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Paytm is paying a price for its sudden stardom

Vijay Shekhar Sharma, founder and CEO, Paytm
Dream run?
  • Itika Sharma Punit
By Itika Sharma Punit

Co-editor, Quartz India

Published This article is more than 2 years old.

On Nov. 08, Vijay Shekar Sharma found himself intensely in demand.

The founder and CEO of Paytm, India’s largest mobile payments startup, was attending an industry event in Mumbai when prime minister Narendra Modi announced the move to demonetise Rs500 and Rs1,000 notes. As soon as Sharma’s session was over, his phone began ringing non-stop: almost every newsroom in the country wanted to know what the 38-year-old entrepreneur thought of the decision, which would suck out 86% of India’s cash in circulation.

After all, Sharma’s six-year-old startup was likely to be one of the biggest beneficiaries of the new policy, with cash-strapped Indians having to turn to other forms of payments until the currency drought was resolved. Given Paytm’s wide reach across 850,000 stores, petrol pumps, and more in 1,200 Indian cities, it was positioned as one of the best alternatives.

“We saw a huge spike in new users after the decision was announced,” Sharma had told Quartz after midnight on Nov. 08, just a few hours following Modi’s announcement. “I believe that our dream run is going to start now.”

Between Nov. 10 and Dec. 20, Paytm added over 20 million new users, taking its total user base to 170 million. Within two weeks of the demonetisation announcement, the company, which is backed by China’s Alibaba Group, was racking up over seven million transactions per day—more than the combined average daily usage of India’s 24.5 million credit cards and 661.8 million debit cards.

But the company’s dream run over the next few weeks wasn’t quite the fairytale.

This sudden success stirred up some trouble for Paytm and its CEO. Over the past few weeks, Sharma and Paytm have come under fire for everything from insensitive advertising and technical glitches to allegations of an alleged copyright infringement and incidents of fraud and cheating.

Here’s a round-up of the company’s bumpy ride. Paytm declined to comment for this story.

Advertising drama

Less than a week after the government announced its demonetisation plan, Paytm released a television advertisement with the tagline “Drama bandh karo… Paytm karo” (Stop being melodramatic, use Paytm).

In the ad, which went live on Nov. 13, a domestic help asked her employer not to fret about India’s cash-crunch situation and instead use Paytm to pay her salary. But that message seemed to trivialise the struggles of millions of Indians stuck in lines outside banks and ATMs, waiting long hours to access their own money. The ad sparked loud protests on social media, forcing Paytm to drop the tagline in a new, edited version released a day later.

Political crossfire

The morning after Modi announced the demonetisation drive, Paytm put out front-page ads in several newspapers congratulating the prime minister for “taking the boldest decision in the financial history of independent India.”

This was enough for Paytm to get caught in a political crossfire—despite having no apparent political affiliation—as India’s opposition parties severely criticised the demonetisation decision.

On Dec. 16, Delhi chief minister Arvind Kejriwal accused the company of being affiliated to the Modi government, citing the appearance of the prime minister’s photos in its ads.

“The prime minister used to call himself a ‘chai-wala’ (tea seller) before. Now he has become a millionaire ‘Paytm-wala’,” West Bengal chief minister Mamata Banerjee said on Dec. 19, implying that Modi was now endorsing mobile wallet services such as Paytm.

Paytm also drew ire from politicians for allegedly being a “Chinese company” because of the Alibaba Group’s 40% stake.

The economic wing of Rashtriya Swayamsevak Sangh (RSS), the ideological parent of ruling party, is also reportedly studying Paytm’s connections with China. “We have seen several reports about major Chinese stake in Paytm. Now that we are going for cashless transactions, we want to ensure the data shared by Indians is safe,” Ashwani Mahajan, co-convener of RSS’ economic wing told The Economic Times newspaper. “No Indian company should be sharing data with foreign companies and the investment routes should be made very transparent.”

Customer fraud

On Dec. 16, Paytm said it uncovered 48 cases of customers being refunded money for false claims over the past two years. The scam involved 15 customers who had colluded with some of Paytm’s executives, costing the company around Rs6 lakh. Though the incidents occured on Paytm’s e-commerce portal, not its payment app, the news prompted increased scrutiny of the startup.

Technical woes

Paytm has also been struggling to manage the sudden spike in traffic on its mobile app. On Dec. 20, the app faced a technical outage that prevented customers from making transactions.

“At the evening peak hour today, we witnessed three times the traffic of the last peak that we handled,” a company spokesperson told the Press Trust of India. “As we continue to route the traffic to new servers and install additional capacity, certain customers are facing (a) time-out.”

But things only got worse. On Dec. 21, Paytm’s app reportedly disappeared from the Apple Store for several hours. The company said it had de-listed the app due to technical issues and was waiting for the updated version to be approved by Apple.

Logo blues

After battling technical glitches and increased scrutiny on social media, Paytm stumbled once again. This time it was because of an accusation of copyright infringement by one of the world’s largest digital payments companies.

On Dec. 15, California-based PayPal alleged that Paytm’s logo was “deceptively and confusingly similar” to its own. In a complaint (pdf) filed with the Indian trademark office, PayPal said Paytm had “slavishly adopted the two-tone blue colour scheme” of its trademarked logo.

Under India’s trademark registration process, a company must advertise its logo and then wait for four months to see if it draws any objections or complaints. Paytm advertised its logo on July 18, meaning that PayPal’s complaint was filed on the last day of the statutory four-month period.

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