Thank you for joining and a warm welcome to Paytm's Earnings Call to discuss its financial results for the quarter ending June 30, 2022. From Paytm's management team, we are today joined by Mr. Vijay Shekhar Sharma, founder and CEO, Mr. Madhur Deora, President and Group CFO, Mr. Bhavesh Gupta, CEO Lending and Head of Offline Payments, and Mr. Anuj Mittal, Vice President, Investor Relations. Before we begin, a few customary announcements for all attendees. This earnings call is meant for the existing shareholders of Paytm, for potential investors and research analysts to discuss the company's financial results. This call is not for media personnel. If any media representatives are attending this call, we request you to kindly drop off the call at this point.
The information to be presented and discussed on this earnings call shall not be recorded, reproduced, or distributed in any manner whatsoever by any of the attendees. Statements or comments made on this earnings call may include forward-looking statements. Actual events or results may differ materially from those anticipated in such forward-looking statements. Finally, this earnings call is scheduled for 75 minutes. It will have a presentation by the management, followed by Q&A. Kindly utilize the Raise Hand feature on your Zoom dashboard if you seek to ask a question. We will unmute your line and take questions in the respective sequence of raised hands within the scheduled time. Please ensure your name is visible as first name, last name, followed by your company name in brackets at all times for us to be able to identify you.
The presentation, a replay of this earnings call, and a transcript will be made available on the company website subsequently. With this, I would like to request Mr. Vijay Shekhar Sharma to kindly initiate this earnings call.
Thank you. Hello and welcome, everyone. Namaskar. We have done a great amount of effort on focusing on simplifying communication and business KPIs. If you see here, we have actually stated that our core business is to acquire payment customers and disburse loans. Everything else has to amplify either in acquiring payment customers or amplifying ability and capabilities of disbursing loans. In our payment business, as you see, we acquire consumers who in turn work with merchants, as in other words, make payments to the merchants, and merchants in turn give commerce services to the consumers. This business model where we have more than 75 million monthly transacting users as of June 2022, and merchants, 28 million merchants, allow us to create a brand, distribution, and in-house technology that allows us to create an incredible loan distribution and collections business.
Yes, our business model in credit remains, and focus remains in distributing and creation collections. As you can see for consumers, we have postpaid and personal loans and incidentally co-branded credit card. For merchant, we have merchant cash advance loan. When you look at our business and you look at majority of revenue and focus of company is about acquiring customers for payments and distributing loans. Here is the revenue line item on the payments. It's an important thing. I took the time to build this slide, especially describing how do we earn in payments business. It's an interesting business because our margins are expected to grow further. We wanted to clarify at the next level how should you look at our payments business and how do we internally look at our payments business.
These are the key components of our payment business, where merchants use Paytm app to collect payments. You know, various utility merchants and credit card rent, et cetera, BBPS, all those services are here where merchants are using Paytm app to collect payments. Here, merchants obviously will pay us certain fees, instrument MDR. We have started to charge platform fees to select customers based on their instrument or their kind of use case they're using. This experiment has been very successful. If you notice, our payment service to the consumers have had as high as 73% year-on-year revenue growth. We incidentally call this line item as payment service to the consumers. When the merchant is using Paytm app to collect payments, merchant is also using Paytm app to sell, upsell their services.
We call it enabling commerce business, where merchants can sell deals, tickets, or take advertising. This is the business that we showcase under commerce and cloud services. This same business have shown incredible growth year-over-year. As you can see, INR 331 crores, 61% year-over-year revenue. We believe that this is a business which was hit by COVID and over the period of time will continue to grow and find out new use cases where we enable different commerce services for merchants on our Paytm app. Now, here, the merchant is using Paytm app capabilities on our platform, right? Merchants have their own shops, apps, websites, and there they collect payments using Paytm's platform services and abilities. We call these services as payment services to the merchant. Here, merchant pays a subscription fee, typically for a device.
In addition to a device, they are also going to pay us for different services that we enable for them. For example, like let's say, they're gonna pay a subscription for enabling Forex payments. They're gonna pay subscription fee for certain amount of reconciliation service that we will put out here. Merchant pays subscription fees for using our services. It's an important thing that Soundbox comes and the critical important revenue of UPI-led monetization comes under this because we believe that merchants who are accepting payments on UPI need services, so merchant payments of subscription fee makes a key focus area for the company. Second is merchant pays MDR for MDR-bearing instruments like card, wallet, postpaid, et cetera here. Third is that Government of India in their Digital India mission have sub-vented the UPI merchant fees.
Technically, UPI has the MDR which government is actually paying, and it's, the payment typically comes towards the Q3 or Q4, so we show it at that point of time in our earnings. Incidentally, all payment instruments, UPI, wallet, card or postpaid or net banking, et cetera, everything bears small or large fees to the merchant. In addition to that, because those fees margins are very small, we have started to find out services that merchants is ready to pay a subscription of. It's exactly what our long-term vision will be. Here, on the right side, I've tried showing the model case for different merchants. Let's say an entry-level merchant, typically a roadside hawker, uses our Paytm QR. Now, Paytm QR enables all bank UPI apps. In addition, wallet postpaid, in other words, the payment instruments, PPI is Paytm Payment Instruments also.
This is where our differentiation also comes for the merchant. In this case, typically we will get incentive from government on UPI payments this merchant receives. These incentives are published and we would, if needed, be able to showcase the notification on demand basis. You could go to Google and say that MeitY, the Ministry of Electronics and Information Technology, incentives for UPI payments, zero MDR announcement where the merchants are not to be charged. Government is going to pay us the money. This is where we make money using the UPI-based payments. Many a times merchants are paying for little bit fees on wallet and postpaid also. This merchant we upgrade to a subscription merchants where these merchants take a Soundbox.
Soundbox is one of those business which we could figure out as a requirement on the ground and built it, and it is taking off very, very well. Among our IoT or device business, this is incredibly growing. If the merchant goes to the next level where he has to take, let's say, card payments, so then comes the card payments device, and it includes obviously the Soundbox is inherited inside this, so he pays a subscription and pays MDR also for different instruments. This EDC device or card device that we call here is also our gateway to enable buy now, pay later for, from other providers like EMI, so from banks and NBFCs. This merchant here is also a customer for us driving EMI payment from merchants, and we get higher margin on this.
These are value, more value customers or higher value customers than Soundbox customers, as you can see. Then comes these omni-channel online merchants. These are the classic online e-commerce companies where they take our API and SDKs and give us MDR. Finally, like I told you, the sub-merchants don't use their site only or in addition to that they use our app, and this is where we enable consumer payment, which is what we title as consumer payment because customer is using Paytm app. Incidentally, this is also a merchant payment. The merchant is eventually taking payment on Paytm app. This is stack that you're seeing are different kind of merchants that we have on our system.
Revenue models are clear where we leverage distribution of Paytm app to grow number one and number two, which is payment service to the consumer and commerce and cloud service. We use the sales team to distribute and expand our merchant payment service, which incidentally year-on-year grew again incredibly well, INR 557 crore, 67% year-on-year. Standalone basis, all these three line items have our attention of technology and product development, and we continue to expand different services on these sites. I'll talk about the second part of the revenue, which is the loan disbursement and collection. We call it loan distribution collection business. Classically, we have been declaring and talking about it that in our credit business, our scope is loan sourcing and cross-selling.
Meaning if a customer has come to take a loan on Paytm app, we also cross-sell him another type of loan from the same lender surprisingly. We don't do cross-sell of another lender. If you are, let's say, you've got a loan, personal loan from lender A, you will be cross-sold another loan only from lender A. We call it loan sourcing and cross-sell fee. This way is that both us and our lender partner continue to deeply engage and get overall LTV of a loan business in partnership with the lender. Again, I'm reiterating that our cross-sell revenues also work in a way that if the customer goes on their platform and takes it, we still get the our part of sourcing and cross-sell fee here. This is loan cross-selling and sourcing fees that we account for.
second part is that we help them collect and service the loan, meaning we would build interfaces on the Paytm app. We would have disbursement and collection services, and we will have full effort on bringing collections. As we've told, we get certain revenue on the portfolio performance that we are collecting. I also want to share the fact that the point number two that we do, we do it not just for the loans that are sourced on Paytm platform, we also do it for the loans that are not necessarily sourced on Paytm platform. For example, like, a lender could be distributing or disbursing loans by themselves, they can still use Paytm's service for servicing and collections. That is why we call this a two-part business model, and the part two of the revenue has a bonus sort of on a pool basis.
Incidentally, our business had issued and disbursed loans, as you know, more than a year back. Portfolios are maturing, so we are starting to get certain bonus part of this servicing and collection fees. Paytm's business is about loan sourcing and collections, as we said here. My colleague, Bhavesh, in due course, will talk about, here I have brought it as a summary, that our three products, personal loans, merchant loans, and postpaid for consumers are our primary three products. We do not treat credit card as a loan because eventually our role is only as a branding and assigning, acquiring a customer. We do get, over the period, money, and that is shown in commerce and cloud business because cloud and advertising comes together, just so that you know this. Here are the loans that we work in partnership with our lenders.
Personal loan ticket size, which is around INR 100,000, INR 1 lakh , is about a one-year product, and merchant loan, where the ticket size is INR 140,000, is about again a one-year product. Incidentally, these are in tune with our approach two by two. We say less than INR 2 lakh or not more than INR 2 lakh , not more than two years, so that these are high, I would say, frequency and high speed disbursement and collection products takes an incredible amount of comfort to our credit partners, and you will hear more from how the quarter has been for these services as we have assigned the numbers, announced the numbers already. Postpaid, as is a monthly billing, so there is no, topic about that. The customer is obviously in a month. Postpaid continues to grow our ticket size.
If you notice that one quarter time, we used to have it in a few thousands. It's reached now 4,000, which incidentally means that customers' acceptance of postpaid, which is at different places, is increasing, and customers are finding it useful and spending more and more using postpaid product here. Our total disbursement, as you can see here, which we anyways have announced also, is about in a quarter, INR 1,344 crores. Obviously, it was on a very minuscule base on year-on-year basis, so it's dramatically large percentages. At the same quarter time, we believe that key KPIs remain our disbursement dollar value size and incidentally the performance of the portfolio of our partner.
Though we don't have access to the portfolio performance, but based on the data they shared with us based on the servicing and collection detail revenue invoicing that we do, here we are showing how our business is performing in last few quarters. Last quarter, actually, this is the kind of bounce rate that you see, 11%-12%, 11.5%-12.5%. Merchant loan is a daily product, so daily installment collection, so there is no bounce rate concept here. Postpaid remains, again, 11%-13%. Here, expected credit loss remains sub-5%. Here, 5%-5.5% and 1.1%-1.3%. More details and further detail numbers are part of our presentations.
This is my summary of telling you how our revenue model of loan disbursement and collection works out. Now I will hand over the call to my colleague, Madhur, who will give you much detailed insights about the business. We remain bullish on the customer demand here. As you can see, our usage of platform and monetization, and we believe that we would very comfortably be able to achieve the timeline that we have informed to the stock exchange that we would be able to achieve break-even before EBITDA costs in next September quarter. Okay. To Madhur.
Thank you, Vijay. Great pleasure to be able to report the results of all the hard work the team has done this quarter. This quarter we saw very strong improvement in revenue and profitability. Just a few financial highlights to begin with. Our revenue from operations was about INR 1,680 crores, up 89% year-on-year, 9% quarter-on-quarter. We'll double-click on that in a moment. Our contribution profit, record high of course, INR 726 crores. 43% of revenue. Last quarter, this number was 35% of revenue. Our contribution profit growth has been 200%, so roughly 3x year-on-year. Our has grown 35% even compared to the previous quarter. Our EBITDA before ESOP cost is now at INR 275 crores. This is a INR 93 crore improvement from the previous quarter.
A quarter ago, we said we were at INR 368 crore. We said we are going to hit EBITDA break-even in six quarters. Compared to that, we are ahead of plan in that sense. Operational highlights. As Vijay mentioned, value of loans disbursed INR 5,554 crore. We are run rate now close to INR 24,000 crore. It is about, well, call it 9x year-on-year increase. Interestingly, even on a larger base, on a quarter-on-quarter basis, we grew 56% this quarter. We have substantial ramp-up in the business. On payments devices, which is a key part of our strategy, as you know, we have 3.8 million devices now deployed.
2.8 million of these have been added in the last 12 months, and nearly a million has been added in the last three months alone. There's a significant scale-up of the size of deployment in the market as well. A little bit more about operating metrics. On the left-hand side, our average monthly transacting user grew about 49%. The last quarter, this number was in the low 40s. We are seeing some amount of acceleration there. UPI-led customer acquisition is working really well for us. Our GMV basically doubled year-on-year, 101% to INR 3 lakh crore. Our GMV from MDR-bearing instruments grew 52%. We'll talk a little bit more about this right at the end.
Our payments devices, like I mentioned earlier, grew by about 2.8 million on a year-on-year basis. This is our payment services revenue. This grew 69% year-on-year. Our net payments margin, which we define as payments revenue minus payment processing cost, that grew to 35% from 17% a year ago. Our payment services to consumer, which is this part, has been, as you can see, increasing steadily. It has been basically supported by MTU growth and the huge amount of activity that we see on the Paytm app for bill payments and top ups. Our payment services to merchants on a year-on-year basis grew 67% to INR 557 crores. This, as Vijay mentioned, is for collecting payments in merchant's own app, website or shops or stores.
There were a few drivers here that I want to call out. Clearly the thing that continues to grow for us is our subscription revenue, as we deploy more and more devices. March 22 quarter was sluggish because of the seasonality impact, as we had mentioned in the previous call. We did do some account-level rationalization among online merchants, and I wanted to call this out for everyone's attention, as a part of our focus on profitable GMV. This had a revenue impact of about INR 29 crores in this quarter. We did take a one-time step, starting middle of April, to rationalize certain accounts which we were not making money on effectively.
I should also call out that in this quarter, we did not have any UPI incentive recorded. The update there is that while the government has announced the incentive for the next year, we don't have the final notification from MeitY yet, and our policy is that we record this only after we get the final notification from MeitY. This quarter we reported no revenues for UPI incentive. On the next page, I wanted to double-click on the net payment margin, which as I mentioned on the previous page, has grown from 17% to 35%. This is one of the most impressive things that the team has done, which is really focus on unit economics and really focus on profitability. There are two sides of this coin.
The first is to drive higher revenue, of course, from higher MTU as well as from subscription revenue. The other side of the coin is to work with our bank partners to have substantial reduction in payment processing costs. We negotiate better processing rates, and we make sure that our routing is as optimized as it can be to get as much benefit out of this net payments margin. Like I mentioned earlier, we did some account-level rationalization in the online merchant business that also contributed a little bit to the improvement in net payments margin. In summary, our net payments margin has gone from INR 108 crores a year ago to INR 382 crores. That is a substantial improvement, which obviously flows straight down to the contribution margin and down to the EBITDA.
I'll hand over to Bhavesh to talk about lending, and I'll come back and talk about the rest of it.
Okay. Thank you, Madhur. Good Afternoon everyone. Financial services revenue, as you can see here, has grown from INR 55 crore to INR 271 crore. It's important to mention that, the INR 271 crore also includes revenue generated from non-credit activity. Albeit, that number continues to be small. 271 has a predominant share of credit activities, and that number continues to grow. The good news for us here is on quarter-over-quarter basis, we are seeing the value of loan disbursed grow. Now, if you can notice from March to June 2022, we've grown by more than 50%, and now we are run rating at a level that we could end the year at about INR 24,000 crore of loan disbursed through Paytm platform.
Important here again is the number of loans also continue to grow, and the ticket size also is now starting to grow. It just gives us an indication that what we are seeing, that there is a more upsell happening both for personal customers and merchant customers. We're also seeing limit enhancement happening to our Postpaid customers because our lending partners getting more comfortable by giving them more higher limits, which is the spend limits to Postpaid customers, and that is jumping up the ticket size per user on Postpaid. We do see that this trend may continue quarter-on-quarter, and we could see ticket sizes continue to move up. Just to give a bit of a deep dive, the growth has not just been a single product growth.
The growth has come from all the three products. Both the engines on consumer side, which is postpaid and personal loans, are intertwined to each other because personal loans predominantly is coming on the back of customers who are maturing their postpaid with us. If you are a postpaid customer and you mature more than six months and on the platform, you are more likely to get an approval from the lender for a personal loan. More postpaid loans have been given through our platform. It directly is adding to the personal loans being given on the platform. As you can see, the personal loan growth from March to this June quarter has been very substantial and we've grown relatively on the back of a very strong growth which came in a quarter before.
We're not seeing any letdown in these numbers. Postpaid continues to keep growing in spite of the fact that we had seen some slowdown in new acquisition, but we are again seeing the new acquisition back, which was a lull month that we had for one month in the quarter. Merchant loan is a product that we're seeing come back very-very strongly. As you can understand, last year same time, it was materially impacted by COVID. Also through the year, we had COVID impact on merchant loans. This is the first quarter, I would say maybe about five months, we're seeing there is no impact of COVID.
Markets are open, shops are open, GMV is growing very, very nicely enough, and hence we are seeing merchant loans grow from INR 565 crore to INR 827 crore. The trend suggests to us, even in the month of July, that this trend is continuing to be very positive and we'll continue to see this growth continue maybe at the same momentum or a bit better momentum, especially on merchant loan and personal loan side. This is a bit of a drill down on the portfolio. This is the indication that we get being a collection partner to our lending partners. These numbers have remained broadly at a similar range. We haven't seen any deterioration of the portfolio.
When I use the word deterioration, there is no material change in the way the lender expected the portfolio to behave versus the way the portfolio is behaving. If you look at the bounce rates for our personal loan business, though the personal loan growth has been so massive and significant, the bounce rate has continued to be same or a similar range between 11%-12%, same as for postpaid. We are seeing much better bucket one resolution now in postpaid. It is now inching 90+ on bucket one resolution, while we've given you the range of 89%-92%. Merchant loan, again, we are seeing much better resolution because markets have opened up completely. We've seen only 1% deterioration in postpaid if you were to look at the last quarter.
We were ranging between 82%-85%. Now we are ranging between 81%-83%. We do believe that this is going to be back to the same level of 82%-85%. ECLs have remained exactly similar, the 4.5%-5% and 5%-5.5%. I want to call out very clearly here that these ECL numbers are what the lender sees on a quarter to quarter basis, as a model that they have built for their accounting standards. The actual credit losses are lower at the lowest range. When we say the personal loan ECL will be 4.5%-5%, actually we are seeing a net credit loss which is sub 4%, merchant net credit loss sub 5%, and postpaid net credit loss sub 1%.
The book is performing very healthy, and that's the reason we're seeing new lenders getting added, and we are also seeing the existing lenders expanding their appetite to do more loans. Back to you, Madhur.
Thanks, Bhavesh. I wanna touch upon commerce and cloud revenues. Our commerce revenues, which is in light blue at the bottom, performed very strongly last quarter. It is up 168% on a year-on-year basis, but importantly, on a quarter-on-quarter basis, it was up 35%. Our travel merchants sold more tickets on our platform, largely because of resurgent demand. As I had mentioned briefly in the last quarter, we did see a mini Omicron wave in January and early February. The demand came back very strongly after that for our travel merchants. Also our entertainment merchants had a seasonally strong quarter with big movie releases. That contributed to the strong growth in commerce business.
On our cloud business, while we have grown 30% or 29% on a year-on-year basis, we are down quarter-on-quarter. I did wanna call out that advertising, not just for us, I think it's an industry-wide phenomenon, is seeing some headwinds due to reduced marketing spends, particularly from consumer internet companies. While we're confident that we'll recover the advertising revenue more and more, this quarter did see some meaningful headwinds. We are seeing also strong traction in credit card distribution and expect it to continue going forward and contribute to growth of the cloud revenue business. I wanna touch about contribution margin. We talked about net payments margin earlier. That plus other things have resulted in our contribution margin remaining on a very strong upward trajectory.
We have gone from 27% of revenues a year ago to 43% of revenues now. This is ahead of our expectations, in terms of our execution. We have tripled our contribution margin from about INR 245 crore a year ago to INR 726 crore now. Like I mentioned, the key drivers for this is, number one, the significant improvement that we saw in net payment margin, but also the fact that financial services has grown from 6% of total revenue to 16% of total revenue, and financial services is higher margin business for us. Also commerce revenues have grown 34% on a quarter-on-quarter basis, which has resulted in contribution margin growing from 35% to 43%.
Our other costs, such as cash backs and incentives, and other direct costs, have remained broadly flat over this period. Finally, on EBITDA, strong performance this quarter. We have improved by INR 93 crore on a quarter-on-quarter basis. We are on the one hand focusing on cost rationalization, but we are going to continue to invest on growth just like we have done in the past quarter and in this quarter. Our increase in marketing spend will really stand out to you. That is almost entirely due to seasonal sponsorship spend, as a result of IPL. On employee costs, we did have a 10% quarter-on-quarter increase. That was because of, appraisals as well as select investments in our sales team as well as our technology team.
Our software cloud and data center expenses as well as other indirect expenses have declined as a percentage of our revenue. What we saw is that while contribution profit grew 35% quarter-on-quarter, our indirect expenses only grew 10% quarter-on-quarter. As a result of that, we have a 25% improvement in EBITDA losses and a INR 93 crore improvement. Our EBITDA losses now are 16% of revenue compared to 37% of revenue a year ago. That is a significant improvement of 21% from where we were a year ago. Finally, key trends in our business, just to summarize. Continued strong growth in users and merchants.
The government incentives have now made UPI P2M GMV profitable, and we actually believe that non-UPI GMV which is something that we started to disclose in December is not really a relevant metric to focus on going forward. Our loan disbursals while they have hit INR 24,000 crore run rate like Bhavesh mentioned has ample opportunity to increase penetration going forward. Our growing payments business is giving us significant engagement and monetization of merchants. Our contribution margin has gone up dramatically. We continue to invest in sales and technology, but we do believe that our indirect expenses will continue to reduce as a percentage of revenues. We are prioritizing payment services and lending in our resource allocation. That's all I had. With that, I'll hand it back to the moderator for Q&A.
Yeah. Madhur, you said a very key point about UPI GMV requirement or non-UPI, non-UPI GMV requirement. We want to reiterate that UPI merchant payment GMV is effectively started to become profitable on a line item basis. We believe that overall GMV that we announce is actually where the revenue will be accounted for. Obviously, it is not coming every quarter, it will come at a lump sum basis somewhere, so we would showcase that up. Back to you.
Thank you. We will now proceed to Q&A. If you wish to ask a question, kindly utilize the raise hand feature on your Zoom dashboard. We will unmute your line and take your question in the sequence of raised hands. A request to please limit to two questions per person given the Q&A queue currently and the scheduled time. A reminder to please have your first name, last name, followed by your company name in brackets visible at all times for us to be able to identify you and take your question. With that, the first question of the session is from Mr. Vijit Jain from Citi. Vijit, the line is unmuted.
Yeah. Thank you, Anuj. Congratulations for that great set of numbers. Some strong improvement in the contribution and adjusted EBITDA margin there. My question is on the payment processing charges, and clearly this quarter, a lot of the improvement is driven by your gross profits improving. What is it just the negotiations driving those payment processing charges down? Because even if I use a non-MDR GMV base, it does look like that number went down seven or eight basis points quarter-over-quarter. The second question related to payments is, when you say government is encouraging UPI monetization, are you referring to those lump sum payments that government makes only, or is there any, you know, anything around the convenience fee, platform fees, et cetera, that you're starting to charge on the consumer side?
Maybe I'll take the first one and hand over to Bhavesh or Vijay for the second one. Vijay, maybe obviously when you're looking at payment processing costs, there are a couple of different ways to look at it, whether it's revenue minus payment cost or as a percentage. If I could just point out that our absolute payment processing charges went down this quarter by about INR 80 crore from INR 774 crore to INR 694 crore. Maybe I'll use that.
Yeah.
To explain to be able to answer your question. I think there are probably three major factors there. One is, like you mentioned, negotiations with banks, to reduce the rates that we pay to them, whether it's for credit card or other instruments. The second is, like I mentioned, we did take out account rationalization for certain online merchants, who were negative impact for us effectively. So while we lost INR 29 crore of revenue, we were able to shed off slightly more than that, in terms of payment processing costs. The third, which is an ongoing trend, is that when customers add money using UPI to Paytm wallet and so on, it costs us less money.
UPI in that sense also helps us reduce the loading cost for one of the revenue generating instruments which is wallet. Those three factors would be sort of the primary factors why despite an increase in GMV of about 80-odd%, and despite increase in you know, MDR bearing GMV there as well, we were able to actually reduce in absolute terms our PG processing cost.
Vijay on the UPI question, last year the government came out with the mandate that they will reimburse the MDR applicable on P2M transactions on UPI and RuPay cards. This year they have further reinitiated that conversation by passing the budget that MeitY is going to further announce the amount. We believe the amount will minimum be the same amount that they did last year for the industry, if not more. That's the reason our belief on the fact that UPI P2M is now becoming technically an MDR-bearing GMV while the MDR is being subsidized by the government, it becomes highly profitable for Paytm, we being one of the primary people out there in the market on offline payments on P2M and also on online payments on P2M.
The second part of UPI is very interesting, which is the UPI is further monetized by us through our devices strategy. Soundbox basically makes the merchant become technically primary for Paytm. Not only do we make money through UPI P2M GMV, which is, as we said, we are getting some advantage from subsidy on MDR by the government, we also start getting far more take rate on the Soundbox because the GMV starts getting incrementally accreted to Paytm and we obviously make subsequent revenues and eventually the merchant lending book which get generated through this transactional history for our lending partners. To your other question about have we started to charge customers on a convenience fee, et cetera?
We were always charging customers for certain use cases on our platform convenience fee, which is like add money to wallet using credit card, which we've been doing for many quarters in the past. We've also started to now charge certain use cases, platform fee, where we believe Paytm provides significant advantage and value add to consumers in the form of bill reminders, assurance of payment happening to the bills in time, et cetera. We've not seen any inertia in consumers making that convenience fee or a platform fee to us. That has become a fairly decent revenue item for Paytm.
Correct. Thanks, Bhavesh. Thanks a lot. My next question is in general, you know, on recently the RBI obviously set the stage for introduction of credit cards on UPI, and in the same time we've seen some developments around restriction of credit line on prepaid cards. So your broader sense, you know, on what the regulator is thinking here. And a related question to that would be just the progress on the RBI IT audit for you guys. Thank you. I'll jump back into the queue after that.
See, the credit card being used, which is the NPCI credit RuPay credit card instrument on UPI rail is a welcome move. We think any development happening in this space, it expands the acceptance of credit instruments. It is always going to benefit the industry and all. At this point in time, it is too premature because the semantics are still being worked on. As they become more publicly available, one would be in a position to give you an opinion. We welcome this move because it expands the market. With regards to the PPI conversation, I think they're a bit interconnected, not very well interconnected.
That was an arbitrage which was being used by certain non-bank PPI issuers in loading credit limits on PPI instrument, which was very clearly called out that it is not allowed. What the regulator has done has removed any level of misinterpretation or grayness in the minds of operators by clearly calling out that you cannot create a prepaid instrument product as a credit instrument product for which you need a license. They've opened the licensing also to NBFCs in the same spirit. What was your other question? Sorry, Vijay, I missed that. You had another follow-up point that you had asked.
He wanted to know about RBI audit and on that.
Sorry about that. Yeah. The RBI audit is continuing. The auditors are currently in the process of conducting the audit. It is a time-bound process that we've mentioned in our last quarterly release also. We do believe that process is, as we understand from our Paytm Payments Bank colleagues, progressing in a good manner. Over a period of time we'll have more information to share, but currently the audit is progressing very well.
Thanks, Bhavesh. I'll jump back into the queue.
The next question is from Mr. Sachin Salgaonkar, Bank of America.
Hi. Thank you for the opportunity. Congratulations with a good set of numbers. A couple of questions from me. First question is on Soundbox. Madhur, quite a few media articles or, you know, rather advertisements by you guys is actually indicating that the Soundbox monthly rental has gone down to zero. Just wanted to understand now the monetization out here. Also we are seeing some competition pick up in the space with the likes of BharatPe and PhonePe, you know, entering the space. Your, you know, again, your thoughts out here.
I think I heard Bhavesh clear his throat. I'll let him answer this one.
Thanks, Madhur. Sachin, I just want to mention here is that Soundbox is an innovation that we're very proud of, which became important in the year 2020. As you can see the numbers, we've been market dominant in this space, and we do believe this is one of the innovations and products which has allowed us to monetize UPI GMV and further augmented by the credit GMV that this entire ecosystem produces and which we are able to work with the lenders to give loan distribution. Having said that, we've seen multiple attempts by various competitors in the market in the past to try and launch products in this space, albeit not very successfully.
We also in the same breath believe that this market is so large that we will see certain competition come our way and will obviously expand the market and we absolutely welcome that piece. Because we believe our product is very, very superior. It's a made in India product. We've been at this product for a very long period of time. It's a three-in-one Soundbox that we position in the market, which allows the merchant not only to get very competitive rentals, but also get access to our service network, which is very important in this space, and also get credit. Now, to your specific question with regards to competition, who's kind of launched and our belief or with regards to pricing. I think that pricing is more of a marketing thing that we keep doing.
At this point in time because of whatever competition sentiment is, that seems to have picked up in a manner where everybody's thinking that every Soundbox will become zero. That's not the case. A very, very small percentage of merchants are being given the offer from our perspective, because we want to value those merchants. This is something that we keep doing, we've been doing for the last many years and we'll continue doing in the future. We don't see any impact or any material impact, if I may say, on the subscription revenue of Soundbox. In fact, we would see a positive impact because the GMV that we generate through Soundbox will further go up. Our installation of Soundbox will further go up. The outcome, the derivative, which is merchant lending, will significantly go up.
We do believe this is only going to add to our bottom line, but won't have any dent to the bottom line.
Very clear, Bhavesh, out there. Second question is actually on the payment, you know, the core payment business. The implied take rate appear to have gone down in the quarter, and I heard earlier comment from Madhur about some account rationalization. Just wanted to understand, you know, maybe it's a quarter-over-quarter fluctuation, but wanted to understand what's happening out there.
Yeah. Sachin Salgaonkar, I think our online merchant rationalization, some of the merchants that we rationalized were higher take rate. That has some impact on it. There's, you know, some quarter-on-quarter fluctuation like you mentioned as well. Over time, we do think that the overall, you know, take rates may actually go down, right? What we focus on is basically net payment margin and making sure that all, nearly all of the GMV that we are doing should either be positive on net payment margin or it should have immediate upsell opportunities or both. That's sort of how we run our business. We don't really run our business on the basis of, you know, doing or not doing business just because it has certain take rates.
Because you can end up making some suboptimal decisions that way, right? In other words, if our take rate last quarter was 40 basis points, and we had some business that we could do profitably at 10 basis points, we would do it. If there's some business that we could do only unprofitably at 1% take rate, we would not do it. That's how we run our business. There's a focus on unit economics rather than take rates, right? If you notice, we don't really calculate take rate and present that, although investors can calculate it. The reason for that is we calculate and put out to investors the metrics that we think matter, and take rate is one that we actually don't calculate and put out there.
It makes sense, Madhur. Just small follow-up out here. You know, there is a phenomenal improvement in the net payments margin. You guys are now at 35%. Any thoughts on what could be the steady-state net payment margins?
We would continue to try to improve this number. Having said that, if there was business to do at slightly lower net payment margin, we would do that as well, right? Our threshold is that it should be positive on net payment margin. As long as it's positive on net payment margin, we should be attracted to that business, especially if it has upsell opportunity attached to it.
Directionally it may not go up going ahead, but it needs to be a net payment margin from your perspective.
Yeah. All business that we do should be net payment margin positive and or have upsell opportunities attached to it.
Great. Thank you.
Thank you.
Thank you. The next question is from Mr. Karan Danthi from BNP Paribas. Karan, line is unmuted.
Hi, Vijay, Madhur, Bhavesh. Thanks again for the opportunity and congrats on the great results. I had two questions. You know, the first was, because if you look at new divided by loan disbursal, looks like the take rate, if I look at it that way, is going up and it's stabilized, now turning up. I'd be curious as to whether that continues. Secondly, you know, on market share, all external indicators suggest that, you know, there has been a change, in the sense that, you've stabilized market share, visibly a year ago, at least within the payments MTU and, you know, sort of GMV, you know, whichever way you wanna look at it.
Could you maybe broaden up that sort of concept of market share in the merchant sort of Soundbox and sort of, you know, device business and then also the lending business? Is there some way to sort of think about how those market shares come out? Because theoretically, you know, given your closed loop system in your early investments, you should have a higher market share in those areas than you do just in the regular sort of GMV or MTU, you know, if you just look at it that way. I'm just curious what those numbers would be.
Bhavesh, do you wanna start?
Yeah.
Add to it.
Sure. Karan , just a small note. Mathematically, the INR 271 crore number divided obviously by the disbursal gives you a take rate. As we said in the commentary that while making the presentation, that all of that INR 271 crore is not lending. Disproportionate share of that is credit. Having said that, we do believe the take rate is kind of stabilized at the level that we currently see, which is operating maybe close to 4%-4.5%. We are now starting to get some bit of collection incentives, because we started to scale up the business materially same time last year, and that book has started to mature, and we started to get some collection incentive.
Going forward, I don't think that the incentives are the pay rates for credit are going to significantly improve while we could see a swing of 25-50 basis points on quarter-to-quarter basis, depending upon how the entire collection performance behaves.
Okay.
Yeah. Madhur, you wanna take the market share question or, this, the thing?
Yeah. I think, Kunal Vora, I'm not sure I fully followed the market share question, but it is the case that in UPI, we are stable or gaining market share. With respect to other instruments as well, in many of those instruments, we have very large market share. I think the focus is how do we help merchants to accept payments in every way that it matters, right? When a merchant is accepting payments from customers, our technologies, our instruments, and our solutions should try to add as much value in that process as possible. Whether the merchant is accepting payments using a QR code or a device, we should be there.
Whether the customer in that instance is paying using Paytm app or a third-party app to that merchant, we should be there as well. Obviously on our consumer app, we continue to see massive traction. So that's sort of our focus. But like you mentioned, if you look at the third-party data on UPI P2M, we are growing share, which is our focus. Like Vijay described, the entire pyramid was about P2M payments. On wallets and Paytm Postpaid and so on, we continue to do very, very well.
Karan , if your specific question was hinting toward devices, I think the Soundbox, while there is no public data available, but whatever is available, you can clearly see that we have disclosed that we are at three million plus Soundboxes and growing. And hence we do believe that that market is disproportionately towards Paytm. On the card machine side, there is some public data available which suggests that on incremental basis, we are taking a quarter of the market, if not more. There is no data available completely to suggest issuer by issuer devices on the card machine side, but I can just share with you on incremental basis, this is what is available.
Got it. Thank you. Can I just squeeze in one more? Is merchant retention improving?
Yeah. Merchant retention is definitely improving. So we look at the static cohorts of merchants. When we look at our base of the number of merchants that we have, 28 million, that number doesn't move by a few percent every quarter. We are seeing on our card machine side, merchant retention cohorts improving every quarter by about 1%. On Soundbox it's stable between 85%-86%.
Thank you.
Thank you. The next question is from Mr. Manish Adukia from Goldman Sachs.
Yes. Hi, good afternoon. Thank you so much for taking my questions. My first question is on the user growth. Clearly, in the quarter, you've called out the MTU growth has been very strong, and it doesn't look like the RBI ban on Paytm Payments Bank in the month of March has had any impact on user growth. When we look at the marketing spend, in particular the cashbacks and incentives, that seems to have gone up sharply as a percentage of sales on a quarter-on-quarter basis. Are you having to drive MTU growth or having to spend more on cashbacks and incentives to drive user growth, or is there some other dynamic at play here that I'm not questioning?
Yeah. Manish, those points are not quite related. Our marketing spend were like we mentioned earlier, purely seasonal because we are, as you may know, one of the sponsors for IPL. This year we also had a longer IPL, as you know. We had some spends related to that. Our cashback spends had partly to do with the comeback of our travel and entertainment ticketing businesses. While those businesses are massively contribution profitable, there is a small amount of cashback associated with that revenue because they're high margin businesses and, you know, we can fund a little bit of cashback and still make a lot of money on it. Those were the two primary driver.
We have not changed our CapEX in the last three or four quarters. In fact, the team is focused on directionally moving it downwards. No, we have not pushed harder just to try to hit an MTU number. We feel comfortable at certain CAC levels, and we look to continue to optimize that rather than sort of throw in additional CAC just because. I mean, we did not face any headwinds in consumer acquisition, but even if we had, we would not take that strategy.
Understood. Thank you so much, Madhur. My second question is on the commerce and cloud business. Of course, the commerce business has seen a pretty sharp growth quarter-on-quarter, but when I compare the growth to some of the other listed peers in the movie exhibition or travel space, looks like the growth was somewhat weaker than those peers. Even in the cloud business, while you did call out that, you know, consumer internet companies did spend less on advertisement, but the revenues actually dipped quarter-on-quarter despite potentially your credit card business having, you know, scaled up or been scaling up quite well in the last few months. Just trying to understand if you have any more color to add for this line of business.
Yeah. Commerce business is not entirely travel and entertainment. We do think we have very strong performance in travel and entertainment in flights, buses, trains and movie ticketing. I know for a fact that we gain share pretty much across the board in the reopen, if you will. I think we've done as well, if not better than industry or at an overall level. The commerce services business also has you know, sort of deals and gift vouchers and a few other businesses which may be sort of distorting your number a little bit. Those weren't as impacted in Q4 of last year. Maybe that's the sort of like-for-like comparison which might be different.
Credit card did grow, but it is a relatively small part of that overall INR 200 crores of revenue that we make per quarter, roughly INR 200 crores in the cloud business. I think advertising, like I said, was lower compared to previous quarter, which was the primary reason for the decline.
Thank you so much. I just have a very quick follow-up on one of the earlier questions on the payment processing cost. Now when you think about the payment processing cost, of course, a component of that is also paid to Paytm Payments Bank. One of you had also called out earlier that the savings is resulting from, you know, two or three different factors, of which, you know, just your negotiation with banks is one of them. Just trying to understand, is the savings broadly spread out across different banks? Could Paytm Payments Bank, let's say, be a disproportionate share of that or not?
It is not a disproportionate share. The savings is spread out across our bank partners because we take from Paytm Payments Bank, the Paytm wallet primarily. There's also net banking. From third parties we take things like credit card, debit card, net banking and so on. It is spread out quite well across the key payment acquirers and payment issuers in the country.
Thank you so much, and congrats again for a great set of numbers.
Thank you.
Thank you. The next question will be from Mr. Rahul Jain from Dolat Capital.
Yeah, hi. Am I audible?
Yeah.
Yeah. First of all, congratulations on very strong performance. Firstly, my question is, what could be the contribution from this introduction of platform fee on payments to consumer? I'm assuming this will be rolled out to all MTU over time. Can you give when we would see the ideal potential for this to play out?
Rahul, this is currently a very, very small percentage of revenue. Will we roll it out to the entire MTU? I can't comment on that at this stage in time. Our belief is wherever Paytm believes we are adding platform value to a use case, and we believe the customer would be willing to pay for the value that we bring to the customer, that use case, we shall price it appropriately. It's a process, which we will see as we build more value on the platform and how much price the customer is ready to pay for the platform. Yes, over a period of next couple of quarters, we do believe platform revenue or platform fee could become a reasonable portion of the consumer fee that we generate for ourselves, but not very large fee.
If you're thinking this could become INR a few hundred crore per quarter kind of a number. No, that it won't be. It will still be relatively small.
Got it. Secondly, there was this comment that in the EMI servicing and collection fee business, we do it even for the people who we are not distributing loans for. Are these loans for the same NBFC partner but not distributed by us, or these are also done by NBFCs for whom we don't distribute at all?
Rahul, it's both. The NBFCs that we work with currently surely understand that our ability to collect on the portfolio that we originate is very good, and hence they offer their portfolio also on a case-to-case basis. We also have independent players who leverage our platform for various elements of EMI servicing and collection for which we charge them a fee, and that is a part of the collection revenue that we're generating today. That number is currently small, but we obviously believe that number can become materially over a period of time.
What could be the ideal channel for this? Is it mostly outside the app or how we are efficient here?
Rahul, this is actually completely on the app. Our ability to have customer insight and overlay the customer insight for our lending partner, for them to reach more intelligently and more contextually to their borrowers through the Paytm app is a value that we provide. Overlaid on top of it through every other technology set, including multilingual bot calling, progressive dialers, et cetera, that we've built for our own collection stack, which we offer to these customers. We don't go out looking for doing collection for customers either in the harder buckets and/or for customers outside the Paytm app. Our entire pivoting point is to leverage the customer insights that we have on Paytm app and the technology stack that we build for our lending business.
Got it. Just last one, if I can squeeze in. Which is, you know, in this particular quarter, we see significant improvement in profitability despite the miss on the UPI incentive, plus there was a wage hike and there was this marketing spend which also bumped up in this quarter. Is it safer to assume if we maintain the kind of growth traction we have, we would see similar or even superior improvement in EBITDA in the subsequent quarter?
Yeah. Rahul, I don't wanna specifically talk about next quarter yet. Time will come to talk about that. I can say that I think that the business has significant tailwinds with respect to not just growth and revenue, but also in terms of profitability. We are seeing for some of the reasons that you mentioned, despite being fully invested in areas that matter, we have been able to achieve this EBITDA performance. That is what we'll continue to drive.
Yeah. Just one clarification on this INR 29 crore impact that we talked about in payment services to merchant. Is this fully baked in the quarter, or there was an exit impact which we'll feel in the coming quarter as well?
That's a good question. It is more or less a run rate impact. Not every single rationalization happened on April first, as you can imagine. It is more or less a full quarter impact. Rahul, did that answer your question?
Yes. Sorry, I missed the last 20 seconds. You said nothing, everything didn't happen in first April. I missed after that.
Yeah. All I said, it's more or less a full quarter impact.
Sure. Sure. Thank you so much.
Yeah.
That's it from us then.
Of course. My pleasure.
Thank you. The next question is from Mr. Saurabh Kumar from JP Morgan.
Hi. The first question, you know, is on financial services. Bhavesh, can you quantify what percentage incentive income, you know, percentage of the loans you would have indicated last year, what percentage of that loan have you started receiving as a incentive income in this quarter? And the second piece is, you know, can you also talk about what are the volumes you're indicating in the credit card business, and have you launched the EMI? That's the first piece.
You launched the EMI business, Saurabh, you asked, right?
Yeah.
Let me start with the third question. We have an EMI business, which is on Paytm Postpaid. But if your question is are we doing EMI like some of our contemporaries do in the market as et cetera, that product is currently in the build. We hope to launch sometime in this fiscal. We haven't launched it in full scale at this point in time. To your question before this on credit cards, we have not disclosed specific credit card numbers, but I can confidently tell you that that business is performing better than we expected, especially on the back of the recent partnership that we did with India's largest card issuer.
We are seeing massive momentum both on the new card issuance that we're doing, the spend per active card and the activation by itself on the overall issued portfolio. We're very bullish on that business that business will start adding material revenue and overall EBITDA profitability to our cloud business on quarter-on-quarter basis. To your first question on the incentives on collection portfolio, so we don't necessarily calculate the incentive on the last year book, what have we got and what have we not got.
Broadly, I can suggest to you is that what we see it is that let's say the last year book that we generated for personal loans or merchant loans, what was the loss expectation the lenders had and what is the actual loss on static pool basis that we have got for them this time, so that the difference is our incentive. That number is ranging better than we expected. If you're looking for a range, that number is between 100-200 basis points of the disbursed value of last year on these two products.
Okay, that's very clear. The second is, you know, it's on the contribution margin, so if you do some incremental contribution analysis, the incremental contribution seems to be around 50%. So will it be fair to say, Madhur, that as the year progresses, your revenue grows, there is upside to this margin? Or, are you guys happy at this 42.44% level? Because this was around the long term levels you had indicated, you know, at the time of IPO.
Yeah. There are opportunities for us to improve this, particularly because of mix. Even if net payment margins do not continue to improve from there are opportunities there as well. Even if you said net payment margins stay roughly at this level, can we improve contribution margin further? Yes, there are levers for us to do that. Particularly, you know, growth of financial services being the most obvious one, which is higher margin. You know, commerce business continuing to grow as well as recovery in advertising business. If we're able to do any or all of those three, we should see those as opportunities of potentially improving contribution margin.
Perhaps not as sharply as we have over the last 2.5 years, but could there be sort of gradual incremental improvements? Yes, we'll very much drive towards that.
Okay. Just one last question. On your staff cost, so from here on, we should expect a more moderation, right, in your indirect, especially the staff cost piece. Because I'm guessing most of the hiring would have rolled down and the wage hikes would have been rolled out.
Yeah, we did say last quarter that we don't expect significant headcount increases. I will say that, given how well the Soundbox business is performing or the devices business overall, I should say, is performing, if you know, if Bhavesh and the payments team wanted to, you know, do more in that area, and that meant that we had to you know, do a 5% or 10% or 15% increase in the sales team. As long as we're performing really well as a company and as long as the you know, Soundbox is as powerful a product as it is right now in terms of engagement and retention rates and so on, we would continue to invest, right?
Our objective is to be like profitable when we said and be profitable at scale. We are going to drive scale and investments, and these things sort of interplay with each other. If our revenue and contribution margins are doing really well, then we are going to continue to invest in areas where we are seeing that strong performance.
Thank you.
Thank you. The next question will be from Mr. Manish Shukla from Axis Capital.
Good evening, and thank you for the opportunity. First question, Bhavesh: What percentage of revenue from financial services would be credit?
We don't necessarily disclose that number, but you can say that it is disproportionately large.
It, Manish, it hovers between 70% and 80%.
Actually, Manish, if you notice, I, in my presentation, called out that our businesses of payment as a method to acquire customers and credit disbursement. If you notice, we are actively pursuing credit as a primary financial service. Madhur already told you that it is going to be more than both.
Sure. Thanks. The point where I was coming from is, as you said, you're analyzing INR 24,000 crore kind of disbursement number.
Yeah.
Over the next three years, it could scale up to maybe more than INR 40,000-INR 45,000 crores. How does the financial services take rate shift as you disburse more and more, right? How does that move?
Manish, our business is fairly simple. We get an upfront revenue, which is, I would say, 70%-80% of the take rate that we so desire for our product. That doesn't shift at all because the scale is not coming on the back of we expanding to more profitable cohorts. It is coming on the back of the fact that we are such a large MTU. It is needless to say that in spite of we delivering what we've delivered, postpaid is just 4% penetration to MTU, right? There is still 96% of the customers who haven't yet been touched on postpaid, and this number on personal loans and merchant loans is lower, less than 4%. There's a massive road ahead for us, so we don't have to deviate from earning upfront incentive.
The other piece is the collection incentive, which is contingent to portfolio performance. That could swing 50 basis points here and there. We don't see any material impact of the take rate that we are seeing today. My personal view is that it will only improve and not go down from where it stands today, just because our collection incentive will kick in on the back of very large business that we're doing this year into the next year.
Sure. As you scale this business up, do you see the necessity to increase the lending partnerships? Or do you think your existing partners have enough appetite to disburse the kind of run rate which you can potentially do?
We've talked about five lenders and three credit card issuers currently with our portfolio of companies. All of them are AAA large banks. They have a lot of balance sheet size and appetite to do so. But having said that, our belief is that we will continue to expand and adding more partners. You can look forward to seeing some announcements in this regard in this quarter and the next quarter.
Sure. Are you in a position to quantify the UPI P2M reimbursement that you got for FY 22?
The percentage number is anyway available publicly, how much the government announced as a number. As Vijay said, it is available, if you were to Google that on the MeitY. The number for this year hasn't been announced, but the last year number is available publicly.
Sure. Those were my questions. Thanks, Bhavesh.
Thank you.
Thank you. A quick time check. I will have time only for two more questions. The next question is from Mr. Kunal Shah from ICICI.
Yeah. Hi. Firstly, in terms of this entire negotiations with banks as well as, account rationalization with certain online merchants, so are we largely done through this or it is, maybe an ongoing exercise and we should see the benefit, flowing through? Where we would be in terms of the journey, with respect to the benefits that can kick in from here?
Kunal, it is an ongoing exercise. We had particular success this quarter, which is sort of ongoing in the sense that we didn't have a one-off this quarter. We had particular success on changing the rates with certain banks, if you will. You shouldn't expect that, you know, we'll be able to continuously drop the amount of payment processing costs that we have this quarter, like we dropped it in absolute terms by INR 80 crores. That shouldn't be the expectation. If, you know, the way I'll say it is that the net payment margins uplift that we are seeing, we should be able to continue to maintain that.
It is an ongoing thing because there's a, you know, banking alliance team within Paytm who constantly talks to banks about how we can work together and what win-win partnerships we can create. As a result, we continue to see sort of get better and better rates.
Sure. Besides that, also when we look at payment services to merchants, in fact, past three quarters, even if we have to add INR 29- odd crores of the impact, in fact, it's been pretty steady. It's not going up. Obviously we are seeing consumer services payment revenues are still up. This line segment is actually not improving a lot, on a quarter-on-quarter basis. Maybe either when we look at it in terms of the rollout of the devices, that's good, but maybe I think because of the lower revenues that would be kicking in from there. When should we see the momentum coming back with respect to this particular line item?
Yeah. I would just slightly disagree with that, Kunal, because if you look at where we were, for example, in Q2, right? The September quarter, this business had INR 400 crore of revenue. Currently, we have INR 557 crore of revenue, right? So there's clearly been a significant change from September 2021 to June 2022. Perhaps what you're referring to is that in December quarter we were already at INR 580-odd crore, but that was a seasonally strong quarter, right? As we all know, in festive season you get a huge amount of online and offline demand coming through. March quarter sort of wean that off because March quarter is obviously not festive. In this quarter, we had the account rationalization and no UPI incentive.
If you just look at it over a slightly longer period of time, and I'm taking September quarter, perhaps as a base, which was a pre-festive quarter, there has been, call it a 40% increase, in a three-quarter period, which we think is very substantial.
Sure. The base sets in maybe December. Just looking at the volumes which we are doing, still maybe because of the lower take rates, lower MDRs or maybe the lower subscription fee, would we see maybe the growth not significantly higher in Q3? I agree what you're talking about from say September to June, that's an improvement. As the base sets in, even though like volumes are there, are we sacrificing a bit in terms of the revenue pool?
I think there are a couple of things there. One is, we are seeing growth in GMV and underlying revenue base in this business. If we were to compare normalized, let's say Q3 versus Q3, I think we would see significant improvement just given the GMV and the underlying revenue trends that we have in the business. We will see significant growth. Like I mentioned, the one thing which is different starting this quarter is that we have done that account level rationalization. That amount of revenue you probably need to take out of the base. Other than that, we are seeing strong tailwinds in both the online and the offline business.
Sure. Okay. Yeah. Thanks and all the best. Yeah.
Thank you, Kunal.
Thank you, Kunal. Now the last question of the session is from Mr. Piran Engineer from CLSA.
Hi. Hi guys. Congrats on the quarter. Just want to harp a bit more on processing charges so that I get this pretty clear. Would you be able to disclose how much of it is paid to Paytm's Paytm Payments Bank?
I think that is publicly disclosed, and we'll perhaps point you to that. Effectively, we pay to Paytm Payments Bank for wallet and net banking alone, and we pay to all other banks for credit card, including for adding money to Paytm wallet.
No. I meant the quantum. Like, what percentage of your INR 700 crore quarterly charge would be to them?
I don't have that handy, Piran. If we have publicly disclosed it, then we will point you to that separately. If we haven't publicly disclosed it, then I wouldn't be able to do that.
I think I have calculated here. Paytm Payments Bank offers their customers wallet and net banking for which we pay them. If you notice, these prices and revenues could be somewhere in the related party disclosures, if not, specifically specified. Overall, if you notice the total amount of customer base that we would take payments processing for our merchants for, Paytm Payments Bank does not constitute even, I'd say, a substantial number across all bank total number of customers. It's a customer ratio, if you will, that should be applicable.
Okay. Okay, that makes sense. You know, I get your point that we've negotiated with banks and we've done some account rationalization, but this is the first time we're seeing like a 6-7 basis points reduction in payment processing charges. At 23 basis points, do you think it is sustainable? I know you don't look at it as basis points of GMV, but still if I were to nudge you towards that, would 23 basis points or so be sustainable?
Piran, more and more payment is gonna come from UPI and UPI MDR rates are publicly announced, and I could show you the MeitY website where UPI's MDR rate that government is going to give that is there. You can expect that to be 50%, 60%, 70% over the period. Looking at our business model with basis points based on net is not what we continue to repeat, and that is why one of the important factors I took time to explain was that merchants make revenue for us, but merchants don't make revenue only on MDR. The best way of looking at business of payments, if you look at Stripe, Adyen or some of those companies, you actually would look at total GMV and percentage of take rate, because that's the business driven primarily with that.
In India, because we all are in a market where we need to expand and we as Paytm and government and regulators, every one of us champions the disbursement of payment or distribution of payment group are invited. We all have clearly found out our India model where instead of GMV and bps, it is about kind of extra services, subscription services, MDR, instead of MDR, platform charges, et cetera, that we live by. I would say that model is extremely Western, not practically long-term applicable in India.
Based on the business that we are seeing it. What we can say is that our payments revenue and take rate will, overall, payments revenue and contribution instead of a payment GMV and take rate, we should look at is your payments revenue growing, what kind of contribution it is giving. That versus GMV, to be honest about it, we wanted to specify the UPI GMV, non-UPI GMV and GMV. These are good metrics of how consumer is behaving. As far as business is concerned, it is about what is the payments revenue you made, and if you notice, like Arun and I do again, in the slide I said, this is how we make payments revenue and what is the take rate or contribution margin on that.
That's the better way because GMV-based growth will be dramatically higher over the chargeable or the basis points that are chargeable because Government of India, when it is paying, is not going to pay 26 basis points any which ways.
Yeah. No, I get that.
Piran, I think, obviously I agree with everything that Vijay said, but I think on your question of 23 basis points and so on, what I would say is that there are no one-offs in there, right?
Okay.
should not feel like, hey, the 30 basis points came down to 23 basis points because of something that happened only in this quarter and will not happen in the future. So there's no such thing.
Okay.
This is a structural shift or the structural opportunities that we saw to go and reduce some of our processing costs and obviously we took those opportunities. Going forward, this number, which is purely an output number and not something that we focus on controlling or optimizing, will depend on payment instruments, right? If I could do tons of more credit card business, and even if it costs me more in terms of payment processing costs, but makes me that margin, I'd do it. If I could do tons of UPI business where I would get some money from government and, it won't cost me anything on payment gateway costs, I would do that as well. As a result, we don't go out and try to drive specific instrument mix.
What we try to do is offer all types of payment solutions to our consumers and merchants, and then they decide, and then we choose to do business which is profitable.
No, no, Madhur, I get that. What I'm trying to really think is that, if you all have negotiated, say, three, four basis points lower with banks, what are the margins that banks make that they can afford to give you all three, four basis points more leeway?
Piran, let me answer that question to you differently.
Okay.
See, what is happening at a systemic level is that the networks which drive credit card usage, so the charge is credit card predominantly. Everything else, as you can imagine, is either free or fixed. Systemically, two things have started to happen over the last quarter, and this quarter it was more amplified, that even the networks, be it Visa or Mastercard, are generating more schemes for issuers to charge lower interchange. So if there was a merchant category code which was operating at INR 125-INR 150, they've introduced schemes in which they're saying, "We would like smaller merchants who accept credit cards. We would like them to be given an interchange which is much, much lower." Automatically the rate drops.
They're also trying to fight this particular battle which is moving to more low charge instruments and protecting their instrument and hence the overall systemic charge is coming down. It's just not about the negotiation. It is also the instrument charges per se when networks are also coming down.
Oh, okay. Got it. Okay.
Hence there is enough profit pool on volume which is available, and Paytm arguably being the largest credit card processor in the country between online, offline and on-app payments, is able to command that negotiated price, better MCC price and overall incentive, leading to this reduction that you're seeing, which will be sequentially reduced for a period of time is what Madhur is trying to say.
Got it. If I swipe my credit card and pay on Uber and you all are the payment gateway, the interchange that you all pay to the credit card issuer is also part of this payment processing cost?
Yeah. Yeah. You're paying MDR because it depends upon if I'm the acquirer or I'm the issuer. There is an overall cost of the card processing itself is going down for many, many use cases, like utilities, like small merchants, et cetera. The overall processing cost is going down by the network. As a percentage, if I was paying earlier 1.75% MDR, that itself has come down to, let's say, 1%. On percentage basis, it's looking much, much low.
Yeah. Piran, what you said is exactly right. That if you in your example. We have a price with Uber, and then we negotiate price with banks. The price that we negotiate with banks is called MDR, not interchange.
Got it. Okay, that makes sense. Bhavesh, just a clarification from what you'd said earlier. This discounted rates on Soundboxes, given that your competitors have launched it at cheap prices and you all will also have to sort of be somewhat in line with the market. This will only be for incremental merchants or these three million merchants who've been already given Soundboxes and they were charged INR 125 earlier, maybe you all reduce it to INR 50 or INR 75 to be competitive. How should we think about like, you know, incremental merchants being given discounted rates versus existing merchants also being given discounted rates?
See, Piran, I just want to clarify. That's a part of our sales strategy, and I don't want to talk more about it who should be given. I can tell you that if 100 merchants are there in our portfolio, this cohort of merchant who may not end up paying me a rental will be a very, very small percentage of customers, and link it to certain other behavior, plus link it to their potential to take merchant credit. It's a very thoughtful strategy, not linked to what market is doing today. We continue to do. This time we have obviously gone and advertised, so obviously the public will know. It does not change materially our rental per device that we're generating in Soundbox today or in the future.
Got it. Okay, that answers my question. Thank you, and all the best.
Thank you.
Thank you. With that, we come to an end of the Q&A session. The presentation discussed by the management today, a recording of this call and the transcript will be made available on the company website. For some of the questions we couldn't take, and for any follow-up queries, please email those to the company at ir@paytm.com. Thank you for joining the call. On behalf of management team, I wanna thank everyone for all your time and attention and engagement. We really appreciate it.
Thank you so much, everyone.
Thank you, everyone.