Paytm, the digital payment pioneer in India has made a significant impact on the country's financial ecosystem since it launched its mobile wallet and QR payments nearly a decade ago. The company's payment solutions, from 'scan and pay' to 'tap and pay', have transformed everyday transactions. However, what sets Paytm apart from its competitors is its diverse business model and a wide array of services, while its competitors are primarily focused on UPI payments.
Paytm's founder and CEO, Vijay Shekhar Sharma, recently highlighted that the company's focus on merchant payments instead of consumer-led UPI payments has created a scalable UPI revenue model in subscriptions. Paytm's revenue from merchant business in the payments industry is higher than every other peer company. Paytm's core payments business is growing rapidly with its two key margin drivers, payment processing, and subscription revenues.
Paytm's total merchant GMV processed through its platform in Q3FY23 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. The company's target over the past few quarters continues to be on payment volumes that generate profitability, either through net payments margin or from direct upsell potential.
The company makes a net payment margin of 7-9 bps (basis points) of the gross merchandise value (GMV) on processing, of which UPI gives 3-4 bps and other instruments give 15-18 bps. Paytm's registered merchant base expanded to 31.4 million at the end of December 2022, offering a large total addressable market (TAM) for the distribution of completely digital credit. The company helps its top financial institution partners to disburse small ticket personal loans and merchant loans while Postpaid drives credit volumes with small loan amounts of good quality.
Paytm has achieved operating profitability in Q3FY23, with EBITDA before ESOP cost at ₹31 Crore, much ahead of its September 2023 timeline. The company's revenues grew 42% YoY to ₹2,062 Cr driven by an increase in merchant subscription revenues, growth in loan distribution, and momentum in the commerce business. According to a previous filing with the stock exchanges, Paytm expects the blended margin to stabilize at 5 to 7 bps.
Paytm's target is to generate enough cash to fund capex in 12-18 months, taking the aggressive depreciation of its Soundbox and EDC devices in mind. Paytm's management believes that UPI 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, and India could have a potential of 10 Crore merchant entities and more than 50 crore payment customers in the near term.
Paytm's subscription as a service model has an average monthly subscription charge of an active device at ₹100 per month. The company is focused on building scale with the highest emphasis on operational risk and compliance. Being a technology disruptor, Paytm has moved way beyond payments to carve a niche for itself. The company makes money from both UPI and non-UPI payments with a robust business model.
In conclusion, Paytm's diverse business model and innovative approach to payments have propelled its growth in the Indian financial ecosystem. With a growing registered merchant base and a target to generate enough cash to fund capex in 12-18 months, Paytm is well-positioned to capitalize on the huge potential of India's payment and subscription services market.
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