Paytm Scales Down Postpaid Loan Business, To Focus On Big-Ticket Personal Loans

Fintech giant Paytm is scaling down its focus on small-ticket loans of less than INR 50K, which predominantly comprise its postpaid loan business.

“While we’ll continue to do postpaid, and it may not be the same growth level that we were doing earlier, it will be significantly lower than what we were doing earlier, but it will be a product that will continue,” the fintech major said at an investors call today.

The development came after a report said Paytm has temporarily halted its postpaid loan operations as its NBFC partners have become cautious following the recent tightening of norms around unsecured lending by the Reserve Bank of India (RBI). The report also claimed that one of Paytm’s major lending partners, Aditya Birla Capital, has pulled out of the postpaid partnership.

However, Paytm rejected this report and said Aditya Birla Capital continues to be a partner. 

But the postpaid loan section on the Paytm app currently shows a message saying it is under maintenance. A number of users also took to social media platform X to complain about the issue.

Meanwhile, Paytm said that the postpaid loan product will not be discontinued, but it will be available only to some users.

“We’ve had discussions with them (the partners), they are looking at all the regulatory guidance… while our portfolio had no problems and issues, it is better that we scale this down and index ourselves in offering something, which is more meaningful in the current environment. And as and when the environment becomes better, we can always scale it back,” the company added. 

In a statement, the company said that the decision to recalibrate the portfolio origination of less than INR 50,000 was taken on the back of recent macro development and regulatory guidance, in line with its focus on driving a healthy portfolio.

On the other hand, Paytm said it will further expand its business to offer high-ticket personal and merchant loans, which would be targeted at “lower-risk and high credit worthy customers”, in partnership with large banks and NBFCs.

As per the company’s data, it is witnessing good demand in the high ticket (INR 3 Lakh-INR 7 Lakh) low-risk personal and merchant loan categories.

Meanwhile, the company is also adding more banks and NBFCs as its lending partner for its loan distribution business. Currently, it has seven NBFC partners for loan distribution and is in the process of integrating a large bank and two large NBFCs, which would be completed during Q4 FY 2024 and Q1 FY 2025.

Impact On Paytm’s Business

It is pertinent to note that the fintech major has doubled down on its loan distribution business over the last few years and has been posting staggering growth.

In its last reported quarter, Q2 FY24, Paytm saw its disbursals increase to 1.32 Cr loans worth INR 16,211 Cr, a jump of 44% and 122% year-on-year (YoY), respectively. Meanwhile, the postpaid loans vertical has historically contributed the biggest to its lending business in terms of value.

In Q2, Paytm disbursed postpaid loans worth INR 9,010 Cr, which jumped 122% YoY. Interestingly, below INR 50,000 loans comprised 72-75% of the total disbursements in this lending category in the September quarter.

Hence, the company’s decision is expected to have a negative impact on its lending business. 

Speaking on the matter, Paytm said that since the contribution of postpaid loans will go down in the overall disbursement, there will be a mathematical change to the take rate. However, it does not expect a negative impact on its take rate. 

In fact, the company believes that high-ticket personal loans will add to the growth. 

“From a revenue impact perspective, while the optics of disbursement could be a bit lower, but revenue impact will be very marginal and more than enough compensated by the expansion to high ticket and other revenue items,” the company said during the call. 

On the other hand, the company has increased its focus on the merchant loan business, which also grew 171% YoY in value in Q2 FY24, over the last few quarters. Paytm said that this vertical is unaffected by any regulatory changes and is a highly profitable product compared to postpaid loans.

It is pertinent to note that BofA, in a recent research note, said that the RBI’s recent move was expected to impact Paytm, with risks associated with loan growth in the personal loan category and some pressure on take rates. But the brokerage also hinted at a less significant impact on its overall business.

Shares of Paytm ended today’s trading session 3.1% lower at INR 813.3 on the BSE.