Almost a year since the Reserve Bank of India’s (RBI) regulatory curbs, fintech giant Paytm has had a 32.7% year-on-year decline in its income going from making Rs 2999 crore in December 2023 to Rs 2017 crore in December 2024. While the company has witnessed a major decline in revenue when compared to December 2023, quarterly, its income has improved by roughly 10% compared to September 2024 when it stood at Rs 1834 crore.
This marks the conclusion of a turbulent year for the company given that in January last year, the Reserve Bank of India (RBI) issued an order banning Paytm Payments Bank Limited (PPBL) from carrying out a wide range of activities. This included accepting deposits, allowing for credit transactions, and UPI facilities. As 2024 came to a close, the company failed to reach pre-regulatory restriction figures. While the company’s revenue is declining, its loss after tax has reduced by 62.18% on a year-on-year basis, going from Rs 550 crore to Rs 208 crore as of December 2024.
How did the restrictions impact Paytm in 2024?
Fall in monthly transacting users:
Immediately after the regulatory curb, Paytm had seen a 24% decline in its monthly transacting users (MTU) with its user base dropping from 104 million in January 2024 to 80 million by April 2024. Speaking about this decline back in April, Madhur Deora, President and Group CFO at Paytm had said that the company could only improve its MTUs when it gets new third-party application provider (TPAP) user onboarding commencement from the National Payments Corporation of India (NPCI).
While NPCI had allowed Paytm to migrate users from its @paytm UPI handle to other banks’ UPI handle back in March, the company could not begin providing UPI services to other companies till October 2024. Even after the commencement of user onboarding, the transacting user base is lower than it was in April 2024 at 72 million. However, just like revenue, on a quarterly basis the company has been able to improve its MTUs with its transacting users growing by 5.8% since September 2024.
Reactivating inactive merchants:
While merchants did not leave Paytm amidst the RBI order, initially, the number of active merchants on Paytm declined. Between January and March 2024, the company’s active merchant base was reduced by 1 million, which is roughly 10% of its total merchant base as Paytm was waiting to migrate merchants to its partner banks. By July, the company was trying to get closer to January levels with the company “focusing on redeploying devices from inactive merchants to new merchants”. As 2024 came to a close, the company has continued this strategy. “We expect this strategy to continue for the next 1-2 quarters. This is leading to higher revenue per merchant and lower capex [capital expenditure],” the company said in its January 2025 earnings report.
Merchant device subscription costs yet to fully recover:
With fewer active merchants, the company’s subscription per device also fell during the first quarter of 2024. As of March 2024, the company made Rs 90 per device per month, this was a major decline from the previously reported merchant subscription revenue of between Rs 100-500. At the time, the company expected this figure to bottom out at Rs 80 by June 2024 and fully recover by December 2024.
As of December, Paytm’s overall merchant subscriptions have reached 1.17 crore. While the company has not clarified how much it is making per device this quarter, when a CLSA representative asked the company whether rental income per device was in the Rs 90-100 range, Deora said that this figure was “slightly higher” than how much Paytm was actually making per device. Suffice it to say, the company is yet to reach the same revenue per device that it had pre-January 2024.
Source: Paytm’s earnings report December 2024
DLG loans’ impact on financial services revenue:
In the quarter ending on December 31, 2024 (Q3FY25), Paytm had a financial services revenue of Rs 502 crore, a 17.29% decline on a year-on-year basis compared to December 2023 where it stood at Rs 607 crore. While the company’s financial service revenue may have declined when compared to the same quarter last year, this is the best the segment has performed throughout the year.
“Higher Financial Services revenue was on account of higher share of merchant loans, higher trail revenue from Default Loss Guarantee (DLG) portfolio, and collection efficiencies,” the company says. For context, financial services segment consists of equity broking, insurance and credit products, such as merchant and consumer loans. A default loss guarantee (DLG) is a type of agreement between banks and non-banking financial institutions where the non-banking institution compensates the bank for the losses they may incur by selling loans through the institution. The company’s board approved providing DLG loans in October 2024, it explained that the DLG segment leads to higher revenue throughout the loan’s lifecycle because the company factors in all the costs of the DLG upfront while most of the revenue from the loan (primarily interest income) comes in later.
“We continue to see increased interest from lenders to partner using the DLG model for both Merchant and Personal Loans, which will help to increase disbursements with the existing partners and expand partnership[s] with new lenders,” the company says. The outstanding assets under management (AUM) for the DLG loan segment as of December 2024 was Rs 4,244 crore, which is a 155.84% increase in outstanding AUM compared to September where this figure stood at Rs 1651 crore. “The DLG Book is doing well, in fact, slightly better than the rest of our book. Sometimes some books do better, sometimes some books do slightly worse. I wouldn’t necessarily draw a pattern there,” Group CFO Deora explained. While Deora advises against drawing a pattern, as of December 2024, 80% of the loans that merchants have with Paytm are DLG loans.
Expanding and contracting business segments:
In the first quarter after the RBI’s regulatory action (March 2024), Paytm emphasised that it would “focus on the core of the business, which is payment business and cross-selling of financial services business.” It has since reiterated this sentiment across other quarters as well. Paytm’s payments business is Rs 1059 crore, which although an improvement from the past two quarters, is not up to the pre-restriction levels of Rs 1730 crore at the end of December 2023.
“It is important to know that we are looking at our cost structures or the business line items so that we can prune our non-core assets and we can create a leaner organization focused on profitability,” Vijay Shekhar Sharma, CEO of Paytm, had said during the earnings call for the quarter ending in March 2024. The company did indeed prune parts of its business offerings throughout the year.
Sale/shutdown of business segments:
The first segment where it attempted to become leaner was the insurance market. In May 2024, Paytm announced that its subsidiary Paytm General Insurance Limited (PGIL) has withdrawn its application for registering as a general insurance company with the Insurance Regulatory and Development Authority of India (IRDAI). The company explained that instead of manufacturing insurance products, it would instead focus on the distribution side through Paytm Insurance Broking Private Ltd. (PIBPL). Then, in August, Paytm sold its ticketing business to Zomato. This resulted in the company making a consolidated Profit After Tax (PAT) of Rs. 930 crore in the quarter ending in September 2024. Most recently in December last year, it sold its stake in Japanese payments firm PayPay to Softbank for Rs 2,364 crore.
Besides its own offerings, the company also intends to shed some of its parent company One97 Communications’ excess weight as well. One97 has many step down subsidiaries in Middle East, Southeast Asia, South Asia, and Africa, Deora mentioned in the company’s earnings call for the December 2024 quarter. He added that the company is in the process of rationalising a number of subsidiaries over the next three to six months given that the company has little to no business in many of them.
Expanding internationally:
Just because Paytm is trying to be leaner does not mean it is not looking for expansion avenues. In its earnings report for the December 2024 quarter, the company mentions that it is “exploring various approaches, including organic expansion / local licenses, strategic investment and partnerships” to expand internationally. Deora elaborated during the company’s earnings call that the company is setting up two subsidiaries in the Middle East and one in Southeast Asia. Sharma mentioned that the intent behind these subsidiaries was to carry out merchant-side expansion.
“I should mention that setting up a subsidiary has a long lead time, in some cases, getting licenses and then eventually having products launched and merchants signed up and then starting to generate revenue and profit. The good thing is that these are largely B2B businesses, so they don’t have large upfront spend, which is why we have said that to begin with, we are saying up to Rs 20 crores of investment in each of these markets,” Deora explained.
Push to market the company:
In January 2024, Paytm’s marketing costs stood at Rs 169 crore. Post the RBI restrictions, the company began putting in more and more money into promoting itself. In February and March 2024 Paytm paused marketing spending. However, after NPCI allowed it to migrate users to other banks it began restarting user campaigns and marketing to boost MTUs. “We plan to drive further marketing campaigns once we start onboarding new users,” the company had said back in May 2024. As such, come July, Paytm was spending Rs 177 crore on marketing.
Although the company said that it would spend more on marketing once NPCI allowed it to onboard new users, it instead saw a decline in marketing expenses both in October and December. The company ended the year with a 38% decline in these expenses with its marketing costs standing at Rs 104 crore. “We expect it to go to erstwhile trends in the coming quarters due to marketing spending towards customer acquisition (including IPL),” Paytm says, explaining that this decline in marketing costs may not be a long-term trend in its latest earnings report.
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