An In-Depth Look at Our Revenue Generation: From Payments to Credit

Leveraging the power of technological advancements in finance, we’ve grown substantially beyond a simple payments app to offer a broad range of services to our users. In an increasingly crowded payments landscape, our unique selling point is our multifaceted business model. While competitors have mainly focused on UPI payments, we’re steadily expanding into other sectors, taking cues from Paytm’s success.

Despite the slim profit margins, we generate revenue from UPI, making it an enticing channel for user acquisition and engagement. This avenue also offers opportunities to monetize our platform through the promotion of loans and payment devices.

Our core payments sector is rapidly expanding, driven by payment processing and subscription revenues as its primary margin generators. We attain a net payment margin of 7-9 basis points (bps) of gross merchandise value (GMV) through processing, with UPI contributing 3-4 bps and other instruments yielding 15-18 bps. With UPI leading in growth compared to other instruments, we foresee the blended margin stabilizing within the range of 5 to 7 bps.

While there’s no Merchant Discount Rate (MDR) on UPI for merchants, it opens up monetization avenues for us through driving device subscriptions among them. This strategy aligns with our subscription-as-a-service model, with an average monthly subscription fee of ₹100 for an active device, and higher charges of ₹250 per month for some high-end devices. We anticipate generating ample cash flow to fund capital expenditure within 12-18 months, factoring in the aggressive depreciation of our Soundbox and EDC devices.

With our vast network of over 30 million merchants, we access a substantial total addressable market (TAM) for distributing fully digital credit. We collaborate with top financial institution partners to facilitate the disbursement of small-ticket personal and merchant loans, while our Postpaid service boosts credit volumes with high-quality small loan amounts. From loan disbursements, we earn 2.5-3.5% of the loan value upfront, and upon collection, we earn 0.5-1.5% of the current disbursement value. As we expand, we anticipate these margins for credit origination and collection to increase.

Leveraging app traffic, Paytm offers marketing services to other businesses as part of its Commerce and Cloud business. Furthermore, through co-branded credit cards with SBI and HDFC, the company earns upfront distribution revenue and lifetime usage fees. As of September 2022, there are roughly 300,000 cumulative activated cards, with the average monthly retail spend per active card ranging between ₹22,000 and ₹24,000. Both the number of activated cards and card spends have demonstrated robust growth, with approximately 48,000 new cards activated in October 2022.

Running our commerce business with cash profitability, we attained a 6% revenue in Q2FY23 with a GMV of ₹2,021 Cr. We motivate and empower our merchant partners to scale their businesses through coupons, deals, marketing, and loyalty programs. This strategy not only boosts revenue and profit for our commerce business but also nurtures growth for our merchant partners.

Thanks to our resilient business model, we derive revenue from both UPI and non-UPI payments. Although UPI is still emerging, with roughly 25 Crore registered customers and only about 1 crore devices in circulation, its growth potential is substantial. Subscriptions for payment and other services collectively constitute a significant market for us. Looking ahead, India’s potential includes an estimated 10 Crore merchant entities and over 50 crore payment customers in the near term.

Leave a Comment