A Deep Dive into How We Generate Revenue – From Payments to Credit

How fintech giant Paytm makes money

Applying the power of technological innovations to the financial world, we have grown leaps and bounds from a simple payments app to offering a multitude of services to our users. With more platforms crowding the payments space, what sets us apart is our diverse business model while our competitors are focused only on UPI payments so far and are now slowly following Paytm’s footsteps into other areas. 

Despite the thin margins we actually make money out of UPI which is an attractive user acquisition and engagement channel for us. It provides opportunities to monetise our platform by upselling loans and payments devices. 

Our core payments business is growing rapidly with its two key margin drivers – payment processing and subscription revenues. We make a net payment margin of 7-9 bps (basis points) of gross merchandise value (GMV) on processing of which UPI gives 3-4 bps and other instruments give 15-18 bps. With UPI growing faster than other instruments, we expect blended margin to stabilise at 5 to 7 bps. 

There is zero MDR on UPI for merchants but it provides monetisation opportunities to us as it helps drive device subscriptions among merchants. This is in line with our subscription as a service model with an average monthly subscription charge of an active device at ₹100 per month and some high-end device charges are higher at ₹250 per month. We expect to generate enough cash to fund capex in 12-18 months, taking the aggressive depreciation of its Soundbox and EDC devices in mind. 

Our large merchant base of over 30 million offers a large total addressable market (TAM) for distribution of completely digital credit. We help our top financial institutions partners to disburse small ticket personal loans and merchant loans while Postpaid drives credit volumes with small loan amounts of good quality. Through disbursement of loans, we make 2.5-3.5% of loan value upfront on disbursement and on collection we make 0.5-1.5% of current disbursement value. With scale, we expect these margins from sourcing and collection of credit to trend upwards. 

By monetising app traffic, Paytm offers marketing services to other businesses that form a part of its Commerce and Cloud business. Through co-branded credit cards with SBI and HDFC, the company generates upfront distribution revenue and lifetime usage fee. As of September 2022, there are approximately 3 Lakh cumulative activated cards with retail average spend per active card between ₹22,000 – ₹24,000 per month. Healthy growth can be seen in both activated cards as well as card spends with around 48,000 new cards activated in Oct 2022.

We run our commerce business with cash profitability and earned 6% revenue in Q2FY23 with a GMV of ₹2,021 Cr. Through coupons, deals, marketing and loyalty, we encourage and enable our merchant partners to grow their business, while creating more revenue and profit for our commerce business. 

We make money from both UPI and non-UPI payments because of our robust business model. As UPI is still in its nascent stage, it has ~25 Crore signed up customers, and there are only ~1 crore devices in the market. Overall subscriptions for payment and other services form a large market for us. India could have potential of 10 Crore merchant entities and more than 50 crore payment customers in near term.

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