Paytm can add 15 mn new customers for soundbox devices in next 2-3 years

Fintech major Paytm could add 15 million new soundbox customers in the next 2-3 years, a Bank of America (BofA) securities report said, which admitted competition is high but Paytm has a first-mover advantage in the segment.

“Paytm was the first company in India to start rolling out Soundboxes on a large scale and in the process, it created a new market. As a result, Paytm has a first-mover advantage in this space.”

The report states that the target market for Soundboxes is 25 million SMEs and 15-17 million smaller businesses.

The reason for this opportunity is that India has 40-45 million merchants out of which 2.5 million are large merchants (working with big banks), 20-25 million are tax-compliant SMEs, and 15-17 million are SMEs with lower turnover, As reported by BofA.

The report added that Paytm’s ‘first mover’ feature is significant in the voice box space, where sellers who own one don’t need another unless the merchant is large.

The main fintech has deployed more than 6.5 million audio devices cumulatively since its launch.

Although Paytm is the first mover in this area, competitors PhonePe and BharatPe are also getting aggressive. PhonePe has deployed 2-2.2 million devices, while BharatPe has deployed 800,000-900,000 voice boxes.

The competition is not only from fintech operators but also from banks. HDFC, SBI and IndusInd are also focusing on this segment.

But BofA’s analysis suggests that the market has room for two or three players to coexist and believes Paytm can continue to grow.

“In the past, we have seen some competitors offer free megaphones in order to hunt the dealer. But such cases have declined because it is not feasible for any company to do so,” the report added.

Of course the soundbox is the part that Paytm needs to invest in first. Other than hardware cost, Paytm bears operating expenses on street staff, maintenance cost, etc. The merchant pays about 100 rupees per month as a subscription fee for the device.

Our conclusion is that unless competition rebounds in a meaningful way, this is a huge margin and profitable business for Paytm. In fact, the payoff is 12-14 months. Whereas we have the potential to see 4-5 million Soundbox add-ons annually for the next 2-3 years. After that, growth may slow,” the report said.

Soundbox and point-of-sale (POS) devices make up a large portion of Paytm’s capital expenditures, the company said in its fiscal 23 earnings release. The company’s capex was Rs. 712 crores in FY23 while FY22 recorded Rs. 504 crores in CAPEX. The rise in capex can be attributed to increased device penetration in FY23.

However, the company has not provided details of revenue generated from speakers and point-of-sale (POS) devices as of the time of publication of this news report.

In addition, the BofA report estimates that Paytm’s voice box business is poised to have a high margin and be profitable for the company in a market that lacks significant competition.

As mentioned, the sector could face stiff competition from players such as PhonePe, which raised $850 million this year, and RIL (Reliance Industries Ltd) Jio Financial Services (JFS), which is expected to go public this year.

The Voice Box is a portable megaphone that allows merchants to confirm payment notifications in a preferred regional language without requiring them to look at their phone or bank account details.