“With Paytm Payments Bank and its wallet service being asked to stop (services) after March 15, large corporations are looking for alternative options since meal benefits are a crucial aspect of their tax compliance,” said a senior fintech industry executive in the know.
Listed startup Zaggle is looking to onboard 100-150 new corporate clients by the end of the next financial year. Over this month, the company started working with IT company Wipro, staffing solutions provider Quess Corp, private sector lender Axis Bank and others.
Also read | Vijay Shekhar Sharma resigns from board of Paytm Payments Bank
“In the meal benefit space, we have seen a massive uptick in demand and given the situation with competition, we have made steady inroads by adding new clients,” said Raj Narayanam, executive chairman, Zaggle Prepaid Ocean Services.
He did not disclose which companies shifted from Paytm to Zaggle after January 31 when the Reserve Bank of India announced the restrictions on Paytm Payments Bank.
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Zaggle works with banks like Kotak Mahindra Bank, Yes Bank, ICICI Bank and IndusInd Bank to offer prepaid payment services to its corporate clients. Beyond meal vouchers and employee benefits, Zaggle offers a spending management tool to companies.
For the first nine months of the current fiscal year, the company reported a net profit of Rs 24.8 crore on operational revenue of Rs 502 crore. Its current market capitalisation is around Rs 4,200 crore.
Pluxee, the employee benefit business of Sodexo that was recently hived off, is also looking to tap into fresh opportunities due to the developments at Paytm Payments Bank, industry insiders told ET.
A spokesperson for Pluxee said its food wallet business has been witnessing significant growth year-on-year, even before the Paytm issue broke out. The person declined to comment on any specific uptick in business after January 31.
Emailed queries to Paytm went unanswered.
Disruptions in the space
Under India’s tax rules, meal benefits provided by companies to their employees are tax free.
Many enterprises offer a part of the salary for employees as tax free and load that money into a prepaid wallet which has a card attached for transactions. These cards can only be used at merchant outlets which sell food and beverages.
French majors Sodexo, Edenred and fintech startup Zeta were the major players in this space, with Sodexo being the leader. Edenred India gave up its licence to offer this service in 2021. Zeta sold off its meal benefit business to Sodexo and moved into banking technology.
Among banks, HDFC Bank offers Foodplus meal cards, while ICICI Bank offers its own meal cards.
Recently, Sodexo, which is also into facilities management and other businesses, hived off its meal benefits business as Pluxee.
Over the last few years, Paytm had emerged as the major fintech player in this space.
“Paytm with its superior wallet offering and acceptance across the country had managed to grab a large market share in this business and was second competing with Sodexo, but now the leader board is set to get disrupted; Zaggle is trying to grab that space,” said the fintech executive cited earlier.
Paytm offered sub wallets to be created for food, fuel and similar expenses to corporations. And given the popularity of the app and its large merchant base, it was useful for employees to consume the funds easily.
Also read | Paytm’s forex woes: Understanding the role of fintechs in cross-border payments
Difficult business
The employee benefit industry is attractive for any payment player, but margins in the segment are extremely thin. For any company to make profits in this business, it needs ancillary services to boost the revenue. For Paytm it was a niche business, a small part of its larger fintech offerings which helped it make inroads into enterprises. Zaggle offers spend management as a whole and Sodexo has multiple business interests across facilities management.
The current market size of this industry would be around Rs 1 lakh crore in disbursements with roughly 15-18 million consumers getting the benefits, according to industry estimates. A few of the large companies make massive disbursements every year.
“One of the largest financial services companies in the country disburses around Rs 1,500 crore every year to its employees mainly for meal benefits,” said the executive quoted anonymously.
The most critical aspect of this business is proper KYC of the final user who is the employee and ensuring that the funds get used at the right places.
“When you open it up for QR code-based payments, tracking very small value payments on the basis of merchant codes is very difficult, but through prepaid cards, compliance is better managed,” said Raj Narayanam of Zaggle.
A senior HR executive at a large corporation said going forward, most of the large companies will opt for multiple vendors to ensure there is no risk of disruption.
“Banks are also pushing for sincere KYC of the final user of the wallet and proper clarity on what it is being used for,” this person added.