India's leading mobile payments and financial services company Paytm held an analyst meet in Mumbai recently. Ahead of the meeting, the company outlined its key growth drivers where it mentioned that while there are 25 crore merchants in UPI currently, only 1 crore merchants have devices.
"We believe overall subscriptions for payment and other services will be a large market. India could have potential of 10 Crore merchant entities and more than 50 crore payment customers in near term," said the company.
Furthermore Paytm said that bank partnerships to sell their products have a great opportunity, where FASTag and Co-branded Credit Cards are already a success, and it identified EMI Aggregation on PG, Remittance among others as next. For financial services, the company said it will focus on growing loan and stock brokerage offerings.
How Paytm makes money from UPI and non-UPI payments, its pioneered devices
For its payment processing business, Paytm said that it makes a net payment margin of 7 to 9 bps of GMV on processing. Of the same, UPI gives the company 3 to 4 bps and other instruments give it 15 to 18 bps. "Since UPI is growing faster than other instruments, we expect blended margin to stabilize at 5 to 7 bps," said the company.
About its subscription as a service model, Paytm gave deeper insights into how it makes money from its devices business. "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," said the company.
The company said that its 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 - Paytm has a large TAM for such loans.
Paytm's rapidly growing lending business has been much talked about. The company said small credit is best served and collected digitally and that its 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," said the company in its new earnings presentation.
The company expects these margins (sourcing and collections) to trend upwards with scale. "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," said the company.
Over 3 lakh cumulative credit cards as of Sep 2022
Meanwhile, on collections, the company makes 0.5% to 1.5% of current disbursement value. In its credit cards business, Paytm monetizes 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 Sep 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)," the company said.
The company runs commerce business with cash profitability, enabling merchants to get more business by helping them sell tickets, gift vouchers and deals, etc. Paytm's commerce GMV was Rs 2,021 Cr, and it earned ~6% revenues (Rs 125 Cr).
Improving profitability despite investments in sales & marketing
The company gave deeper insights into its costs and said that being a platform business, it has two key costs - cost of building the platform and platform expansion. Paytm's cost of building 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. The company said that despite investments in sales and marketing, it believes in improving profitability.
Paytm recently had a strong second quarter in FY 2023, with a 76% YoY surge in revenue to ₹1,914 crore. After its Q2 results. the company "remains ahead" of its September 2023 profitability guidance.
Shares of One 97 Communications Limited was last trading in BSE at Rs. 501.50 as compared to the previous close of Rs. 481.65. The total number of shares traded during the day was 640805 in over 15967 trades.
The stock hit an intraday high of Rs. 504.80 and intraday low of 485.15. The net turnover during the day was Rs. 319180886.00.