One97 Communications Limited (PAYTM.NS) Q3 FY2026 Earnings Call Transcript & Summary

Thank you and welcome to Paytm's earnings call to discuss our financial results for the quarter ending December 31, 2025. We will start our call with Q&A after introduction to the management. From Paytm's management, we have with us Mr. Vijay Shekhar Sharma, Founder and CEO; Mr. Madhur Deora, President and Group CFO; and Mr. Anuj Mittal, SVP, Investor Relations. A few standard announcements before we begin. The information to be presented and discussed here should not be recorded to reproduced or distributed in any manner. Some statements made today may be forward-looking in nature. Actual events may differ materially from those anticipated in such forward-looking statements. Finally, this earnings call is scheduled for 45 million. A replay of this earnings call and transcript will be made available on the company's website subsequently. Over to you, Vijay.

Good morning, everyone. It is really likely to see each of you locked in so early. It was a very tough decision for us to take a decision whether we want to do it so early before market yesterday or tomorrow, and I think the elephant in the room, Paytm sort of making sure that you get to read it much before the market opens. So we tried this idea [indiscernible]. For other side of the world, people who logged in, in this thank you for logging in an early hours of India. And as you see, it's been a year plus since we have decided that we'll head down and execute on our core business principles, core business, which is payments and financial services. And we continue to dominate the merchant ecosystem. We continue to -- and we now have started to build on consumers. And like I had promised earlier that we want show money on consumers, other we will show technology and product on consumer. I mean, for many reasons, our numbers are what numbers as like not in the reference of the market share, I'm quoting here. But at the same point of time, the capability of our product and technology can be evidently seen that we're growing -- outgrowing the competition of the market out there in the game. So this kind of attention will bring our consumer market share forward. I'll take reference of time in users to make in India initiative. It used to be thought that one point in time that make in India, manufacturing in India, how will it happen? And as we can see on able trimesters initiative today is like [indiscernible] of India that we see so much of manufacturing in India. That's exactly how I would look at UPI consumer business for us. It may be like, oh, my God, you're hiring somebody so large market share, but I think it's a great product that will in the market, not the dominance of certain reasons that has happened. So with that attitude and opening that we believe that consumer is our market to win and merchant is our market which we are winning. Here we are, and I look to answer the questions. And we also have started detailing lots of data, as you are aware. While we do see that revenue and profit momentum is growing, you have to remember that the business is still in early phase, very early phase. The customer acquisition is still the game in the market and the monetization is the primary game that long term becomes. So with the commitment to build a long-term free cash generation machine inside our payments and transfer business and expanding that to next TAM of, here we are. Good morning.

[Operator Instructions]

Yes. And I think as you're seeing that we're doing a video call and coming of you who wants to switch on with you or not, that's welcome. I understand it's early so we may have most audios this time. Thank you. And we'll continue with this stand by just in case.

We will take the first question from Mr. Manish Adukia from Goldman Sachs, followed by Sachin from Bank of America.

Sorry, I was just trying to join again. Vijay Madhur, good morning. Great to see you. Thank you so much for doing the call just the first question is on Vijay, what you mentioned in the opening remarks, the PIDF. So a couple of sub-questions there. One, in the shareholder letter, you talked about the fact that you should be able to meaningfully offset the impact over a period of time. But at the same time, you also talk about contribution margin going from like 57% now to mid-50s as a result of the PIDF impact. I'm just trying to reconcile the 2 statements that if you're able to offset the impact, then why should there be a contribution margin impact at all? And second, if you can just talk about also the offsets and how long could it come -- or could it take for the offsets to come? That's my first question.

First and Foremost, I would talk about what the PIDF core was built. I mean, we all, as an industry, love that when it has been done because the extension of payment to the interline of India was tougher, especially when you were adding a subscription on a costly device to the element. And that is when the payment development fund was generated and created and the sound box were added to this element. Typically, it existed ever since it had POS devices, the card devices. And I'm very happy to tell you that we are talking 2026 now, everywhere in the country, the use case of mobile segment is evident and clear. Even if the shopkeeper is out there, that person will take care and pay for the subscription. The value prof has been acknowledged. The keyword is value prop is being acknowledged. Does the industry need PIDF? Well, as an industry, we are welcoming every initiative that government or any other entities looking to give us. But the simple time, our business model is not based on this. That's the [indiscernible]. We are not sitting here to take ground. We are not sitting here to take grants as our profit and revenue. That's it. Now that means that we will offset, no, just give us the opportunity to go into the line item of businesses, which was -- so well, without PIDF initiative, our revenue comes from the merchant-based subscriptions and merchants who take credit. And PIDF surprisingly was not creditworthy merchant, if you will. So it was very -- it was as you can see, we were deploying where we were ready to deploy, and we were getting the revenue from certain set of merchants that we were able to convert them into credit worthy mate. So if you see, we were not the top deployer while we were the top machine player in the industry, and it was because we never looked at it as a revenue line item. We'd rather look at it as let's look at it extending the reach towards Tier 3, Tier 4, Tier 5, Tier 6 and the places where we would have not leased. Our model is perfect now. I'm very happy to say we now are ready to tell you that we will offset it from the moment the subscription that we earn from them. So there is subscriptions that we earn from them cross-sell of [indiscernible] that we will do in now on lands, and that's perfect. And that is why we believe that we will not require PIDF in our business model, at least not in our business model. We are not in device deployment, rental device as a business model. The CapEx is a fairly new model. We are strictly about payment and financial services, and that exists sacroscant and expense. So now why you talk on mid-50. Well, like this time to be that we have always been conservative on the numbers, and we've always we believe that it is rather better to say. And then we take another.

But I can just answer a couple of other things, Manish. So my expectation is that, obviously, the work started immediately, and we were ready to recalibrate what we have said, higher subscription revenues and more targeted sales efforts. Our expectation is at least 30%, 40% of this will offset this quarter and more over time. The work take said is starting immediately. And the great thing about behind the scenes, what Vijay is saying, and we have talked about this a little bit previously, is that a lot of a huge amount of our sales planning now is AI-based, and it is extremely intelligent, right? And so for us to recalibrate certain efforts and measure payback periods is much more advanced than it was maybe 1.5 years or 2 years ago. So these kinds of projects, I think we can handle in a very disciplined manner. Why CM down? That is we have put that out at the worst case situation. There's also a bit of a sort of reporting issue here, which is that if it is -- if the impact is offset by higher subscription revenue, then the CM will be high. It's the same as before. If it is more because of more targeted sales efforts, then CM may go down, the people costs might go down as well, right? So on EBITDA level, we have said significantly offset but at the present time, we don't know exactly how much of that offset would come from higher subscription revenue versus more targeted sales effort, and that may or may not have an impact on CM.

Very clear. My second set of question was just on launch of products. So one, I know on the shareholder letter, you mentioned a line about strong traction of the buy now, pay later product. But again, just where are you in your journey? And I think last time around, it used to account for more than half of your disbursals before you had pulled that product back. So where are you on your journey to get there? And also, if you can maybe remind me where we are on wallet potential relaunch if any to happen sometime this year?

So Manish, yesterday, we were discussing, should we start disclosing credit disbursement numbers, the number of cores that you disposed in consumer or business or merchant. One thing that's because you read it so nuancing, you will notice that we have added buy now, pay later as a part of our consumer credit plan. And that means that we believe this is a foundational plan. And happy to tell you that we are crossing hundreds of crores of monthly disbursement on this literally and less 6 months of launch. And we are talking about 6-digit customers who are using it. But I think I've learned only one thing that incoming matrices are useful with very clear modeling that you can say. So a number of customers, if you notice, our financial services will increase and the average value per customer will increase, which is what you will continue to see over the pilot. So that is where the numbers are. And wallet-wise, as a promise, I would rather say -- as a promise, we will bring the wallet back home.

We just want to clarify the numbers that Vijay mentioned. It's been 3 months since launch. We have crossed 1 lakh customers. And within 6 months of launch, we expect to cross 100 crores of this person. So that's the kind of early trajectory. Of course, it's much faster than the first time we had launched postpaid. So we're quite pleased with that. And on wallet, like we have said, we are going to bring the work back. We do think that just to manage expectations because in the conference meetings and so on, we get a lot of questions on this. We have talked about wallet profitability being INR 500 crores when in January 24. We don't think the product is [indiscernible] in the industry going forward, right? So we want to bring in for consumer completeness because the consumer should have an option. [indiscernible] consumers should have options as many options as we could come up with. So postpaid is an option. Wallet is an option. But one shouldn't think of wallet is being as sticky as relevant as important today as it was 3 years.

And Manish, the thing is postpaid customers are payment customers. So they are not added in FS customers.

Just last question maybe for Madhur. So I think early on when the RB impact had come through, and you just started recovering from that. At one point, you had called out what you believe is the likely growth scenario for the business, which I think you said more than 30% revenue growth back then with 15%, 20% EBITDA margin over a period of time. We are now made 4 to 6 quarters past that. Now if you were to just relook at the business today from current levels in 2026, if you were to take a 2- to 3-year view, what do you think is a realistic revenue growth that the business can deliver and where do you think the margins can get toward the 2 year period? That's my last question.

I think that outlook is more or less intact. I think we are as excited about the opportunity in India today as we were 2 or 3 years ago. The more we do, the more opportunities we find. So we think on devices growth with or without PIDF, that business is robust. There have been positive surprises, for example, on UPI, which has solidified our payments processing margin and made the payments business more viable for us, especially on the merchant side, our merchant loan business is fantastic. We have also mentioned that we had a 25% growth on a like-for-like basis, which you can take it for what it's worth. Obviously, the reported number is 20%, but it's important for us to put that out there, especially as we're doing planning for next year. And this is just a year in which certain businesses did not quite do on our expectations. So consumer credit cycle continue for a bit longer than we thought, which affected personal loans and credit cards. We have been quite transparent about the fact that the marketing services we were -- it's been flattish over the last 3, 4 quarters. There's more work to do. So as we get some of those things going, Paytm money is also showing good signs. As we get all of those things going, I'm very positive that we should be able to accelerate growth and the EBITDA margin outlook is intact, and we are actually heading towards that quarter-on-quarter. As you can see, we have a ton of operating leverage.

Manish, I think I'll also add 1 last slide that we have more short than ever because of focus on the core business model that we have had. Earlier we were not sure of whether it is scalable free cash and letting business model or not. So that is why there were a few more line items, and those line items have been pruned. So I'm going to say that, well, this is the core of course.

We will take the next question from Sachin Salgaonkar followed by Pranav Gundlapalle unaware from Bernstein.

I have three questions. First is just following up on the incremental levers for growth. And one way to think about it is, clearly, there is a lot of confidence in the merchant lending, Soundbox, UPI in terms of what you guys have achieved your shareholder letter did mention that you have now all 3 payment licenses. So on the back of it, should we expect acceleration of merchant and consumer onboarding and as a follow-up to one of the earlier questions, is it today at intellection point where going ahead, we should continue to see that growth. And also on those lands equity brokering, are we, again, at that point where we could see more disclosures from you guys as this business scales up?

Yes. Yes. So upside is very clear, get more merchants and thanks to the focus. As I've said, there is a huge amount of upside left in online merchants that I want to tell you that we've started doing it. You may have noticed that I've become the CEO of the PPSL company. So online business will start generating more upside in payments and financial uses. In fact, I want to put it on the table that online business has halved in because of platform fees and many others, EMI, et cetera, initiatives and card, et cetera, initiatives that we do with merchants of more monetization on payments. So number one, I think we have literally added a new line item of business, which will be materially sizable because that business since 2021 was paused practically. I mean it's an important thing to note that payment business will get good because of permission and the structure that we are doing. So we are recruiting in that. People see more recruitment of sales executive for our enterprise sales. And we are -- because we are standing offline, we would think it in online. Now we can acquire both in the same entity as an omnichannel product. So number one. Number two is that you know that our device-led offline merchant businesses phenomenally better than anybody else. Now that everybody's numbers are out in the market, I can more or less say that every place of our business model is a proof of our business model and acknowledgment, and we've done better than anybody else that is shown there. So now we have doubled the confidence of dominating more number of merchants and more cross-sell or finance courses on them. So that is the core business remit. Like you very well pointed out, there is an upside in buy now, pay later within postpaid. And inflection point, I think I'll wait for the time period, let's say, 6 months happens all because of that I want to make it sizable. And then I want to -- we want to move towards credit business, which is led by that because there is a nuance of led by payment and adding to the payment in this. And we are now we don't think that oleo this business. For example, like we used to distribute credit cards, and we just stopped that business because I look like it does not add to anything. Just because you have a preset, you can try doing it as a not a business model. Let's say that what do you do which grows your moat and protects the moat and expands the mode instead of just because you are, and that is how the optimization of cost also has been happening. If you notice, I mean, I stated every quarter our cost optimization is continuing and there was a question I remember a couple of quarters back. How long will it continue? Like this is a continuous thing. I'm further tuning further tooling optimizing for what is called core moat, expanding this, protecting it and monetizing it. So yes, buy now pay later is one moat. And Paytm Money, let me say this. I mean when we launched Paytm Money, it was a top SIP producer in the country. We got defocused. We went through IPO. We went through many other processes. And we want to make Paytm Money top 5 players in less than the next 3 years. And let's see what banking it hits that. So it will be material. Yes, you've seen the yes. First we started to play offense by putting MTA benchmark in the market. And this is because we have booked, we have capabilities. We can do it. And so these 2 line items -- so you can say buy now, pay later, you can say Paytm Money. We have certain other wealth products. They've done phenomenally well. And expanding this year, we will also expand more kind of merchant credit because we are now getting online merchants, large type of merchants. So I mean, what to your question that Madhur was answering a few minutes back that we're more sure than ever of higher growth and higher margin. And I think like I've said it, we don't want to focus on any amenity metrics whatsoever. We've reduced them all to focus only on how our revenue growth and bottom line growth and free cash flow goes up. That's it.

Just to finish Sachin, over the legal entity did to disclose financials, and there's a whole bunch of industry information available on new transacting users and so on. I think my sense is that we have started sort of sharing more information as if it becomes sort of high single digit type of revenue for us overall. Currently, it's sort of in the low to mid-single digits. So we'll just wait maybe a few more quarters.

My second question is, we did see increase in promotional expense this quarter. The question out here is, should we continue to see spend increasing out here? And if so, will it be more towards a consumer retention or towards a market share gain?

Market share again. I would just add that I think consumer retention and market share gain, we see that as completely overlapping because the focus is on high-quality users and building retention, which then gives us market share gain. So it is not about let's go and double that. That is not the focus. The focus because you could dilute quality on the platform dramatically and that affects your ROI and retention rates and so on. So yes, like we just said, it's a market share gain, but it's driven by making sure we have high-quality users, high quality of engagement and that being the path to market share gains.

Got it. And should we expect the 3Q numbers to be the new normal or there is room to further increase from these levels as well?

Increase what cost or...

Promotional expense, the promotion expense.

All right. All right. No, no. I've said it. I'd rather build a product-led technology-led product instead of marketing or marketing spend that product. So we were bare minimum, and we had told about it in the previous quarter. If you remember, we would do it calibrated. So I think this could be more normal less the trend.

Okay. the third question is on PIDF, and thanks for clarifying the impact on contribution margin. But from a very near-term point of view, I wanted to understand the impact on EBITDA also. In the sense, a slightly lower contribution margin, should it trickle down and have an impact on EBITDA? Or because you guys are controlling your indirect costs, there should not be too much of an impact on EBITDA even in the near term before any offsetting impact comes?

Let's just park contribution margin as a walk from PIDF revenue to EBITDA. What we have said is we should be able to significantly offset this and in response to Manish's question, I said this quarter alone, we should be able to offset at least 30%, 40% of it. So last quarter, this number was INR 8 crores, we should be able to offset 30%, 40% of it, but the remaining impact for the 60% will be on EBITDA. So yes, in the very short term, we will take an EBITDA impact in Q4. But over time, we'll be able to recover more offset more of this.

Yes. Sachin, these merchants actually now that our cross-sell monetization machine is better than ever before, and we've been focused on monetizable merchant. So we here also focus on those. So the monetization from these merchants will start trickling in. So it was more like a little bit of subbasin of CapEx, if you will. But now if you're talking about this, monetization is absolutely the way ahead for us. We did not try acquiring everybody in the loans. We rather acquire the good quality, good people who we thought we could extend paid distribution or any other product.

Got it. And last question, I wanted a clarification or more details on that. Your shareholder letter mentioned you have adopted a more conservative revenue recognition policy in the past few quarters. Can you elaborate on that?

Yes. So there's been a few different dates, but I think the one example I can perhaps give is that a merchant who has taken the device from us when they pick up in active in a certain month, a large percentage of them do get reactivated. So we had a certain policy with respect to what percentage of it we would kind of offer how long we would recognize revenue for an inactive merchant. And of course, it's very inactive after a certain period of time, we would take that basis of recognizing revenue. We have tightened that. And as a result of that policy, we would get some provisions for doubtful debt, right? Because some of that revenue, you're not able to collect. So what we did was we said we would be much tighter about merchant if they've been inactive for more than 30 days, will stop recognizing revenue from them, which like you have seen, has a huge impact on PIDF. So at the EBITDA level it is neutral. We think it's much cleaner reporting it's much more transparent reporting. So that's the largest example.

We will take the next question from Pranav Gundlapalle followed by Sachin Dixit from JM Financial.

We just request people to limit themselves to 2 or 3 questions but not too many sub questions either, if you don't mind.

No. I think this quarter is something which people want to know and I think we're really making us available the more.

[indiscernible] expect.

I'm okay to extend the call by we can end the call later. Yes. Thank you.

Just a couple of questions. So one is, could you just shed some light on I know we talked about costs in the earlier questions. What are the moving parts there? We've seen almost a flat cost line for almost about 4 or 5 quarters. So one, what's really happening in the background? And second is if it doesn't go up, when do we start getting writer investment. So that's the first question. And the second one is more on the registered merchants. You do share that number. Would you be able to share some color on how many of them are active? And how is that growth playing out? Because the registered merchants are growing at about 12%, whereas your device is obviously are growing a lot faster. So in between, where you have the active merchants, how is that about shaping up. that's the those would be my questions.

The first question on investment is rather we are sometimes Madhur will say, are you sure you want to overinvest like this because he wants to keep a disciplined eye on it and which is very good. And I can say that the only thing that you saw is that consumer investment, we started doing it. I mean this is because we believe that we have a monetization capability. I mean the puzzle in the consumer is how we monetize advertising is not monetization. You have a traffic. Everybody got. How can traffic be justified on anything else. So I'm happy to say that we have -- once we've learned how to monetize, we are expanding, and that is how our business is. And in the merchant side, you keep seeing actually one of the discussions Madhur doing in my monthly business or that our sales people cost is skyrocketing. I mean if you see year-on-year or anything, and I said, Madhur, let's just double down on that. I mean why would we not? And then we discussed how can AI optimize that line item by the way. I mean this is I want to tell you is [indiscernible] through the team that is doing this job, it is excelling confidence of per dollar incremental investment, how much of bottom line we'll get. I mean it is more than ever, and it will become [indiscernible] ever I was the so there is investment surprisingly. And the good thing is that I'm [indiscernible] that would continuously. That project will continue. So there -- the relocation happening within the cost. It is not that we are not investing in the future. We are rather investing in the future and removing what we don't want to carry forward. That's what it is.

I just maybe add a couple of things. On marketing and sales, our mindset is we should invest as much as possible that we can do with high discipline, right? So you will see that our sales employee cost this quarter is actually all-time high. So we are not underinvesting. We do think in parallel, we are constantly working like we are seeing on productivity. So for example, we took -- we reduced our marketing expense somewhat because Vijay was not convinced that it is as productive as it can be, and it's not as product led. So we took a pause there for a few quarters, and so we'll fix the product for us, and then we're going to spend more on marketing. On sales, we are doing it in parallel. So we're perfectly happy to invest more in sales even next quarter, but we're going to do it productivity -- but productively subject to PIDF targeted sales efforts, et cetera, that we have said. On other things, which are not marketing non-sales AI has held tremendously. There are certain places where we have had better commercial negotiations, given that's an ongoing exercise. And of course, at other internet expenses we have called out is positively impacted due to be. So we feel actually very happy with the cost structure we have that we are not underinvesting. We are doing it the right way, and we're focusing on productivity. On registered merchants, just to clarify, Pranav, we have a number of registered merchants, which have disclosed at the back of the document, it is 4.8 crores. Ignore that completely. We don't -- we never talk about that in the front of the document. That is a SEBI obligation that we carry. So that's there. So I'm just telling you that, that's not the number that we use for our operations. We do talk about subscription merchants. These are merchants that actually have a device from us, right? That is INR 1.44 crores. We see that as the proxy for our top of the funnel. I don't think we are going to start adding more KPIs of top of the funnel KPIs just because others are doing it and so on because our focus is that's the deployed base that's focused on revenue and profitability, right, and not adjusted revenue and profitability, if I may add. So -- and we're just sort of going to drive that going forward.

Understood. And just one follow-up there. What percent of your GMV would be coming through these device merchants of your entire?

I mean significantly more than the majority. I mean the Q1 merchants are practically nearly I mean my internal funnel device deployment is churn other comp. It is not QR. We used to do it and we used to deploy QR and upgrade them to sound. Now we're like, okay, the bad devices out there, let's turn them into us.

In the offline world, vast, vast majority. Obviously, there's online GMV as well, there's Paytm app GMV as well. But in the offline world, vast, vast majority comes from Soundboxes and card.

Okay. Would it be fair to say like maybe 75%, 80% of your offline GMV from merchants who have devices install?

Actually, nearly all. Merchants.

Are negligible.

Negligible. So that's why we started to index only on the merchant who we can charge the money. Look, Pranav, it's easy to give any KPI whatsoever. For example, like I can deploy a device. And if it is for free, well, you can say whatever about it. I mean monetizable, capable merchants, and that's why we call it subscription, if you notice. We don't call it the device merchant, deployed device, blah, blah, blah. It's only material number that we showcase. And I'm sure you add this to that.

We will take the next question from Sachin Dixit from JM Financial, followed by Jayant from Axis Capital.

So quickly on the payment business, right? So you have highlighted in your letter that there was a 4 basis points plus payment processing margin in this quarter. If we can probably break down some color on this and if there is any guidance on because this used to be 3 to 4 basis points earlier, if there is more trending upwards of this 4 basis points margin.

We're exceeding that consistently. Some of the instrument mix is helping. Last quarter, there was a lot of questions whether this was EMI driven. No, this is -- that's obviously a part of it or festive driven. That's always a part of it, but it is not the major driver. We're not guiding to higher numbers right now. We want to see just market discipline continue and the trend of things like on UPI, et cetera, continue and positive mix. But we feel pretty confident that it will stay above 4 basis points for the next few quarters.

Understood. On the marketing services side, obviously, we have seen some bottom out happening. The numbers have improved on a Q-o-Q basis slightly. On this thing, we are also investing to -- on our own marketing spend on consumer retention, trying to focus more on the app side. Do you have any visibility there, right, if we can see a slightly improved growth trajectory going ahead? Or the business still continues to be in a wait-and-watch mode?

I think we will continue to see growth in this business, but it is fair to say that underlying -- and this is 4 or 5 different things together, which are sort of exposed to market conditions, right? So we did have a very, very small business advertising for real money gaming, which went away in Q2. It is about 1% of our total revenue. So much, much smaller than other numbers that you may have heard. So that was sort of a headwind. Obviously, travel business has had a few pickups most of last year. So there are a few market conditions type of things that do affect this business, but we are -- we did see bottoming out last quarter, and we could see that has bottomed out, which is why we called it out in the last quarter. And we do think that this business should continue to grow from here.

Got it. One last question, if I can squeeze in. One of your listed peers talked about watching out for MDR on organized merchants in the budget. Do you have any views on that if there is any UPI MDR sort of potential appearing to you?

It's 2 days away. So let's wait now.

We will take next question from Jayant, followed by Kiran from CLSA.

So the first one is on payments. So I presume the net payment margins are holding very strong at 4 plus for the next foreseeable future. So that is leading to an implied device yield of INR 60, if I'm not wrong, of PIDF. So now if Madhur you're saying you can recoup 30%, 40%, do we assume this INR 60 moves to INR 65 immediately in this quarter? Or you're talking about sales efforts plus cost efforts leading to that 30% of sales?

Yes. So Jayant, it's hard to sort of boil it down to only subscription revenue because like I said earlier, our model, AI-led model targets better payback period. Now the better payback can come because the subscription revenue is slightly higher or because the sales effort is slightly lower or because the merchant is transacting more, the merchant is more lending propensity merchant, et cetera, et cetera, right? So it targets a whole bunch of different efforts, which give us the ROI, right? So having evolved to that state, we are not going to override it by just saying, hey, let's just add more subscription to everyone. So it's hard to then boil it down to, hey, is it going to be INR 60 going to INR 65 a subscription. And my sense is in certain places, we are going to see that years of investment have changed behavior to a point that merchant is actually okay to pay a little bit more, right? Whereas in other areas, we may find that the merchant is quite engaged. And as a result, there's more lending propensity in that area. So it's a combination of these things. But I think it's fair to say that subscription revenue on a blended basis will offset some of the PIDF reduction.

And regulation-wise, you didn't have any prohibition on collecting subscription from PIDF merchants, right?

No, no. It was a CapEx subsidization.

Some of them may be actually already paying. So...

You got it. Some of them do pay, but they do pay lower than our model would suggest, let's just charge them a bit lower than what another merchant would pay, similar merchant might pay in another area...

Great. And that gives you some confidence that at least some cohorts can be moved up and offset on the.

Exactly. Yes.

The second piece is on lending. I mean, in financial services, I believe the non-DLG mix is moving up, right? So that would have caused a downward pressure on absolute revenue growth in that line. And still we are seeing very strong growth. So is it MTF or is it more disbursements? Which of the 2 is really driving up that strong growth?

MTF is not in our credit revenue, by the way, -- it's in financial services, but we don't treat it in line.

Exactly. So DLG mix has gone down year-on-year. DLG mix has been broadly stable quarter-on-quarter. So just to clarify that. And we have seen that trend for the last 3 quarters. The vast majority of the revenue increase that you're seeing is because of, a, growth in disbursements on the merchant lending side, personal loan continues to be -- consumer loans continues to be challenged. And secondly, very good efforts by our collections team, which is resulting in good outcomes for our lenders, which also gives us more revenue. So it's been a combination of those 2. And that has probably been the trend for merchant lending for 7, 8 quarters in a row now. So we are quite happy with the way that business is compounding.

And if I'm correct, this comes in the base in the next quarter, the mix change, that means from next year onwards, optically, the growth should start looking better on financial services.

Logically, yes. But I think on merchant lending, those trends will broadly continue. So it won't be like a jump sort of thing. But when you look at -- you can take a call on sort of consumer loan cycle, so we are sort of subject to that cycle. And postpaid being a larger contributor and all the very good success that we are seeing in MDF, all of that puts us in a very positive and optimistic trajectory for next year.

Great. If I could just squeeze in one last question on payments. So this 4 basis points, I can sense the change in the commentary tone from 3 to 5 to more than 4 comfortably. Is this also driven by RuPay credit card on UPI and the online business? And one of your peers has disclosed a very large market share on that product, would you like -- I know, Vijay, last time you mentioned it's a multiple of your current market share. Would you like to call out that number now? Or you think it's still too early?

Sorry, on the first question, you've got it exactly right, which is, yes, there's a contribution from RuPay and UPI sort of better credit card and EMI merchants and just growth in EMI -- our EMI market share overall, where we're doing extremely well. And we're to talk more about that about how we're going to sort of take on that space in a much bigger way over the next year. Second question, I didn't quite understand.

You were saying you were talking about EMI?

No, no. RuPay credit card -- sorry, RuPay credit card market share in that space. One of your peers has given a very large number in 40 what would be your -- would you like to call it out right now?

I'm sorry to say this market share is nothing but end of the revenue contributed and monetization....

I haven't seen that comment honestly, and we don't actually -- we haven't sort of gone and said, hey, what is our UPI market share. You also -- but I would imagine that one thing is very clear.

By the way, it's -- I now get it. I think they're trying to consumer side UPI market share. I'm assuming you're talking about consumer side UPI market share. And there, the people say that we not only have consumer side, we also have a merchant side revenue and acquiring side market. UPI unlike in other cases, has a different type of distribution ratio, which enough gives to the acquiring side business. So we get double side of revenue and we get disproportionately large side of revenue on the merchant side. And that is why we not only gain from the consumer side, which probably you were saying the market. But at the same point of time, on the merchant side, gets us revenue, higher revenue. So we continue to drive based on 2 line items, the MDR-bearing instruments. It is RuPay and it is EMI, both, which are large.

I was asking on the merchant side only.

This point, if you don't mind, a long queue. On merchant, we have -- we think we're doing very, very well on the acquiring side for RuPay on UPI. I don't have the exact market share number, and I don't have reference to the comments that you are quoting from another player, not where I want to just sort of tackle that head on anyway. What I will say is that very clear from other people's disclosure that our merchant base is actually a superior merchant base in terms of quality. So they are quoting higher sort of top of the funnel numbers. So number of merchants, et cetera. They've also said they have much higher PIDF money. So our [indiscernible] which is also an indication that what we do is actually higher engagement and higher quality versions, and we're very happy with that. In that upper that has the implication on a merchant who's more engaged is more likely to pay for to RuPay on UPI, but we can see we're going to check for these all market share numbers of discuss with.

No, this is all very clear, Madhur. Congratulations for a great set of numbers and all the best.

Thanks.

We'll take the next question from Piran Engineer from CLSA followed by Vijit Jain from Citi.

Just a couple of follow-up questions, firstly, on [indiscernible]

Quick housekeeping. We'll just limit to 2 sharp questions because I do see 7, 8 other analysts who are in the queue. We'll extend will also extend the call.

Perfect. One is just a data keeping question. The consumer UPI GMV that you mentioned of INR 5.1 trillion on Page 4. That includes P2P, right?

No, sorry, It is what NPCI gives us a number. Part of it is the fraction of that number. That's what we are. It is what NPCI gives the GMV venue however of that [indiscernible].

So that's both P2P and P2L to be clear. Okay. Yes. Then just my main questions. One is just a follow-up on Jatin. So your payment processing margin has gone up, but the payments revenue, the net revenue has not gone up in line or higher than GMV. And that's because Soundbox revenue is lower. Is my understanding correct?

Sorry, you have to tell me what exactly.

What we're saying is that your margin is one-off but not the overall net base margin, all revenue has gone up. Is this net paying margin as a percentage has not gone up? Is that what you're saying?

So the net payment margin that you disclosed, which was above 3% last quarter and above 4% this quarter, whereas if we calculate a payment margin as revenues divided by GMV, it's actually gone down? The difference between what you already disclosed as a net payment margin and the calculated one would be Soundbox revenues, right? So that's really what I'm trying to get at. Because as analysts, when we calculate the take rates, it's actually declined.

If we take that offline. But my understanding up 24%, revenues up 22%.

Q-o-Q. Sorry Madhur, I was referring to Q-o-Q.

Okay. So we'll take that offline, if you don't mind that.

Yes, yes. No problem. And just lastly, on the rentals thing for Soundbox is now merchants who've used it for the last 2, 3 years because it's been more than 3 years since the product is out have you all been able to increase rents and if by what? I understand that you're looking at multiple parameters such as ability to lend to that merchant, et cetera, et cetera. But can you just talk a bit about how you are able to monetize just on the rental bit for stickier Soundbox merchants?

So there are 2, 3 factors without getting into the auto secret sauce. There's 3 factors. One is a merchant ID engaged is willing to pay more for the Soundbox, and it may even be a higher and the Soundbox, right? So they might want to take the tap Soundbox or they might want to take even a swipe Soundbox, et cetera, right? So they are willing to pay more. The second is our cost per Soundbox has come down dramatically if you're talking about over a 3-year period. So the payback period math works is also quite different than it used to be 3 years ago. And the last point is that the payback does have weighted of lending propensity, right? Merchant has been with me for 3 years with or without the loan. They are quite likely to be a high white list merchant and they've been with us sticky for the last 3 years. And that also goes into pricing versus retention benefit versus lending expensively benefit. So we do factor all of those in. So it be a generalization to say, hey, we did increase prices for everyone who's been with us for 1 or 2 years. It was actually some model determines that, and it's been giving us good results.

We will take the next question from Vijit Jain from Citi followed by Pranav from Emkay.

Congratulations.good set of numbers here. Two questions from my side. One, is digital gold sales a decent contributor to revenue and margins for you? I know you highlight on the app more than 5 million customers purchase gold and you also sell gold daily. We have a couple of products there. So just a quick word on that one. Secondly, I wanted to know, good to see your consumer UPI market share has started to go up 5.7% last quarter, 6.2%, you've highlighted that as well. Where would you think you can get to in the near term on that front? And last question from my side, I'll just ask all my questions together, if that's okay. On the online business, are you going to focus mostly in expanding that in the D2C arena in the new online ventures arena, where do you think the best opportunity for you lies? Those are my questions.

I'll start on the 321. So online, our bet is line that basically, we could not onboard many merchants while we were serving the current merchant. So current merchant that we were serving versus the gap that has existed it's not a D2C merchant. So I'm sure you can very easily comprehend that our offering is more consolidated, not just online for online players, but online plus offline because the day on will like that. And then we also have a consumer over these merchant players those who very completely lack that play that window. So we are not looking at it as purely Cayman processing, which is a very thin-margin business, rather. We are looking at it, how can we increase the business of this person. So it's a commerce-led business plan that we have on online and that inherently inherits that only large enterprise processors are not useful because they have their own businesses of acquiring customers. So you can see the direction there. UPI share market share, I want to know what kind of question is that I think we want to solve for market share concentration risk by our organic technology plans. That's it. That's our ambition. That mission, and we will keep at it. And I'm very happy to tell you that we earn the right to be that once regulatory permitted us last October. So let's [indiscernible] are less than 1 year old company man. it's every customer work to be acquired, and that is what somebody should see. So I'm happy to see that you noticed that. What is the ambition? Market share concentration problem solved. That's it. Anything else that. And finally, on the gold, it's an easy one. I mean, it works. People have their ways to acquire because we did the SIP and mutual fund sales and so on. And then we discovered that there is -- I'm sure you know that this holds the category was built by Paytm. And we just saw that customers are rather more comfortable with gold and you know that every day gold numbers are showing up and so on. So it's a start generate self-interest in the customer. We don't look at it as our winning bet or losing bet. We look at it as a very consistent customer retention back. Why do we give a customer name like this? Because I believe this customer has a lock in on us. With this, he will stay longer term. So we don't look at it as a margin or classic revenue product, but we look at it as let's retain the customer by him committing something on our platform.

Got it. Just a quick follow-up on that. So I mean, what I was trying to get at is, I'm assuming these would have some take rate for you as well, right? I mean some take rate either as a processing that digital is a trend plus we are gold profit pool?

Yes. So the answer is that I would take down the take rate of the industry with our volume. You've seen us that we did it in many categories, and we will do it. I rather would prefer to sell it on a lease margin leftover so that we can take care of the payment processing. For our payment process, sir, this is too large number of numbers. It is rather easier for me to sell larger volumes. So among the take rate, absolute value of profit and the number of customers, number of customers retention.

And you've expanded internationally in quite a few geographies now. I'm wondering because I see some commentaries around this. Is your interest in the Indian Dyspora consumer side business here, there are remittance side businesses or opportunities there? No?

Target for us. We simply believe our merchant stack is very replicable, repeatable, and we will try that whenever we try that.

So our focus remains, as we have stated before, with the merchant side business. We have quite expanded yet in the sense that we have set up that there's a lot of foundational work that has been done. So we have created these entities in areas where we have concrete plans now. And over the next 3 to 6 months, there might be a couple of tents with respect to what specifically we are doing about partnerships we have entered.

We will take the next question from Pranav Kshatriya from Emkay followed by Rahul Jain from Dolat Capital.

My first question is on Financial Services. Good to see a growth, double-digit quarter-on-quarter growth on that product. Can you give some color on what exactly is driving that because there's a personal loan that is postpaid and there is equity much a lot is happening. So some color on that? And secondly, a bookkeeping question. Other direct expenses have gone up by 16% quarter-on-quarter. So what is driving that? So these are two questions.

So a simple thing is that in the queue might have heard sort of in the early part that I've said that in the consumer side credit, we are adding BNPL as a foundational way to expand on it. So a little bit of growth on that. Then secondly, which also means that we are less interested and less distributing personal credit, which we believe everybody who has an app can do it. So we don't think that is a very differentiated moat. So we rather are doing it like this that will take over the distribution-led business. So it may look flat, but internally, it's very important to build a moat of payment-led credit instead of just distribution of credit which is traffic-led okay? Now this being the personal loan. [indiscernible] loan is consistently growing. There is a great understanding by the industry, creditors or merchants, both sides that you do good, you get good credit and these are very good quality merchants and very good effort that Paytm put in. So that is anyway the core reason, but at the same 9 personnel has gone into this. And yes, [indiscernible] started to show green shoots.

So I mean equity broking share on a sequential basis would have sort of gone up, gone down because I did see a little bit of marketing around...

A little bit gone up, huge expectations internally from the theater.

Market share went up a bit and monetization went up a bit more than that because of MDF products and so on. On your second question, Pranav, other direct expenses, it's a combination of SLC, which goes there as our merchant known business is scaling and also it higher production costs. Those are the primary drivers.

We will take the next question from Rahul from Dollar Capital followed by Suresh Wilpati from Macquarie.

Basically, I have two questions. Firstly, if you could -- have you since you have mentioned about the consumer monetization side. If you could highlight some of the largest use cases you think could drive the momentum and some only metrics on the Paytm check-in app if you want to share that?

Single metrics on picking checking. [indiscernible] We have a funnel that converts 30-plus percent. I mean it is shocking that you talk to AI and say that I want to book the cheapest ticket between Delhi, Bombay and next week. and it has 7 days, and it has any hour of the day and people find something so phenomenally good that they're converting 30%. 1/3 conversion of an AI query. I mean that is phenomenal for me because these are miniscule less than 1% on a very large scale of OTA and 1% is considered very good. So the check-in is I mean, I'm loving the product initiation technology session. It is one of the AI first products that we talked about, by the way, it's the same case so that you're doing something where the AI takes a lead instead of a traditional way of doing it. So very, very happy with it. After Pranav goes Ms. Kalama.

Yes. I was saying what are the bigger use cases on the consumer monetization. You mentioned 5, 6 name, but value-wise, if you think you can have it on.

Yes, absolutely. I think wealth -- so credit wealth and this commerce equivalent, which is called travel or deals, et cetera.

And just lastly, any device penetration or you can say penetration on lending on the device merchant, do we track this number? And what do you think is the right potential out there? Because I think this is the biggest moat have.

So it's currently about 7% on our -- so roughly just under like 1 million loans a year, which is also similar to 1 million loans outstanding at any point of time.

On the device merchant. On the device merchant.

So device merchant base only, roughly 7% of that. And it has been sort of going up, give or take, 1% year-on-year. Just to remind everyone. So there's 3 main drivers of our merchant loan business. in a sense, a number of devices, which is growing at about 25 lakh 27 lakh year-on-year percentage penetration, which is broadly growing at about 1% a year, give or take, and then average ticket size, which has been growing, if you look at last 4, 5 years come down at about 15% a year and slightly higher than that. And the last one has been driven by the fact that the repeat behavior on the platform is very, very strong. I remember 5 years ago, people had questions as people want to take higher ticket sizes will they really come. So in our model 5 years ago, we are actually not assuming increase in ticket size. And in fact, that has ended up being one of the major drivers for the growth of the business, which is very positive because you obviously know a lot more about somebody to repeat [indiscernible] in the first half, and it's much more predictable. So it has been those 3 drivers for the business, penetration rate being one of the spread.

Yes, Madhur, just one subset of that question was is there a number that we have identified that, okay, this is the in terms of the transacting data of any other way you identify your operator. What is the right potential market? So 7 is the current, Madhur, but what is an ideal number that you could reach eventually?

That's so this number could get as high as 20%. Our white list base is 40% to 50%, typically, right? And I'm assuming that the white list based on every one will need a loan people once a year. And -- but just to be clear, when we think about business, we don't think about primarily drive penetration higher. We think about product market share. We think about repeat behavior. Obviously, we think about asset quality of partners for partners. And then on the merchant payment side, we think about here, are we getting relevant merchants on the platform, are we getting high engagement from those merchants, which makes our life much easier. And penetration rate sort of ends up being the output metric.

It seems that [indiscernible]. We will take the next question from Param Subramanian from Investec followed by Jagera Bijan.

So my first question is on the payment processing margin guidance. So we are currently trending comfortably above our long-term guidance. So are we going to revisit this now? Because some of this seems to be a mega trend, right, on credit penetration picking up.

I think I said that we would probably look at that in the next 2 to 3 quarters. But currently, we are seeing quite a solid actual positive.

Yes. Actually, will materially change when the MDR settles. If the [indiscernible] settle this year, then it stays in the same sequence, and we continue to see the kind of merchant that we are adding. So we keep it up at set up but normalizing at the same prime will dramatically change it because as an acquiring side, there is a huge amount of upside on NGR may not be on the consumer app actually. I just wanted to be reminded all the money goes to the bank, how much are you how much pay gap and negotiate money of the bank. There's banks losing made. It is a bank losing money. Here in acquiring you have a responsibility. In consumer side, you are just a layer like a leach on top of a bank.

And also, so in a very indirect sort of way, it also depends on whether there is market in force discipline on our peers. So if our peers are doing adjusted metrics, and we are doing real metrics. than resource allocation can work in a certain way. I have to say the market discipline has been okay. I'm not sure I particularly feel like last 1 or 2 years, it's the land grab, but it's good that will continue.

Fair enough. On the subscription revenue piece, right, so you said currently roughly were trending at INR 60 a month sort of rental. Where was this a quarter or so ago? Because I think coming back to a question that was asked earlier, basically quarter-on-quarter, your net payment margin, that number is lagging the quarter-on-quarter GMV growth. So it seems to be led by the subscription revenue. So where would you say rentals be versus a quarter ago or so.

So in tell you is that if a button gets a loan, our loan being subsidized and subvention can move the subscription [indiscernible]. Now you may think that subscription has got reduced by the merchant has become higher valued. So the business model to be looked at is actually merchant subscription and credit or any cross-sell. That's the stat. It's like saying voice even for the moment on the data the subscription area. [indiscernible] or revenue so that is where the approach is. So a quarter back, I don't know the number. I would know. But at the same point in time, I'm not so gungho or less concern or more concerned about this number because I think acquiring more number of merchants help capturing more time of the merchant, who we can cross-sell upsell and monetize is the approach that I personally carry the number [indiscernible].

And as the number was slightly higher, as you should also know that we do factor that like-for-like subscription per device even besides the subvention that Vijay mentioned, should go down some low to mid-single digits that we have. And our efficiency on CapEx and OpEx should be higher than that, right? So we are very conscious that there should not be lack of efficiency on our side that we are asking the merchant to subsidize, right? We need to get more and more efficient so that merchant is getting the device for as efficiently and as cheaply as possible. So that goes to sales productivity, that goes to CapEx, that goes to OpEx efficiency and so on.

Fair enough. One last question, if I may. This quarter-on-quarter decline in other indirect expenses. Is it almost entirely the PDD.

The big decline is because of PDD. There are things that we continue to do on making sure overall being efficient. So big decline is because of PDD. And also, we are doing a pretty good job of collecting receivables, including provision receivables in the past. So our provisioning policy is also pretty tight.

We will take a last question of the day from Jigar Valia from Ohm Group.

My question pertain, sir, Vijay, you mentioned that we are still very early days and customer acquisition is the game still. And if you have to look at it from a 3 to 5 year now, can the growth rates kind of really sustain? I mean, the kind of what we trending and targeting it?

I think as you've noticed, we've always said the customer that matters. We're not saying consumer market share, medicant market share. We are saying customer that matters, consumer. So in the customers that matters in consumers in India, based on next 3, 4 years of growth and worthwhile monetizable useful, I'm going to say, about 250 million customers is a good number for us to add. I mean what percentage of market would it be that's for market to discover. But at the same point of time, I fundamentally believe we today's monetization machinery have the ability to monetize to 50 million customers. And now what market share market to decide.

Got it. And while the landgrab game still stays on, should we see an uptick in or meaningful uptick in depreciation going ahead? I mean we have already benefited quite a bit. It's been amazing, but...

I think because our CapEx was quite low last year and much higher than the year before, and we have probably 2- to 3-year depreciation policy. So next year, you should not see an impact. But as we increase CapEx for deployment, then yes, the year after that, there might be an increase.

Helpful. And lastly, congrats on the Paytm check-in and AI thing. It seems interesting. But from a spend perspective or this thing would and that really comes after [indiscernible].

I think all our businesses are wise enough self-sustaining enough. In other words, we are not comping money, throwing money on those things. They are several learning. We have customer traffic. We have insight. We have built it on path. So these are one of the monetization stages instead of investment sales. But at the same point of time, I will continue to invest in this business because I think there is an extraordinary opportunity. There is a curve in consumer behavior. It is a curve in technology, and that is the opportunity.

Thank you so much. Thank you. Really appreciate everybody who joined us because I think this was the last question.

I think we had nearly 100% video on.

100% video on. Thank you.

One thing Madhur I just missed was AI question, and I had some data guidance. And I'm not going to answer those numbers right now. But to the team that is doing AI and to the team that when we internally are like building agents that outrun and outexecute as a limitation of pretending that they are the answer to the world problem. But when it comes to real-world problems, they are not able to solve it. That is by the gap between the quick deployment of AI considering everybody uses software and how everything could have not become AI just in case. And that offers an extraordinary opportunity. I'm very proud of the team that is building these agentic capabilities in our company. And I'm going to show you some index, and this is our...

Exactly for the last cycle.

This is if anything lens model is real or electrified. A special treat for people who decided to stay well beyond 9 a.m. Yes. So the key word is this is a real world enterprise statement. So businesses and to use real-world use cases and thought that this benchmark shows up and your favorite company tops this on 2 days back numbers. I mean, I'm very proud to say we are much ahead of [indiscernible], Alibaba and even A&P and you're talking on yes, Snowflake everybody. It is not just #1 for 1 use case. We are also on the #6 use case that we are showing up here. Guys, you are underestimating the power of ability of companies that will not only live with AI by asking their vendors to deploy, but they will create the use cases and they will create the use cases for optimizing cost or expanding the business line items. And I'm formally very happy to say this. This goes special to the team that is. And with that intention that we will keep not just playing along, but we will lead the rate of AI in the country. I mean the attention to the artificial intelligence and capability of agent is extraordinary, and that is what will be the special attention in my life personally and best numbers you're seeing here. So thank you so much for joining. It was great to you all in early morning. Anything else?

Line with that, we come to an end of this call. A replay of this earnings call and the transcript will be made available on the company website subsequently. Thank you all for joining us at 8 a.m. You may now disconnect your lines.

Thank you very much.