Paytm’s pioneering IoT device, Soundbox, now accounts for 14% of the company’s gross payment revenue and 38% of net payment revenue. That’s what brokerage firm CLSA estimated in its latest note on Monday upgrading the stock to a ‘buy’ from ‘sell’ with a target price of ₹650 per share. The target implies an upsi de of 41% from Monday’s closing price.
CLSA said it derives comfort from nearly one-third of the fintech giant’s market capitalisation being attributable to cash on the balance sheet (₹9,200 crore).
In 2019, Paytm became the first in the market to introduce a device that helps merchants get instant audio confirmation on every payment received via QR code. Taking a leaf out of Paytm’s success with Soundbox, its competitors have introduced similar devices for their merchants. The small portable device has emerged as a disruptor in digital payments, with Paytm claiming that Soundbox continues to be the leading payment reconciliation solution in the country.
Paytm recently said that more than 5 billion online payment transactions were processed through its Soundbox devices in FY22. In addition to enabling merchants with seamless payments, Paytm’s Soundbox devices have helped save paper slips worth 4.43 million pounds in the past year.
Paytm Soundbox has been effective in bridging the trust deficit between the customer and the merchant. This way, the merchant can attend to other customers without having to constantly check the phone for payment alerts. When a customer makes a payment by scanning a Paytm QR code the Soundbox notifies the merchant of successful payments with a loud alert in their preferred regional language within seconds.
Soundbox has seen rapid adoption and played a vital role in empowering small and micro-businesses in India. Building trust in the digital payments space has been a game changer for merchants. In the last four quarters, Paytm strengthened its leadership in payments devices including Soundbox, taking the total deployed base to 5.1 million as of October.
In addition to higher GMV and recurring subscription revenue, Soundbox devices act as a funnel for Paytm’s high-margin merchant loan distribution business. Paytm’s merchant loan disbursements in Q2 were boosted by growth in the devices business, as 85% of loans disbursed were to merchants who also have Paytm devices. The penetration level for merchant loans remains low at just 4.4% of total devices deployed, indicating a long growth runway ahead.
As Paytm adds more devices, the total addressable market for merchant loans keeps increasing. “We believe the revenue potential in five years could be more than ₹3,000 crore, provided that there are no asset-quality hiccups,” CLSA said in its note.