Platformification- An Outcome of Demonetization on Paytm

* Mr. Rahul Agarwal

** Ms. Shreya Jain

Abstract

While demonetisation was becoming the 'new normal', FinTech (financial technology)
companies became the hottest things going around. Changing financial technology and
consumer tastes are difficult to be ignored by the financial institutions. To reach out to those
millennials who are techno-savvy and are not afraid to access and experiment with the new
uses of technology, companies started providing services that let you pay electronically ranging
from petty day-to-day purchases like grocery or auto-rickshaw to buying international holiday
packages, air tickets, jewelry and what not. On the top of it, this could simply be done by
entering their phone number or by scanning a QR code for payment through personal devices.

While FinTechs are thinking out of the box and providing new products and services at pace,
banks cant merely wait for the interest rates to rise to overcome the problem. Embracing
openness and collaboration with smart investments can prove to be a good start.

Platformification is helping FinTech companies to reach to a larger customer base and expand
exponentially on one hand, and banks in enabling them to provide innovative services &
solutions on the other.

Riding the wave of platformification and economic condition due to demonetization, Paytm, a
FinTech company backed by Alibaba group, made its journey from rags to riches. Its wide
reach across 8,50,000 stores, petrol pumps, and more in 1,200 Indian cities, helped it position
itself as one of the best alternatives for payment during the time of cash crunch in the economy.

This paper, through extensive exploratory research, tries to find out how successful is the idea
of platformification for the banks? It also tries to look into how platformification can help to
develop and sustain the idea of cashless economy in the long run? Also to find out the main
problems faced by Paytm during these days and how it overcame those challenges.

Keywords: Platformification, Cashless Transactions, Demonetization, PAYTM, Cash Crunch,FinTechs

* Asst. Prof., AMITY Business School, AMITY University Rajasthan, ragarwal1@jpr.amity.edu,

8890170858

** MBA Scholar, AMITY Business School, shreyapatni2710@gmail.com, 9983079644

INTRODUCTION

No company in this world is immune from coming disruptions and thus they must be agile and
quick, think out of the box, develop and launch new products and services at pace. One such
disruption threat faced by banking industry today is from the financial technology companies.
According to PwC analysis, financial service incumbents believe that by 2020, 23% of banks
business could be at risk due to FinTech innovation by 2020 (Courbe, 2016). These start-up
firms have been posing a threat to traditional banking services.

Most incumbent financial institutions have responded to FinTechs by some adopting a wait-
and-see approach, conserving their resources until clear technology threatening their business
becomes more imminent ,some companies are investing significant time and money in fixing
their own existing IT landscape whereas others are acquiring FinTech firms to gain access to
new technologies. This collaboration between FinTechs and financial institutions has led to the
emergence of a new concept called Platformification.

Post demonetisation one FinTech which banks are looking upto for collaboration is Paytm. The ban on
currency from November 8th 2016, might have been problematic for public but for many digital wallet
companies like Mobikwik, Paytm, Freecharge etc ,it came out as an opportunity. These companies
didnt only prove to be the best alternative for cash but also became the biggest beneficiaries with
increase in app users as well as by creating presence across mobile users.

This paper looks forward to put some light on what platfomification is all about, where did this idea
started and how Paytm came out as the star post demonetisation in the country.

PLATFORMIFICATION

In the present digital world, where paperless-presence less model of startups like FinTechs help
in innovative development of application, processes, products in the financial service industry,
banks have been trying to come out with something new and innovative for their customers. A
study by the Economist Intelligence Unit mentioned that the disruption of banking 2015 found
90 per cent of bankers believe FinTechs will have a significant impact on the future of the
industry, and 30 per cent believe they will win an equal share of, or even dominate, the market.
(Scopelliti , 2016). On being asked, bankers and FinTech executives to assess their own
strengths and weaknesses as part of one of the study, there was a strong correlation found
between the strengths of banks and the weaknesses of FinTech, and, conversely, the strengths
of FinTech and the weaknesses of banks. Through platformification banks can overcome the
disruption threat and bring out a win-win situation for both.

Banking firms have substantial customer bases that FinTech businesses lack. In addition, they
benefit from stability, trust, access to large amounts of capital and experience handling
regulations, navigating regulations and compliance requirements. The balancing factor is that
FinTech firms need the scale of customers that the banking industry already possesses. On the
other hand, banks are more restricted by legacy systems that stifle their ability to innovate and
be agile. Theyre also impeded by difficulties in recruiting the required technological expertise
to improve products compared to FinTech firms such as Paytm, as digital talents often want to
work in creative, faced-paced environments with like-minded peers and flat hierarchical
structures something many traditional large organisations cant offer. Banking was also
hampered by the inability to recruit the level of technological expertise needed to improve
products compared to FinTech firms.

The number one prediction for 2016 was the realization that FinTech firms and financial
institutions may be better partners than competitors in the future a platformification of
banking because of these complementary needs.Invalid source specified.

Platformification of banking is a collaboration where both existing banks and start-ups begin
a strategic shift towards becoming banking platforms, much like how Amazon is a platform in
retail.Invalid source specified.

Platformification is the partnership between the banks and FinTech companies that gives a
boost in the quality of services in terms of cost, speed, and convenience.

FINANCIAL TECHNOLOGY COMPANIES

FinTechs are the technology start-ups that are disrupting sectors such as mobile payments,
money transfers, loans, fundraising and even asset management. These financial technology
companies apply innovation in how people transact business and transform the traditional
business carrying way.

From crowdsourcing to mobile payments, there has never been as much choice to entrepreneurs
as there is presently. Its never been cheaper to not only set-up your business, but also to expand
it.
Digital wallets are such FinTech start-up trends. An e wallet is an electronic device that allows
an individual to make electronic transactions. These are used in purchasing items on-line with
a computer or a smartphone at a store. An individual's account is required to be linked to the
digital wallet to load money in it. Mostly banks and some private companies wallets such as
paytm, freecharge etc have their digital wallets.

Earlier Nov 8th 2016, these e wallet companies were not able to make their presence felt in
India. Only the millennials or people more mobile friendly were enjoying its services. But post
demonetisation or the ban of currency notes in India, these FinTech e wallet companies saw a
boom in their revenue. These companies stood out from traditional banking services and helped
the public survive the cash crunch problem in India. They came out with remarkable schemes,
offers, customer friendly applications that supported Indians and came out to be the best
alternative during the phase of demonetisation (Sunny, 2017).

During the period, Mobikwik, an Indian company offering a mobile phone based payment
system, reported growth in usage as consumers find ways to transact with merchants. The
company reports a user base of 50 million customers today. Interestingly, the government also
entered the digital payment scene with the Bharat Interface for Money (BHIM) which is a
payment processing app that uses bank accounts to enable transactions. It was launched
by Narendra Modi, as part of the 2016 Indian banknote demonetisation and drive people
towards cashless transactions.

Platformification - A Curse Or A Boon For Banking & Fintech Industries And

Customers: There are always two sides of a coin and this holds true for Platformification as
well. There are benefits as well as problems associated with the Platformification.

Benefits From Platformification

Platformification may look like an end to traditional banking services but it surely benefits all
the three parties involved; FinTech, customers, and banks themselves. Some of the benefits
are:

To Banks

Helps in sustaining demonetization

Banks have been facing competition from emerging FinTech startups.
Collaboration will help in eliminating the same.
Merging will help banks to have an innovative and technological solution
With increasing digitalization, banks will have low cost through reduced manpower
Banks will have 24*7 availability for its customers

To Fintechs

Platformification will help FinTech to have a quick and sustainable entry in the
market
They will have access to larger customer base of banks
They will encounter a fast boom in revenue
It will help FinTechs to benefit from expertise of bank employees
Overcome the regulation problem of FinTechs to go global

To Customers

Customers can survive digitalization by going Cashless

One stop shop for customers by accessing multiple services
Users can avail the services 24*7; anywhere anytime
Trust for the banks will help in trusting the startups and being loyal to them too.

Problems Due to Such Collaborations

To Banks

Change in traditional working system and adoption of new business model can
prove to be cumbersome and hectic for banks
Banks must share their long time well established business
They will have to share the well sustained customer base
 To FinTechs

FinTechs should Share their innovation and technology with banks

Share the control of their start-up firm

To Customers

Customers may find it difficult to trust a new company

They may not be willing to sharing their personal and bank information with the
new company
Loss of job for bank workers in case of digitalise banking
This adoption of technology may be forceful for some
Online transactions and digital banking is prone to Cyber Crimes

The Paytm Story

The financial technology companies have been in the Indian financial market for pretty long
now, but they got the real pace after Nov 8th, 2016. Demonetisation, which overnight sucked
out 86% of the countrys currency in circulation and triggered Indias biggest ever cash crunch,
might have created problems for many but FinTechs have turned out to be the single largest
beneficiaries from the same. Where the public and opposition parties were criticizing PM Modi
for this bold yet poorly planned move, Paytm, a FinTech backed by Alibaba group,
congratulated him and showed their support. Like other financial tech companies, Paytm allows
customers to make and receive payments through a single gateway (Ankitaa, 2016). It provides
the users with an alternative to banks make life simpler and help them in having a differentiated
experience.

So the question is how well will the idea of Platformification work for both the banks and
FinTechs? How did Paytm make best use of the demonetisation policy? What all problems did
it face? Paytm, which added over 20 million new users, taking its total user base to 170 million
during the period, how did it sustain its position? With the record of more than seven million
transactions per day, more than the combined average daily usage of Indias 24.5 million credit
cards and 661.8 million debit cards, how well did Paytm satisfies its customers and handled
the problems?

Paytm positioned itself as one the best alternative during the demonetisation. Vijay Shekhar
Sharmas six-year-old start-up helped Indians turn to other forms of payments until the
currency drought was resolved. Paytms wide reach across 8, 50,000 stores, petrol pumps, and
more in 1, 200 Indian cities made it shine out as a substitute for ATMs.
The Growth of Paytm after Demonetisation:

Source: http://pixr8.com/paytm-hits-5-billion-gmv-clocks-rs-120-crore-worth-daily-deals/

Unfortunately, with every success story comes a complete list of flaws the company made
during the short-timed win. From insensitive advertising to technical glitches Paytm users faced
multiple problems (Sharma, Paytm is paying a price for its sudden stardom, 2016).

With more and more users, Paytm started facing numerous issues such as (Sharma, 2016):

Advertising tragedy
Political leaders accused the company of being affiliated to the Modi government, citing
the appearance of the prime ministers photos in its ads.
Technical Anomalies
The app faced a technical outage that prevented customers from making transactions.
Logo Despair
California-based PayPal alleged that Paytms logo was deceptively and confusingly
similar to its own.
In-Transaction Difficulties
The users said they are not able to see the existing balance in their Paytm wallet. Also,
their attempts to transfer the balance back to bank accounts were failing.
Fake-tm
Allegations of being a Chinese company because of Alibaba Groups 40% stake
Invalid source specified.
 Name Game
Paytm was accused of copyright infringement by Paypal
App Failure
Sudden disappearance of application from the Apple Store for several hours.

Other Challenges Faced By Paytm

False claims for refund of money by customers

Struggle with managing traffic on its mobile app
Retention of customers
Emerging threat from Competitors

How Did Paytm Handle the Situation?

Handling of technical issues on time

Regular schemes and offers to attract customers
Quick and smooth customer grievance handling to avoid losing customers

SUGGESTIONS FOR PAYTM

Paytm, the one in problem due to increasing allegations and criticism should adopt the
following strategies to sustain in the business for long:

Collaborate with other financial institutions to eliminate competition

Develop more customer friendly apps for acquisition
Create technically sound platforms for retention
Problems to be resolved more quickly
Promoting and educating people especially at the bottom of the society to promote
digitalization
Should come up with programs such as movie discounts, referral benefits to retain
existing customers

CONCLUSION

Demonetisations idea was not just to remove corruption and black money from the society. Its
major focus was also to make people technology savvy and become digital in their activities.
The aim behind Narendra Modis big step was to make India ready for digital transformations
and become digital in areas like making payments, receiving payments, carrying money in
wallet etc. Not just using plastic cards, people should be able to make e payments, e-transfers,
be able to handle their bank accounts on go and control everything with the help of their mobile
phones or computers. This idea of making India a digital economy didnt only make customers
more efficient but also helped companies like Paytm rise. Paytm which earlier had lower
customer base and less acceptance amongst people, now was running in every hand, shop,
kirana store, hawkers etc. Platformifications idea will help both e-wallet companies to get
access into the customer base and banks to take advantage from new technology and save costs
of innovation. Also, it will help customers let go the old banking services and adopt all new e-
services of banks as well as payment wallets.

Bibliography
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http://pixr8.com/paytm-hits-5-billion-gmv-clocks-rs-120-crore-worth-daily-deals/

Courbe, J. (2016). Financial Services Technology 2020 and Beyond: Embracing disruption. Retrieved
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Scopelliti , R. (2016, Nov 14). Platformification: underpinning future financial services. Retrieved from
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financial-services/

Sharma, I. P. (2016, Dec 25). After demonetisation dream run, Paytm is paying a price for its sudden
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Sharma, I. P. (2016, Dec 22). Paytm is paying a price for its sudden stardom. Retrieved from Quartz
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stardom/

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