From Payments to Lending — Deeper Insights into Our Key Growth and Profitability Drivers in Our Updated Investor Presentation

byDilip PrasadLast Updated: February 13, 2023
From payments to lending
We believe India could have potential of 10 Crore merchant entities and more than 50 crore payment customers

We recently outlined some key growth drivers that are fuelling our growth as India’s leading mobile payments and financial services company through a stock exchange filing and at an analyst meeting in Mumbai.

Here’s the link for the same:

Our belief stems from the fact that overall subscription for payment and other services will be a large market and India could have potential of 10 Crore merchant entities and more than 50 crore payment customers in near term.

We also highlighted the immense opportunities that we are seeing through partnerships, especially with banks, where FASTag and Co-branded credit cards are already a success. Other opportunities for growth include EMI aggregation on PG, Remittance and more. Then there is financial services where we are focused on growing our loan and stock brokerage offerings.

How we make money from UPI and non-UPI payments, pioneering devices

For our payment processing business, we make a net payment margin of 7 to 9 bps of GMV on processing. Of the same, UPI gives us 3 to 4 bps and other instruments give us 15 to 18 bps.

Since UPI is growing faster than other instruments, we expect blended margin to stabilize at 5 to 7 bps.

We also shared deeper insights on how we make money for our devices business, which is in line with our subscription as a service model. We charge around Rs 100 per month per active device. Some high-end devices charges are higher (up to Rs 250 per month). Select installations get additional incentives from partner banks, RBI, NABARD etc. We take aggressive depreciation (2 years for Soundbox and 3 years for EDC) and expect to generate enough cash to fund net capex, in 12 to 18 months.

Our payment processing charges will trend lower as % of GMV because of (a) higher UPI in mix (b) routing and rate optimizations

Small credit is best served and collected digitally – We have a large TAM for such loans

We believe that small credit is best served and collected digitally and our payments customer base offers a large TAM for such loans.

We help various lenders disburse small ticket personal loans and merchant loans. Postpaid drives credit volumes with small loan amounts of good quality. On disbursement of loans, we typically make 2.5% to 3.5% of loan value upfront. We also expect these margins (sourcing and collections) to trend upwards with scale. In addition to distribution, we make 0.5% to 1.5% of current disbursement value on collections.

In our Cloud and Commerce business, we monetize app traffic by providing marketing services to other businesses. Co-branded Credit Cards give us up front distribution revenue and lifetime usage fee. We have ~ 3 Lakh cumulative activated cards as of September 2022 and retail average spend per active card is Rs 22,000 – Rs 24,000 per month, with both showing healthy growth (in Oct 2022 we activated around 48,000 new cards).

We run the commerce business with cash profitability, enabling merchants to get more business by helping them sell tickets, gift vouchers and deals, etc. Our commerce GMV was Rs 2,021 Cr, and we earned ~6% revenues (Rs 125 Cr).

Improving profitability despite investments in sales & marketing

We gave deeper insights into our costs and explained that being a platform business, we have two key costs – cost of building the platform and platform expansion. Our cost of building the platform was Rs 401 Cr in Q2 FY 2023 with an expected 10-15% YoY increase on current base, while the cost of expanding platform: marketing & sales, which is directly driven by revenue opportunity in the market, was ₹309 crore in the last quarter. We believe we will improve profitability despite investments in sales & marketing.

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