Paytm has discovered over Rs 10 crore fraud following an internal audit into a large percentage of cashbacks earned by small merchants. As a result, Paytm has de-listed hundreds of sellers and many of its employees.
"After Diwali, what my team saw was that there were some small sellers who were getting large percentage of the cashbacks and I we as a team asked our auditors to do a deeper audit," Paytm CEO Vijay Shekhar Sharma said.
Paytm engaged consultancy firm EY to conduct the audit and discovered something very shocking: Some Paytm employees were helping these sellers earn the cashbacks.
The overall size of the fraud is in "double digits", which is "Rs 10 crore for sure", and actions against the wrongdoers are being taken, Sharma said.
Paytm is now cracking down on these sellers and de-listing them to ensure there are only brand sellers on the platform and not the "mom-and-pop shops", Sharma added. "Tens" of Paytm employees have also been sacked.
While the number of sellers would reduce, such stringent actions will ensure "better ecosystem" for the consumers, Sharma said.
According to reports, some Paytm employees allegedly worked with third-party vendors and created fake orders to siphon off cashback offers.
Addressing criticism over the cashback model making the business unfeasible, Sharma said the business is "sustainable" but profitability may be some time away as it is spending more on onboarding users and merchants currently
"Paytm is actually net concluding positive, net of cashback, marketing promotions operating costs," he said, adding that it would not be profitable till its user base reaches 500 million from 300 million and merchant base swells to 40 million from the current 12 million.
Sharma said Paytm earns both through the merchant discount rate paid for processing transactions and may get up to 15 per cent of the cover charge when a transaction like a movie ticket sale happens.
Sharma also hinted that Paytm is not on the lookout for any fresh capital when asked about valuations for the next round of funding. Sharma added that Paytm continues to carry a war chest of money necessary for two years of growth.
(With PTI inputs)