytm founder Vijay Shekhar Sharma’s grand vision of transforming his company into a full-fledged financial services player. While the journey started with payments, it has now moved to banking, ecommerce, investments and even insurance.

The insurance foray doesn’t necessarily mean all the pieces of Paytm’s financial service game plan has now come together harmoniously. That’s because the Indian financial services market suddenly looks crowded with established players and a generation of newbie entrepreneurs all gunning for a piece. Moneycontrol looks back at Paytm’s journey till date and explains what insurance means for the company its consumers and shareholders.

What do we know of Paytm’s insurance journey?

Sharma has always been vocal about his bets on insurance. After all, cross selling was always going to be the cornerstone of the company’s revenue generating policy. Every bank acquires customers for a savings or a credit product and slips in an insurance product as an addition. Paytm thought no different. Hence insurance always made sense.

But for Paytm the insurance game was not opened in one shot, it started an insurance broking licence from February 2020. Sources pointed out that it had even applied for a manufacturing licence. As an insurance broker it could sell all third party insurance products on the platform. But Sharma through this acquisition has gone a step ahead with Paytm to become an insurance manufacturer itself which means it can design products, tenures, pricing everything under its own banner. Ofcourse it needs a clearance from the sector regulator Insurance Regulatory and Development Authority of India. This way Paytm joins other insurance startups Digit and Acko, both operating out of Bengaluru.

In the meantime Paytm was also rumored to be trying to acquire Catamaran Ventures backed insurance marketplace Coverfox, however sources have pointed out that the deal fell through because of issues around valuation of the company.

Does insurance help make Paytm a superapp?

Is Paytm a superapp? While some industry insiders say yes, some say it is trying to be one but still has some way to go. In terms of offerings, Paytm surely is one. The app offers payments of all forms, loan repayments, ticket bookings a business hammered by Covid19, online shopping and banking.

Within banking and finance, Paytm offers Paytm Money, the mutual funds and investments product, insurance, gold, credit card and also offers free credit scores. While for insurance till date Paytm was offering only third party products very soon if it gets the regulatory nod it will start selling its own products as well. If the list looks long, it is because the Softbank and Alibaba backed company has gotten its foothold everywhere.

“Paytm has been actively trying to add new products and get its user base to transact through the app. Insurance was one of the missing cogs in the wheel, which post this acquisition has been addressed and will now enable them to design products suited for their platform and offer their customers a broader service bouquet” said Bhavik Hathi, managing director at consultancy firm Alvarez and Marsal.

But aren’t too many players vying for the same piece?

In every sector where Paytm has forayed, there are not only too many players but also very strict competition. In payments, Paytm is competing with Flipkart backed PhonePe, Google Pay, Amazon Pay and very soon might have to face WhatsApp Payments. In ticket booking there is MakeMyTrip, Cleartrip and so many others. In movies and live events BookMyShow is still one the more dominant players.

Every sector Paytm has forayed into there are already well funded and sometimes global competitors. So the battle to become the one app for all needs of a consumer has been bruising for the company. Can insurance help it get very sticky customers? Industry sources say this could be Sharma’s final big bet to get loyal customers.

“Insurance that way tends to get sticky customers, there is also the sense of trust associated with insurance, as a manufacturer they can have bigger control over these customers and cross selling opportunities will be higher,” said a fintech entrepreneur who tracks this space, on the condition of anonymity.

What about the looming threat to Paytm’s core business?

Paytm, the Noida-based unicorn stood out among all payment players because of its massive offline payments reach through small businesses. Now that business is under threat. If the aggression of New Delhi based BharatPe and Bengaluru based PhonePe for QR code based payments was not enough, now Reliance Jio and Facebook together wants to foray here.

“WhatsApp will always be the one app that every smartphone user would have, if Facebook in partnership with Reliance actually manages to create the entire discovery, ordering and payments experience for commerce then many consumers might choose Jio over the others,” said Hathi.

Insurance and wealth management could help Paytm create a much needed moat. Given the problems Facebook owned WhatsApp is facing with regards to the regulators and the government, being a highly regulated entity Paytm can afford some comfort. Different businesses of Paytm are now regulated by the three major financial regulators Sebi for Paytm Money, IRDAI for the insurance business and the Reserve Bank of India for its banking business.

So what next for Paytm?

Now it is all about execution and cross selling. Paytm has merchants, it has consumers, now it needs to concentrate on selling the right products to the right set. Insurance products can be designed for retail as well as for business. They can bundle insurance into ticket booking, develop sachet products bundled with their ecommerce business, sell vehicle insurance many such avenues will open up.

As one industry consultant told Moneycontrol, as a third party seller, Paytm might have faced difficulties to get products designed as per its requirements. Now that restriction goes. All Paytm needs is to design the right set of products for its user base. But it is easier said than done. IRDAI keeps insurance companies under tight control, every product needs regulatory nod even mis-selling and the ombudsman structure is very strong here.

“Paytm could have done much better distributing insurance products now it has to manage the books, build expertise in products, hire a massive team of underwriters, it is a big challenge in front of them,” said a top executive at an insurance company on the condition of anonymity.

The industry consultant quoted above said that Sharma will also have to fund the company for quite some time, it is not easy to make profits in the insurance business, that would mean some more burn for the next few years. Given the current investment climate that could also be a challenge.