This quarter, Paytm's loan distribution business grew by 167% with disbursements of ₹14,845 crore ($1.8 billion). The number of loans distributed was 1.28 crore with a 51% growth year-over-year.
An estimated ₹8039 crore of the total disbursements are made through Postpaid - which is mostly used as an acquisition channel. As a result, Postpaid accounts for 54% of total loans disbursed, compared to 61% last year. An increase of 128% was reported in personal loans to ₹4062 crore yoy. Postpaid cross-sell continues to see traction for Paytm, with over 40% of personal loans distributed to existing Paytm Postpaid customers in the first quarter of FY 2024.
While merchant loans increased 141% yoy to ₹2744 crore in Q1, the number of loans remained flat at 1.4 lakh when compared with Q4 FY2023. The company stated during its earnings call today that this isn't the metric they are chasing. "Q1 is a time when newer merchants are less interested in taking loans," it explained.
While the company did not give details on the loan book, one-third of the total disbursals is estimated as the outstanding loan book – which makes it over ₹4900 crore.
“Our commercials are on disbursements and not on loan book but what we broadly understand basis the average maturity of the tenure, if we are disbursing ₹100, about one-third is AUM (asset under management)," Paytm said during its earnings call.
In Q1 FY 2024, revenue for financial services and others grew 93% YoY to ₹522 crore. Revenue from financial services and others as a percentage to loans disbursed reached 3.5% -- significantly down from 4.8% during last financial year.
Due to the increase in repo rates over the last year, the company said it has absorbed a small percentage of this increase to maintain the right portfolio mix and quality of acquisition. “We have taken up 0.1% upfront hit in our take-rate, which we believe we will recover similar or more through the collection incentive as our portfolio performs much better in the coming quarters. So, 3.5%-3.75% take-rate is on the stable side," the company said during its earnings call.
The estimated credit loss for personal loans and merchant loans are somewhere between 4.5%-5.5%. The losses are booked by Paytm’s lending partners and the fintech denies any FLDG (first loss default guarantee) arrangement with its partners; however, the Vijay Shekhar Sharma-led company seems to work on a performance-based model.
Paytm currently has eight lending partnerships and plans to onboard three to four more players during this fiscal. Last month, the company onboarded Shriram Finance as one of its partners, and “the partnership is expected to go live in Q3-Q4 of FY2024," the company said during its earnings call.
Payments Business: The company’s payment business led by higher subscription revenue grew by 31% YoY to ₹1,414 crore. On yoy basis, Paytm's net payment margin increased from ₹505 crore to ₹648 crore due to increase in non-UPI transactions such as card and EMI instruments.
Paytm is the third-largest UPI app with about 14% market share. It processed 130.75 crore transactions worth ₹1.62 lakh crore during June 2023. PhonePe and Google Pay dominate the UPI ecosystem with about 48% and 35% market share respectively.
Subscription Business: As of June 2023, number of merchants paying subscription for payment devices like Soundbox and PoS or card machines were 79 Lakh, increasing 41 Lakh YoY. We see sustained traction and earn ₹100 to ₹500 per month per device. On this, the company further explained that it earns ₹100 a month (net of GST) on Soundbox, whereas earnings from card machines is about ₹300-500 a month. However, since card machines is “much smaller percentage of the (total devices) base", which means it earns a little over ₹100 per month on average.
Commerce and Cloud business: During Q1 FY24, revenue from commerce and cloud business was 19% of the overall revenue, whereas last year during the same period about 22% of the total revenues came from this business –which includes advertising, co-branded credit cards, marketing cloud, and loyalty business. As of June 2023, the company claims to have 7.5 Lakh activated credit cards, an increase of 1.6 Lakh cards in the quarter.
The company recently tied up with State Bank of India for co-branded credit cards.
Expenses: Paytm’s employee benefits costs surged to ₹730 crore from ₹554 crore reported in Q1 of FY2023. Promotional cashbacks and incentives declined yoy from ₹143 crore to 85 crore; however, other expenses shot up by 59% from ₹117 crore to ₹186 crore during this quarter “on account of higher collection costs due to the growth of lending business and higher direct costs relating to merchant subscription business," Paytm said in its presentation.
On the other hand, marketing expenses increased marginally to ₹181 crore as compared to ₹175 crore last year; and other indirect expenses jumped 40% to ₹155 crore “due to annual appraisals, expansion of sales and technology team and IPL related marketing expenses."
The company’s cash balance saw a marginal improvement to ₹8,367 crore during the period.
The Noida-based payments firm is awaiting two regulatory approvals – one on payments aggregator (where it has been barred from onboarding new online merchants) and the other one on its payments bank side.
On the payment aggregator, the last update we’ve got is that the approval is pending with the Government of India ministry. “The process of engagement with them is already on. We’ve already filed the application. We remain hopeful that the process should end shortly and we should get the direction for further course of action," Paytm said.
While on the payments bank’s IT review, the company said that the process of engagement with the regulator is on and agreed that it has taken a lot more time than it “anticipated but at this stage we don’t have necessary clarity as when the process will be over," it added.
Commenting on Reliance Jio’s entry into the lending business, Vijay Shekhar Sharma, during the analyst call, said, “There is a large market to be served by many more players. I believe that this country’s opportunity is so underserved that many more players from distribution to book ownership to large institutes have opportunity. There is an opportunity to co-exist and expand. There is no winner take all."
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