Paytm has followed and discovered a fraud amounting to Rs. 10 crore probing into a large percentage of cashbacks earned by small merchants, and de-listed hundreds of sellers apart from sacking many employees. "After Diwali, what my team saw was that there were some small sellers who were getting large percentage of the cashbacks and we as a team asked our auditors to do a deeper audit," Vijay Shekhar Sharma, founder of Paytm, told reporters here. He further added that some sellers were colluding with junior employees to earn the cashbacks. He alleged that the overall fraud is of 10 crores.
Some employees of the Alibaba-backed company allegedly worked with third-party vendors and created fake orders to siphon off cashback offers, according to reports. There would be stringent actions taken against sellers who colluded. This would though reduce the number of sellers, would provide a better ecosystem among the consumers. There was criticism regarding the cashback model that it was unfeasible and improper for business and may need a revision, Sharma said that the cashback model is sustainable. He said, "Paytm is actually net concluding positive, net of cashback, marketing promotions operating costs".
One of the people who attacked this model is Mr. Aditya Puri. He said that in February 2017, he had said the companies that hold on to customers through cashbacks are loss-making and have "no future". Sharma said that platform like 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 movie ticket sale happens, making it comfortable to offer the cashbacks. Sharma also pointed out that profitability may be some time away as it is spending more on on-boarding users and merchants currently.