Paytm: Stock Pulse
29-12-2023

What is Paytm’s business model?

Paytm operates in 3 segments: 

1. Payments business: Being the flag bearer for UPI revolution in India, Paytm provides its trademark Soundbox which makes receiving payment easy for merchants. Paytm has a mobile wallet that allows users to store money and use it to make payments and transactions. Paytm platform also offers a Payments Bank account, which provides banking services such as savings accounts, debit cards, and online banking.

2. Financial Services: Paytm offers Merchant Loans, Personal loans, and Buy now pay later (BNPL) loans. Paytm has also expanded into other areas such as insurance & wealth management. Paytm partners with lenders for this business and the Lending does not come on the Balance sheet of Paytm. It acts as a direct selling agent (DSA).

3. E-Commerce: Paytm offers a wide range of services under this segment including flight/bus/train/hotel ticket booking and online shopping. 

What is the recent update?

The company had observed positive trends and acceptance in its loan distribution business, prompting the introduction of newer loan offerings targeted at healthier portfolio growth. In response to recent macro developments and regulatory guidance of increasing capital adequacy requirements for NBFCs, Paytm is shifting its focus away from distributing loans under Rs. 50,000 redirecting efforts towards higher-ticket loans.

Specifically, Paytm is narrowing down its distribution of loans under Rs. 50,000 such as the postpaid loan product, to a smaller part of its business. The focus is now on providing higher-ticket loans for consumers and merchants through partnerships with banks and NBFCs. The company will concentrate on providing merchant loans to MSMEs, unaffected by recent regulatory changes due to their business-oriented nature. This strategic move aims to cater to lower-risk, creditworthy customers and enhance the portfolio performance of lending partners.

Paytm aims to expand offerings for high-value personal and merchant loans while adhering to risk management strategies. Additionally, Paytm remains focused on growing its lending partner network by integrating with one large bank and two significant NBFCs in the coming quarters.

How does this change growth prospects for the company?

Paytm had built a niche for itself with the edge it had in getting the payment history of its consumers. BNPL product was built on this edge. The path to profitability of Paytm revolved around the Right to win it had in the BNPL (Sub Rs. 50,000 Loans). Management commentary of getting the remaining disbursals through higher ticket size loans might not be very value accretive as NBFCs and small banks have their own channels for pushing out personal loans as against Paytm which is a DSA (Direct selling agent).

What changes is the company making to counter the business changes? 

Even though the quantum of disbursal under the impacted segment of Postpaid was about 50% of the overall lending business (which shall be reduced by half), the take rates (revenues earned by Paytm as a DSA) are the lowest. Paytm intends to push Merchant and Personal loans aggressively going forward which have high take rates and management guides the move to curtail Postpaid as precautionary and the overall impact on revenue shall be insignificant. The mix of loan disbursals is as follows:

The company recently announced plans to terminate over 1,000 employees across multiple units. This constitutes about 10% of its current workforce. The decision to cut jobs follows Paytm's aim to restructure, reduce costs, and realign its various businesses. The reflection of these measures shall be visible in the coming quarters.