Paytm, India’s leading digital payments company, has laid off over 1,000 employees across multiple business verticals as it looks to aggressively cut costs and move to an AI-powered platform.
Mass Layoffs Across Business Verticals
As per media reports, the layoffs at Paytm have impacted around 10% of its total workforce. Employees across business units like lending, sales, operations, and marketing have been asked to leave.
Sources say around 100 employees from Paytm’s lending business, 300-400 from sales and BD teams, and over 500 employees from operations and business teams have lost jobs. The layoffs started in the third week of December 2023 and will continue over the next few days.
Paytm has a total employee base of around 11,000 currently. After the latest job cuts, its headcount will come down to nearly 10,000.
Shift Towards AI-Led Operations
In a recent letter to employees, Paytm CEO Vijay Shekhar Sharma explained the reason behind the mass layoffs. He said Paytm is witnessing rapid technology evolution and aims to build an AI-driven platform.
As machine learning and automation takes over several tasks done manually by employees currently, Paytm needs to rightsize various teams for better productivity and efficiency.
Sharma revealed plans to integrate AI across all business verticals over the next 8-12 months. This will help in automated customer service, enhanced risk and fraud detection, faster credit underwriting, and personalized user recommendations.
With deep integrations of AI, Paytm is targeting a jump of over 50% in productivity and efficiency by late 2024 along with significant cost savings.
Forecast of Profits Within 12 Months
The shift to an AI-led model aligns with Paytm’s aim to turn profitable soon. During the latest layoffs announcement, Sharma told employees that the company is on track to break even in the next 6 quarters.
As per a top Paytm executive, the company spends around $13 million per month currently towards employee expenses. The job cuts are expected to lower this figure by 10-15%.
Along with other cost control measures, Paytm is confident the reduced cash burn will help it hit profits within the next 11-12 months.
Paytm Share Price Crashes Over Mass Layoff News
The news of mass layoffs at Paytm led to a crash in its share price on December 26, 2023. Paytm stock closed 9% lower at ₹541 on NSE, wiping out over ₹2,700 crore from its market capitalization in a single day.
Paytm share price has nosedived nearly 70% from its IPO issue price of ₹2,150 per share in November 2021. While the stock rallied briefly in the last 12 months, it has been under tremendous selling pressure since October 2022.
Brokerage firm Goldman Sachs also downgraded Paytm stock after the employee retrenchment news. It cut its 12-month target price from ₹1,100 earlier to just ₹900 now.
History of Mounting Losses Behind Cost Cutting Exercise
Paytm has reported mounting losses ever since its public listing in late 2021. It posted a net loss of ₹2,396 crore in FY22, which further widened to ₹2,844 crore in the first half of FY23.
The company was expecting to lower its EBITDA losses to around ₹800 crore in FY23 with over ₹5,000 crore in estimated revenues. However, the target now looks quite challenging.
While Paytm’s gross transaction value and number of loans disbursed has grown consistently, monetizing its large user base has been a concern. Its overall take rates remain quite low compared to other fintech firms.
The company has hence tightened its belt across fronts to control cash burn and losses. But improving monetization ultimately holds the key for a sustainable turnaround.
Support From Early Investors Crucial Amid Crisis
Paytm secured around $2.5 billion in funding before going public last year. This includes investments from Chinese firm Ant Group, Softbank Vision Fund, Berkshire Hathaway, and other leading VCs.
So far, Paytm’s early backers have maintained support despite the sharp correction in its share price after listing. Their continuous trust will be extremely crucial as the company looks to come out of the current crisis.
While AI integration and job cuts might help Paytm lower costs substantially, it needs to focus on driving revenues and take rates much more aggressively.
Paytm Revenue Split (FY22)
| Business Vertical | Share of Revenue |
|---|---|
| Payments | 15% |
| Commerce | 12% |
| Cloud | 27% |
| Financial Services | 46% |
The table above shows Paytm’s revenue mix across its four business verticals in FY22. The payments business which it is most known for contributed only 15% to overall revenues. Financial services made up almost 50% of total revenues. Hence, Paytm’s lending business growth will be most vital for a sustainable turnaround.
Conclusion
The latest round of layoffs shows Paytm aggressively embracing technology to build a leaner and more efficient organization. However, strengthening its core payments product and improving monetization remains the bigger challenge.
Paytm hints at a lean journey over the next year as it integrates AI across businesses. While this might pare losses substantially, we need to see whether it actually puts the company back on a growth trajectory.
Paytm’s success will hinge on the right product-market fit as a payments-led financial services company. The coming year will be extremely crucial with Markets awaiting definitive signs of a broader business turnaround.
To err is human, but AI does it too. Whilst factual data is used in the production of these articles, the content is written entirely by AI. Double check any facts you intend to rely on with another source.
