Our Core Business is to Acquire Payment Customers and Distribute Loans
Paytm offers a full suite of payment services for both consumers and merchants. The company leverages its consumer and merchant ecosystem, and insights from platform to cross-sell high-margin financial services and merchant services (commerce and cloud).
Paytm Revenue by Key Segments
Note: Mar-23 Payment and total revenues includes FY2023 UPI incentives of ₹182 Cr. Hence QoQ revenues are not comparable
Revenue Model
Payments Business
On Paytm app, there are various use cases of payments for consumers, such as Mobile Recharge, Utility Bills, Rent, Education, Wallet top-ups and money transfers etc. Consumers can make payments using a wide selection of instruments, such as UPI, cards, net banking and Paytm Payment Instruments like Wallet, Paytm Postpaid (BNPL).
Use Cases
Payment Instruments Offered
On the merchant side, Paytm provides solutions to accept payments through a wide variety of instruments and by deploying devices that help with reconciliations (voice payment confirmation). Paytm offers QR code to smaller merchants to accept digital payment using UPI or Paytm Payment Instruments like Wallet, Postpaid. Some of these merchants can upgrade to Soundbox devices which facilitate voice reconciliation (voice confirmation for payment). This enhances their trust in digital payments, and generates subscription revenues for the company. Mid-sized and large retailers use POS devices which enables them to accept mobile and card payments, thus generating both MDR (merchant discount rate) as well as subscription revenues. For Online and Omni channel merchants the company offers payment gateway products allowing merchants to accept payments across all channels, thus generating MDR revenue and platform fees.
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Net Payment Margin
Net payment margin derived by subtracting payment processing charges from the total payment revenue. Payment processing charges are the charges paid by Paytm to other financial intermediaries for completing the payment transaction. Typically, for completing a payment transaction, various institutions, such as card networks, issuing bank, acquiring bank, NPCI, etc., are involved. Charges paid to such entities are booked in the payment processing charges.In Dec ’22 Paytm communicated that it makes a net payment processing margin of 7 to 9 bps of GMV on processing. On UPI, it makes 3 to 4 bps and on other instruments, it makes 15 to 18 bps. Currently, it is making at the higher end of 7 to 9bps range even without UPI incentive due to better monetisation. Since UPI is growing faster than other instruments, in the longer term, it expects blended margin to stabilize at 5 to 7 bps.
We monetize Payments through payment processing margin and subscription
* We have excluded UPI incentives of ₹182 Crore from Mar-23 Net Payment Margin for like-for-like comparison 1 Net Payments Margin = Payments revenues (including other operating revenue) - Payments processing charges
Payment Processing Margin(Transaction fees charged to merchant less charges paid to the issuer)For online and offline merchants, we process payments using UPI, Wallet, Postpaid, Cards and EMI
- In Dec’22 we stated that our payment processing margin is 7 to 9 bps of GMV, of which UPI is 3 to 4 bps and other instruments is 15 to 18 bps. In Q1 FY 2024 it is at the high end of 7-9 bps even without UPI incentive
- In medium to long term, we expect payment processing margin to settle at 5 to 7 bps as share of UPI increases
Subscription Revenues
- We earn subscription revenue of ₹100 to ₹500 per month per device
- Various additional incentives from bank partners, regulators (RBI, NABARD etc.) are also earned for select deployment
Financial Services and Others
Insights from Payments and Commerce services enable Paytm to offer various financial services products. Lending is the key product in this segment. Paytm’s payments business is an acquisition engine, which helps it to get insights about customers’ behaviour and enables it to distribute suitable credit products to them. Paytm’s core value proposition is frictionless and instant disbursement of small loans and end-to-end digital journey which lowers the operational costs. Paytm has adopted a low-and-grow strategy by building higher engagement with the customer over a period of time with different products. Apart from lending, Paytm also offers insurance, mobile banking, and wealth management for consumers and merchants.
Financial Services driven by partnership modelPaytm does not lend from its own balance sheet, but partners with financial institutions who enter into bilateral agreements with the customers, underwrite the loans and own the loan book. Financial institution partners are also responsible for a customer’s KYC, credit bureau reporting. To enable this, Paytm provides a requisite technology platform.Revenue model for the lending business is sourcing fee, which is typically 2.5% to 3.5% of loan value, and collection fee, which is 0.5% to 1.5% of current disbursement value. Currently, Paytm offers three types of loan products: Paytm Postpaid (BNPL), Personal Loans and Merchant Loans.
Paytm strengths and revenue model
Lender scope and responsibilities
Our consumers and merchants offer large TAM for distribution and collection of loans from our lender partners
Calculation of penetration- Postpaid: Avg monthly number of loans in a quarter as a % of that quarter’s avg MTU; Personal Loans: Number of loans disbursed in last 12 months as a % of avg MTU in Q2 FY 2024; Merchant loans: Number of loans disbursed in last 12 months as % of devices deployed at end of Q2 FY 2024
Calculation of penetration- Postpaid: Avg monthly number of loans in a quarter as a % of that quarter’s avg MTU; Personal Loans: Number of loans disbursed in last 12 months as a % of avg MTU in Q2 FY 2024; Merchant loans: Number of loans disbursed in last 12 months as % of devices deployed at end of Q2 FY 2024
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Others
Apart from lending, financial services and others vertical constitutes insurance and wealth management products. Paytm’s philosophy is to leverage its customer reach to distribute various financial products.
Commerce and Cloud
Commerce and cloud business leverages Paytm’s consumer traffic to help merchants grow their business. Key products offered in the commerce vertical are travel and event ticketing, loyalty solutions like deals and gift vouchers. Easy access to such services within the Paytm App environment also drives user engagement and retention. The business model is typically a transaction fee to merchant partners linked to a percentage of the transaction value and/or a convenience fee to customers.Paytm’s cloud services include software and cloud services to enterprises, telecom companies, and digital and fintech platforms to track and enhance customer engagement, build payment systems, and unlock customer insights. The nature of the revenue is subscription charges and volume linked fee charged to merchant partners. Revenue relating to Paytm’s co-branded credit card issuance business is also booked in the cloud business. Revenue for credit cards comes from card activation and usage fee, which is linked to the spends on the card.
Commerce & Cloud: We enable commerce and offer marketing services to businessesCommerce & Cloud Revenues
CommerceWe sell travel, movies and event tickets along with deals and gift vouchers to customers
- Paytm app is a destination for our merchants to get more business
- Commerce business is run with cash profitability
- Commerce revenue take rate is ~5-6% of GMV
CloudWe offer advertising, marketing loyalty services to various enterprises and distribute co-branded credit cards
- Co-branded credit cards continue to scale well; activated ~8.7 Lakh cards till Sep 2023
Cost Structure (Direct and Indirect costs)
Direct Costs
Paytm’s direct costs include: 1) Payment processing charges, 2) Promotional cashback & incentives, and 3) Other direct expenses.
Payment processing charges
Payment processing charges are the charges paid by Paytm to other financial intermediaries for completing the payment transaction. Typically, for completing a payment transaction, various institutions, such as card networks, issuing bank, acquiring bank, NPCI, etc., are involved. Charges paid to such entities for completing payment transaction are booked in the payment processing charges.
Promotional cashback & incentives
Paytm offers various incentives to its customer/merchants to drive engagement, retention and transactions volume on the platform. This cost is recorded in promotional cashback and incentives.
Other direct expense
Other direct expenses includes other variable costs pertaining to business such as contest, ticketing & FASTag expenses, logistic, deployment & collection cost, SIM Costs for devices etc.
Contribution Margin
Note: Mar-23 Contribution Margin includes FY2023 UPI incentives of ₹182 Cr. Hence QoQ numbers are not comparable
Indirect costs
Paytm indirect costs are: 1) Marketing costs, 2) Employee costs (ex-ESOP), 3) Software, cloud and data center costs and 4) Other indirect expenses
Marketing costs
Marketing and promotional expenses comprise digital marketing, brand marketing, sponsorships, and other promotional expenses. Most of the costs can be attributed to the costs pertaining to the customer acquisition and retention.
Employee costs (ex-ESOP)
Include all employee costs including outsourced sales employee costs. Employees for the organization can be broadly classified into sales, technology, and support verticals.
Software, cloud and data center costs
Primarily include costs for cloud and data center facilities, costs for technology licenses and technology subscription fees, and other related expenses.
Other indirect expenses
Other indirect costs are G&A costs for the business
Indirect Expenses
Financial Performance
