Paytm Says Profitability Is Around The Corner, But What’s The True Picture?

Is the Paytm jigsaw falling into place? Perhaps, at least going by the words of Vijay Shekhar Sharma, the founder of the embattled startup. 

Once the poster boy of India’s startup ecosystem and the most outspoken founder, Sharma went largely silent since the Reserve Bank cracked the whip on his the Paytm Payments Bank over regulatory discrepancies last year. One of the pioneers in India’s digital payments space, Paytm has since been quietly trying to put back the pieces of the puzzle.

“We are committed to working on profitability. We have not made any profit in the last few years. I can tell you very happily that with the team and the effort in the business that we have done, we are clearly committed to delivering profit in the next quarter,” Sharma said at an event last month.

As the fintech startup goes full throttle to turn profitable, it has stepped up focus on the merchants’ side of the business, lender partnerships and regaining the UPI market share.

Over the last one month, Paytm made several announcements including partnership with RBL Bank to offer its sound box, card machines to its merchant partners, UPI-enabled trading facilities for retail investors, UPI statement downloads, deployment of QR scan machines during the Mahakumbh for merchants and traders, and integration of Perplexity-enabled AI engine for Paytm users. 

Detailed queries sent to Paytm over the course of profitability remained unanswered at the time of publishing this story. 

Sharma’s fintech venture One97 Communications Ltd, which runs Paytm, came under stress since the central bank almost quashed its dream of making profits in 2024 after a sombre public listing in 2021. The RBI blew the lid off compliance gaps in operations that effectively led to the suspension of the Paytm Payments Bank. The year also saw the company shutting down a few business verticals, selling out some others, and laying off employees. 

The management commentary in the December 2024 quarter earnings call seemed to be focussed on profitability more than ever. The company narrowed its consolidated net loss by 6% to INR 208.5 Cr in the third quarter of FY25 from INR 221.7 Cr a year back, although its revenue suffered a steep 36% decline to INR 1,827 Cr in this period. 

Reading between the lines, however, shows that even though Paytm managed to reduce its indirect expenses by roughly 7.5% to INR 1,000 Cr in Q3, its direct costs grew 13% sequentially, as against a slower topline growth of 10% from INR 1,659 Cr over the previous quarter. This indicates that the revenue growth is a result of higher spending on payments processing charges, cashback and incentive costs and other direct expenses. Much of this spending has gone towards reclaiming the market share.

In fact, the 2024 RBI action on Paytm Payments Bank has set Paytm back by more than a year in terms of revenue while competition kept heating up.

The market, however, reacted to the way VSS, as the Paytm founder is referred to, painted the picture of a revival. The company’s shares traded in the black till the end of last year, though the stock took a beating after the markets turned bearish this year. 

The regulatory headwinds for Paytm didn’t stop with the RBI whip. The company came under the glare of the Securities and Exchange Board of India (SEBI) and the Enforcement Directorate (ED) in quick succession over regulatory lapses. This, too, weighed on the battered stock this year. 

While laying out the blueprint for profitability, Sharma reiterated that Paytm will focus on payments, credit, and wealth management through the next two years. “Very clearly, payments are our foundation and we believe that payments can make profits on a standalone basis,” he was quoted as saying in various media reports. He added that Paytm was also aiming to be a compliance-first organisation that would ensure that adhering to regulations would not be limited to just one officer. 

He said the company aims to serve 200-250 Mn people and is recalibrating its strategy around credit distribution. But, in the meantime, the competition has intensified with the cohort of super apps – from PhonePe to CRED to Flipkart-backed Super.Money, Navi and others – looking to capture Paytm’s lost market share.

It’s hard for the fintech startup to face the challenge with a looming topline. The cost-cutting option, too, seems bleak as market analysts feel that it is overstretched and cannot afford to further reduce the costs considering the scale it operates at. Global investment firm UBS, for instance, maintained its ‘neutral’ rating on Paytm but said that to crack the profitability code, Paytm cannot rely on cost-cutting anymore and needs to scale its revenue to reach breakeven. 

Sharma has set the deadline for attaining profitability for the first quarter of fiscal 2025-26. The Paytm management, as per its earnings call, is also planning to bring down the ESOP costs in the next few quarters to narrow the gaps between EBITDA before ESOP costs and PAT. 

Does this appear too ambitious a target or is it within the reach of the fintech giant? Inc42 looked into the strategy for its road to profitability and spoke to some industry leaders and analysts to see how far is Paytm from its target. 

Payments: The Primary Revenue Lever 

Payments continue to be the main revenue driver for Paytm. It cushioned the fintech giant from the repeated regulatory setbacks in FY24 and FY25.

Despite the shakeup in the payments business after the RBI revoked the licence of the Paytm Payments Bank and revenues from the business plunged 40% to INR, 1,1003 Cr in Q3 of FY25, payments continued to make up 45% of the overall revenue pie with the gross merchandise value (GMV) in this vertical crossing INR 5.01 Lakh Cr, surpassing the year-ago figure. 

Paytm makes money by charging commissions from merchants or service providers for value-added services like bill payments, ticket booking, and food ordering. 

Its sound boxes and other monthly subscriptions from its merchant base have also been major revenue drivers in the payments business, even as the number of subscription-paying merchants increased marginally to 10.17 Mn in Q3 of FY25 from 10 Mn a year back. 

Paytm’s Q3 disclosures, however, reveal that the payments business suffered in terms of consumer payments, which stayed flat, if not dipped, last year. This has possibly led to a sharper loss in the shrinking UPI market share from 10% in early 2024 to 6.8% in January 2025.

“In December 2024, we had 1,000 Cr merchant transactions and we had 1,232 Cr total transactions. I think it’s fair to say that if you take a year-on-year view, then the merchant side of the business has grown, whereas the consumer side of the business, even adjusted for discontinued businesses, has been flat or slightly de-grown,” CFO Madhur Deora said in the Q3 earnings call.

In such circumstances, Paytm may offer incentives and cashback to onboard new users, but this will also mean pressure on margins due to increased operational expenses.

“In such a case, Sharma is going to try to hold on to his loyal consumer base by offering them reduced take rates, waiving off subscriptions in some cases, and staying focussed on adding good products to the platform. UPI will, anyway, not give Paytm an immediate revenue boost due to the Zero MDR rule,” a senior vice-president at a rival fintech firm said, requesting anonymity. In Zero MDR (merchant discount rate), the merchant doesn’t pay any fee for accepting payments. 

“If Paytm is to scale its topline, it needs new strategies to attract consumers and merchants and, at the same time, reduce marketing costs since the focus is on profitability,” the fintech executive quoted above added.

Paytm has lined up a three-pronged strategy to move the needle in the payments business. First, the incoming UPI incentives from the government in Q4 of FY25 will boost the margins. Second, the company will sign up more merchants for its devices. And, third, it will take back the inactive devices from the market, refurbish, and redeploy them to reduce the expenses in the next two quarters.

According to Sachin Dixit of JM Financial, Paytm is likely to turn profitable in Q4 FY25 and sustain that profitability for the full year in FY26.”There could be one-off quarter where seasonality and wage rises might result in minor losses if the company ramps up consumer onboarding. But despite this, we foresee a good revenue jump on the back of being able to onboard UPI users while containing costs simultaneously.” Dixit added.

The UPI-linked Rupay credit cards are expected to open another monetisation avenue for the payments business. “We are witnessing a growing trend of customers linking RuPay credit cards to payment apps and using them for UPI transactions. This allows merchants to accept credit card payments via UPI QR codes,” Paytm said in an earlier statement. 

Lending Products: The Margin Drivers  

Paytm had briefly paused its collection services for lending business and only banked on a loan distribution model after the RBI crackdown and exit from postpaid loans in May 2024. There were general industry concerns on unsecured lending and deterioration in asset quality that drove its lending partners to rethink their ties with Paytm.

The management commentary and the subsequent statement from Sharma have, however, stated that the lending business, especially merchant lending, gained strong momentum, with the average ticket size doubling to Rs 2 lakh in 2024-25.

Paytm gradually returned to loan distribution and collection services for its lending partners, invoking the first loss default guarantee (FLDG) in some cases. It charges the lending partners sourcing fees as well as collection fees for the disbursals.

Under the FLDG agreement, Paytm is expected to cover a certain amount of loss in case the borrower defaults on repayments. This is expected to boost the lender’s confidence in a tie-up and will likely drive larger loan disbursals and higher volumes for the fintech firm.

Sharma said that the company is banking on its lending business to improve profits and is not fixated on one model. “This entirely depends on the lending partners and their preferences,” he said. Compliance with strict underwriting and improved collection practices continues to be the priority for the company to satisfy its lending partners.

Following the exit from some loan business verticals, Paytm’s loan product consumers have dropped significantly to 5.9 Lakh in Q3 of FY25 from 8.1 Lakh a year ago. The hit is likely more on personal loans than merchant loans.

The revenue from financial services, primarily lending products, had declined by 17% on-year in Q3 of FY25 to INR 502 Cr from INR 607 Cr. But, on a quarterly basis, it surged 34%. In terms of disbursals, personal loan categories continue to see a decline from INR 1,977 Cr in Q2 of FY25 to INR 1,7146 Cr in Q3 of FY25. Merchant loans remained the bright spot, growing to INR 3,831 Cr from INR 3,303 Cr, with a significant portion under the DLG model.

The company has stepped up its focus on large-ticket loans and added thrust on merchant loans to secure profits in the next few quarters.

“There are concerns in invoking the FLDG model for loan collections where Paytm may have to bear the costs for loan defaults, however, if the company manages to push the disbursals substantially in the next few quarters, the FLDG costs may be covered. This remains a risk for the company. The FLDG costs may majorly dent the revenue and the margin if there are more loan defaults,” a senior fintech executive quoted above said.

Paytm said that in order to hedge FLDG costs and associated risks, it is evaluating the creditworthiness of merchants for loans based on their cash flows and with added options like daily repayments. 

Wealthtech, Marketing: The Next Growth Zone

Paytm has been steadily growing its marketing wing for brands and merchants to advertise on the platform or provide value-added services that fetched INR 267 Cr in revenues in Q3 of FY25, as against INR 268 Cr in the previous quarter.

The company exited the events and movie ticket booking business last year by selling it to Zomato for INR 2,048 Cr, which had jacked up both the bottomline and the topline for the September quarter. Paytm is not focussing on business segments that include entertainment or travel booking or insurance and will continue to provide third-party application services for the service providers. 

“Paytm was into too many things at one point. However, what we learned from the experience was that we first need to set our core payments business and financial services vertical right and check the compliance requirements. So, we shut down some verticals and sold a few,” Sharma said.

He also mentioned that the company was bullish on the wealth management business, which runs on a separate app, Paytm Money. “Paytm Money and Insurance are still work-in-progress businesses. There is an increased attention on mutual fund distribution because I think that we are able to sign up a big number of customers from there,” the Paytm CEO said in the Q3 earnings call. 

The focus on wealthtech business will also add to the funnel of mutual fund and SIP customers, he said. 

The challenge for Paytm Money will be to rope in new users since a majority of the wealthtech businesses have seen erosion in active user base with retail investors cashing out of the public markets during a prolonged bear run. Both SIP accounts and MF investments have reportedly continued to decline from the end of 2024 amid equity market correction and investors re-evaluating their portfolios.

Again, without promotional incentives, it might be challenging for Sharma and his team to compete with strong vertical players like Groww, Zerodha and Angel One, which have an existent loyal customer base and will try to retain a majority of their user base at least when markets remain subdued. 

But, since Paytm clarified that these businesses are still a work in progress, they would not want to invest major capital there immediately and wait for the market to revive. 

A majority of the brokerages and investment firms have revived their outlook on Paytm’s business and upped the target price for the stock with expectations of profitability as soon as Q4 of FY25 or Q1 of FY26, pretty much in line with what Sharma said. 

The target may be achievable in this quarter or the next after receiving the UPI incentive. It, however, must be noted that Paytm will have to massively beef up its merchant subscription services and disburse more loans while keeping bad loans at bay in this period.

“Sharma has been overseeing it all, building this company from the ground up to $10 Bn more. But from here on, as he builds more scale, he needs to hire more quality leaders for these crucial business verticals which are almost the lifeline for Paytm and keep the governance and compliance in check,” a seasoned fintech investor said, refusing to be identified. 

The path to profitability will be non-linear for Paytm in FY26, but at least Sharma and his team have a chance to make an apt response to some of the harshest critics who had given up on one of the country’s largest fintech companies last year.

[Edited By Kumar Chatterjee]