Paytm witnesses strong loan growth in June quarter

Paytm, which is the fintech platform owned and operated by One97 Communications, may not have a lot to write home about in terms of stock market performance. The stock has disappointed since its listing and continues to trade nearly 65% below its IPO price. However, where Paytm is making rapid progress is in building its loan book and onboarding lending clients on its Paytm platform. Digital credit is the big story in India and with its massive network of more than 30 crore registered customers, Paytm is making hay.

Some of the loan book numbers reported by Paytm for the June quarter are stunning, to say the least. For instance, Paytm recorded 779% increase in loan disbursements for the June 2022 quarter at Rs5,554 crore. Even if you consider the data on a sequential basis, the lending operations were up by 56%. In terms of numbers, Paytm has effectively disbursed 8.5 million loans during the quarter, which is almost 500% better than last year. The credit portfolio annualized run rate for the Paytm business model improved to Rs24,000 crore.

According to the founder of Paytm, Vijay Sekhar Sharma, the lending book has been an attractive profit pool for the company. What is also visible in the loan growth data of Paytm is the increase in average ticket size due to the scale-up of the personal loans business. Paytm aggregates digital loans by partnering several banks and non-banks. It is now being estimated that by FY26 close to 19 million consumers and 1.2 million merchants will avail financing products directly from the Paytm digital platform.

To an extent, the bread and butter of Paytm business model comes from the 3.8 million devices that Paytm has deployed at merchant stores. There is a linkage. For example, the strong adoption of devices also has a correlation with the sharp increase in the number of merchants eligible for loans directly from the Paytm platform. Most of the loans offered by Paytm are directly offered as merchant loans that are linked to payment devices. The Buy Now Pay Later (BNPL) loan is the big theme for the growth of the Paytm lending franchise.

Currently, for the Paytm model, the lending operations contribute over 60% to its loan business, followed by personal loans and merchant loan segments. The sector is likely to see some pressure from the recent RBI announcement instructing non-bank prepaid payment instrument (PPI) issuers not to load PPI instruments using credit lines. This could dampen credit offtake to an extent. Paytm’s gross merchandise value (GMV) processed was worth Rs2.96 trillion in Q1FY23; almost double of the same period last year. 

One of the big drivers of eyeballs and footfalls to the Paytm platform is the Paytm Super App. That has sharply enhanced customer engagement and managed to smartly position the company’s comprehensive payment offerings. However, Paytm continues to report heavy losses despite the growth in the top line and the GMV of various businesses. While the company does plan to become EBITDA positive in 2 years and make profits in the next 4-5 years, one theme that investors will follow in this regard is “Only seeing is believing”.