Here’s How We Built a Scalable Revenue Generating UPI Model With Focus on Merchant Payments

byKrishna VanamaliLast Updated: February 14, 2023

We grew our revenues by 42% Y-o-Y in the third quarter of FY 2023 to ₹2,062 crore. The growth was driven by an increase in merchant subscription revenues, growth in loan distribution, and momentum in the commerce business. Given the timing of the accrual of the UPI incentive, there was no UPI incentive recorded in this quarter.

Our focus on subscription services to create additional payment monetization continues to expand with the number of merchants paying subscriptions for payment devices like Paytm Soundbox and POS reaching 6.1 million at the end of January, an increase of 0.3 million in the month. The number of merchants paying subscriptions increased by 1 million in Q3 FY 2023. With our subscription-as-a-service model, the strong adoption of devices drives subscription revenues and higher payment volumes, while increasing the funnel for our merchant loan distribution.

We are seeing sustained traction in subscriptions and earn more than ₹100 per month per device. Further, we have received additional incentives on select installations from partner banks, RBI and NABARD etc.

Our Founder and CEO Vijay Shekhar Sharma during the recent earnings call said that Paytm’s focus with merchants is not limited to just devices but includes various other subscription line items.

The total merchant GMV processed through our platform in Q3 FY 2023 aggregated to ₹3.5 lakh Cr, marking a YoY growth of 38%. Merchant payments volume in the month of January was ₹1.2 Lakh Cr, growing 44% from a year ago. Our focus over the past few quarters continues to be on payment volumes that generate profitability for us, either through net payments margin or from direct upsell potential.

During the earnings call, Founder and CEO Vijay Shekhar Sharma said that Paytm’s focus on merchant payments has created a scalable UPI revenue model in subscription. “I feel highly positive and inspired by the adoption of our device business, especially Soundbox which has led to significant scale in UPI acquiring,” he said. UPI has emerged as one of the key low CAC customers and merchant acquisition channels for us.

Our registered merchant base expanded to 31.4 million at the end of December 2022. Our CEO Vijay Shekhar Sharma Sharma also mentioned that Paytm’s revenue from merchant business in the payments industry is particularly higher than every other peer company. “Somebody chose P2P, somebody chose P2M, we chose merchant business. Our acquiring side market share, which NPCI does not yet declare, once they start declaring, you will see how well we are capitalized there over other UPI players, also standalone UPI players or other payment aggregators,” he added.

As per the notification received from the Government of India on January 11, 2023, we estimate that for Q1-Q3 FY 2023, we will receive ₹130 Cr of UPI incentives in Q4 FY 2023. 

We leverage our two-sided ecosystem of consumers and merchants and rich insights from our platform to cross-sell high-margin financial services and merchant services. We enable our merchants with tech solutions that allow them to accept payments through a wide variety of instruments and by deploying subscription-based devices that help with reconciliations. We also enable commerce and allow them to advertise, sell gift vouchers, deals and tickets.

For consumers and merchants, we offer various lending products such as Paytm Postpaid (BNPL), Personal Loans and Merchant Loans, with our financial institution partners. Our lending business continues to scale providing attractive upsell revenues.

Our portfolio qualities have been demonstrated over multiple payment cycles. We believe that upselling lending products is a scalable opportunity and see a large profit pool in our loan distribution business. The penetration for Merchant Loans is 5.2% of device merchants. We believe there is a long runway for growth as our payments consumer and merchant base offers a large addressable market for loan distribution. 

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