Here’s How Paytm Built A Scalable Revenue Generating UPI Model With Focus On Merchant Payments

*This is in partnership with BQ Prime BrandStudio

Paytm grew its revenue by 42 percent year-on-year in the quarter ended December 2022 to Rs 2062 crore. The growth was driven by an increase in merchant subscription revenues, growth in loan distribution, and momentum in the commerce business. Given the timing of the accrual of the UPI incentive, there was no UPI incentive recorded in this quarter.

Paytm’s focus on subscription services to create additional payment monetisation continues to expand, with the number of merchants paying subscriptions for payment devices like Paytm Soundbox and POS reaching 6.1 million at the end of January, an increase of 0.3 million in the month. The number of merchants paying subscriptions increased by 1 million in the quarter ended December 2022. With Paytm’s subscription-as-a-service model, the strong adoption of devices drives subscription revenues and higher payment volumes, while increasing the funnel for its merchant loan distribution.

Paytm is seeing sustained traction in subscriptions and earning more than Rs 100 per month per device. Further, it has received additional incentives on select installations from partner banks, RBI and NABARD, etc.

Paytm’s founder and CEO Vijay Shekhar Sharma during the recent earnings call said that the company’s focus with merchants is not limited to just devices but includes various other subscription line items.

The total merchant GMV processed through Paytm’s platform in the last quarter aggregated to Rs 3.5 lakh crore, marking a year-on-year growth of 38 percent. Merchant payments volume in the month of January was Rs 1.2 lakh crore, growing 44 percent from a year ago. Paytm’s focus over the past few quarters continues to be on payment volumes that generate profitability, either through net payments margin or from direct upsell potential.

During the earnings call, Sharma said that Paytm’s focus on merchant payments has created a scalable UPI revenue model in subscription. “I feel highly positive and inspired by the adoption of our device business, especially Soundbox which has led to significant scale in UPI acquiring”, he said. UPI has emerged as one of the key low CAC customers and merchant acquisition channels for Paytm, he added.

Paytm’s registered merchant base expanded to 31.4 million at the end of December 2022. Sharma also mentioned that Paytm’s revenue from merchant business in the payments industry is particularly higher than every other peer company. “Somebody chose P2P, somebody chose P2M, we chose merchant business. Our acquiring side market share, which NPCI does not yet declare, once they start declaring, you will see how well we are capitalised there over other UPI players, also standalone UPI players or other payment aggregators”, he added.

As per the notification received from the government of India on January 11, 2023, Paytm estimates that for the three quarters ended December 2022, it will receive Rs 130 crore of UPI incentives in the quarter ending March 2023. 

Paytm leverages its two-sided ecosystem of consumers and merchants and rich insights from its platform to cross-sell high-margin financial services and merchant services. Paytm enables its merchants with tech solutions that allow them to accept payments through a wide variety of instruments and by deploying subscription-based devices that help with reconciliations. The company also enables commerce and allows them to advertise, sell gift vouchers, deals, and tickets.

For consumers and merchants, Paytm offers various lending products such as Paytm Postpaid (BNPL), personal loans and merchant loans, with its financial institution partners. Its lending business continues to scale providing attractive upsell revenues.

Paytm’s portfolio qualities have been demonstrated over multiple payment cycles. The company believes that upselling lending products is a scalable opportunity and sees a large profit pool in its loan distribution business. The penetration for merchant loans is 5.2 percent of device merchants. Paytm believes there is a long runway for growth as its payments consumer and merchant base offers a large addressable market for loan distribution.