Paytm’s Hot Lending Biz Cools Off In Q3 FY24; 10% QoQ Decline In Loans Distributed

Fintech giant Paytm reported a 38% year-on-year (YoY) and 13% quarter-on-quarter (QoQ) growth in its operating revenue to INR 2,850 Cr in Q3 FY24. However, as expected, the company’s recalibration of its loan portfolio towards the end of Q3 had a chilling effect on Paytm’s lending business during the quarter.

Revenue from financial services, which includes Paytm’s lending business, grew 36% YoY in Q3 FY24 to INR 607 Cr. But this represented a modest 6% quarter-on-quarter growth from INR 571 Cr in Q2 FY24.

Paytm reported 1.15 Cr loans distributed in Q3 FY24 as compared to 1.05 Cr in Q3 FY23, a growth of 10% YoY.  However, when compared to the previous quarter (Q2 FY24), the number of loans distributed fell from 1.32 Cr, a decline of 12%.

A similar pattern of QoQ decline was observed in the value of loans distributed — YoY increase of 56% to INR 15,535 Cr in Q3 FY24 but a sequential decline of 4%.

In fact, the number of loans distributed in Q3 FY24 was almost on par with the number of loans distributed in Q4 FY23 (March 31, 2023), showing that the recalibration of the loan portfolio has set the company back by a few quarters.

Having seen a QoQ decline in the lending business, Paytm is prioritising insurance distribution, equity broking and mutual funds distribution.

How Paytm’s Lending Business Fared In Q3 FY24

The decline in the loans business came due to the recalibration of the low ticket size or postpaid loan portfolio in December 2023. Postpaid was Paytm’s BNPL product primarily, which has since been transitioned to higher value loans.

As the small-ticket loans business shrank, Paytm said it has seen growth in the high-ticket lending segment and disbursed loans worth INR 490 Cr in the latter category during the quarter.

Merchant Lending Key For Paytm

This segment saw the biggest jump on a YoY basis, growing 96% to INR 3,579 Cr. QoQ growth remained modest at under 10%.

Average ticket size for merchant loans increased to INR 2 Lakh from INR 1.5 Lakh in Q3 FY23, but the number of loans remained flat QoQ at 1.8 Lakh.

Repeat rate on the merchant loans side was close to 50%, but penetration for the merchant loans business was relatively low at 6.1% of all device merchants, indicating that the company has a lot of headroom to grow in this segment.

But given that more than 85% of these loans were distributed to merchants who are subscribed to Paytm’s device business, one must question whether the low penetration is related to Paytm’s inability to upsell lending to its current merchant base.

Modest Rise In Personal Loans Business

On the personal loans side, the total value of loans distributed grew 52% YoY to INR 4,460 Cr. It rose 13% QoQ.

The average ticket size increased to INR 1.68 Lakh from INR 1.2 Lakh. “We will maintain marginal growth on ticket size less than INR 2 Lakh,” the company said in its quarterly report, indicating that the average ticket size and tenure for personal loans is expected to grow in the next few quarters.

Penetration in personal loans was at 1.1% of the monthly transacting users, but bringing more users to the higher ticket size segment would be the major challenge for Paytm in FY25. Will the company’s plans to bring on more lending partners (more below) have a positive impact?

Degrowth In Paytm Postpaid Loans

Paytm’s postpaid loans segment saw degrowth in Q3 from Q2. The total value of postpaid loans fell to INR 7,496 Cr from INR 9,010 Cr in the September quarter.

Further, the total number of loans distributed also fell from 1.28 Cr in Q2 to 1.1 Cr in Q3. In fact, the Q3 numbers for postpaid loans are worse than the Q1 FY24 (June 2023), when the company disbursed 1.23 Cr loans worth INR 8,039 Cr.

It must be noted that postpaid is a revolving product, with credit lines automatically renewed for most users on a monthly basis. As such, the total number of postpaid loans in Q3 FY24 includes users that have availed loans on more than one occasion in the quarter.

The penetration for postpaid is calculated as the monthly number of loans in a quarter as a percentage of that quarter’s average monthly transacting users.

This is how Paytm described the recalibration of the postpaid loans vertical.

• For Consumers: The company said it worked with the lenders to take a conservative view and cut on marginal cohorts. Accordingly, number of eligible users have been cut down by close to 15%
• For Merchants: Paytm said it calibrated postpaid loan usage with focus on consumption use cases.

The recalibration steps resulted in 50%-60% lower postpaid loan distribution for the month of December, which will be further calibrated in Q4 FY 2024 and beyond, Paytm claimed.

The company said it would continue to watch for macro uncertainty and regulatory guidance on loans under INR 50,000. It also reported that 3.7% of Paytm’s monthly transacting base have availed postpaid loans as of the December quarter

Interestingly, the average ticket size for postpaid loans was INR 6,800, which hints at further degrowth in the coming quarters as the company looks to eliminate low-ticket size loans.

Portfolio Recalibration Pinches Paytm

To sum up the quarterly performance on the lending business, Paytm said it will continue to calibrate distribution of postpaid loans on the back of macroeconomic uncertainty and regulatory guidance. “According to feedback from our lending partners, asset quality of the loans distributed from our platform continues to remain steady,” the company claimed.

However, it must be noted that the real impact of the recalibration in December 2023 will be seen in the Q4 FY24 numbers (January to March 2024). It’s likely that the Q4 numbers for Postpaid loans, in particular, would be much lower in Q4.

Despite some headwinds, Paytm remains bullish on the overall demand for lending products. It claims to have added a lending partner and a credit card partner in Q3 FY24. The fintech giant also claimed to have 2 Cr whitelisted customers waiting to avail loans from the company as of Q3.

Paytm’s projection of adding at least 5-6 lending partners by Q1 FY25 would be critical in this regard.

“We are in the process of integration with a couple of lending partners (Bank/NBFC) and one more credit card partner. We have now partnered with 8 NBFCs for our loan distribution business and 3 banks for our credit card marketing business.”

On a consolidated basis, Paytm reported a loss of INR 222 Cr in Q3 FY24 compared to INR 292 Cr in Q2 FY24 and INR 392 Cr in Q3 FY23. The 43% YoY decline in net loss in Q3 is a promising sign for the company, even as its lending business goes through some churn.

Paytm shares closed this week’s trading at INR 773.90, gaining around 1% on Friday (January 19).

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