One97 Communications Limited (PAYTM) Earnings Call Transcript & Summary

Thank you, and a warm welcome to Paytm's inaugural earnings call post listing to discuss its financial results for the quarter and half year ended September 30, 2021. From Paytm's management team, we are today joined by Mr. Vijay Shekhar Sharma, Founder and CEO; Mr. Madhur Deora, President and Group CFO; and Mr. Bhavesh Gupta, CEO, Lending. Before we begin, a few 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, request you to kindly drop off the call at this juncture. The information to be presented and discussed on this earnings call should not be recorded, reproduced, copied 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 organization name in brackets for us to be able to identify you before we ask questions. 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 so much. Hello, everyone. Good evening from New Delhi. It is my pleasure to welcome you to our first earnings call post-IPO. It gives me immense pleasure to see our company's results of September quarter. We have expanded our payment platform, strong growth driven by non-UPI and UPI payments is clearly visible in overall GMV growth on our platform. We have started to call out non-UPI GMV so that we can call out direct revenue made using payments business out there, along with a few other revenue line items and payment businesses. I'm very happy to say that our focus on monetization has clearly been demonstrated in strong revenue growth that we are posting year-on-year in this quarter. Clearly, our platform leverage can be seen an increased contribution margin, better EBITDA margin and continued growth in all key KPIs out there. I'm very pleased to announce that my team and I are super, super energized, excited to see the opportunity what we see in front of Paytm, what we see in front of us. We are fully committed to head down and execute and deliver great results quarter-on-quarter, year-on-year forward of that. I am joined by my colleagues, Madhur and Bhavesh here. And I would now want Madhur to share our September quarter report card in detail with you. Thank you.

I hope everyone can see the presentation. Thank you very much for joining our earnings call on the Saturday. And good morning, good afternoon, good evening, wherever you are. So we just talked about our quarter ending September 2021. We did put out a release this morning. So many of you may have had a chance to see that already at this time. Just to remind everyone, our mission is to bring 0.5 billion Indians to the mainstream economy through technology-led financial services. This is our September quarter in numbers. So our revenue from operations grew to INR 10.9 billion or INR 1,090 crores. This was up 64% year-on-year. This was driven by 52% growth in non-UPI GMV. I wanted to call out here that this is consecutive quarters that the company has delivered over 60% revenue growth on a year-on-year basis. So we had 62% revenue growth in quarter 1, and we now have 64% revenue growth in quarter 2. This was combined with contribution profit hitting a record high of INR 2.6 billion or INR 260 crores in the last quarter. This was up nearly 600% on a year-on-year basis. Clearly, this is a very large growth in contribution profit, almost I would describe it as a step change, and our margin has increased from 5.7% in Q2 of last year to 24% of revenues in Q2 of this year. I will give a little bit more commentary about this as we go along. Our EBITDA losses were INR 4.3 billion or INR 430 crores. This as a percentage of revenue is 39% versus 64% in the same quarter in the previous year. So we have seen some improvements in EBITDA as a percent of revenue. This has been driven in addition to the increase in contribution profit been driven by the reduction in indirect costs as a percent of revenue from 70% to 63%. I should point out that the company continues to make investments and in some cases, increased investments in technology as well as merchant base expansion. And we have been able to achieve reduction of EBITDA as a percent of revenue despite and along with these investments. Our focus would be to continue to make investments in areas that create long-term expansion of profit pools. And finally, as Vijay mentioned, GMV, which is an indication of platform growth, reached INR 2 trillion or 2 lakh crores. This is up 107% year-on-year. Many of you would recall that in June quarter as well, we grew more than 100% year-on-year. So there's 2 consecutive quarters of platform growth of more than 100%. And this is really a function of users and merchants growing on the platform as well as increased engagement on the platform. So just going through this in a little bit of detail. Our revenue growth, as I mentioned earlier, was 64% up year-on-year. In our financials, we break this up into payments and financial services revenue, which grew by 69% year-on-year from INR 5 billion to INR 8.4 billion. This was driven, as I mentioned earlier, by 52% year-on-year growth in non-UPI GMV, also our increase in revenue from financial services and others. So we have a revenue line that we have disclosed as financial services and other grew by over 3x year-on-year. And we also saw an acceleration of device deployment amongst our merchant, and we'll talk a little bit more about this as we go along. Our commerce and cloud service business revenue grew by 47% from INR 1.7 billion or INR 170 crores 1 year ago to INR 2.4 billion or INR 240 crores. There were 2 primary drivers of that. One is rapid growth in our advertising revenue. It's a business that we launched a couple of years ago, which is disclosed in our cloud line and continued recovery in commerce business. As you may recall, we have a large commerce business around ticketing and that was heavily impacted due to COVID, as you would understand. And that is starting to recover, and that's why we are seeing strong year-on-year growth as well as Q-on-Q growth. Going back to GMV. As I mentioned, it grew 107% year-on-year. We didn't disclose October metrics last weekend, where you would have seen that in October, this has accelerated to 130% year-on-year growth. Once again, non-UPI portion of this grew 52%. We should also point out that when a platform grows, we also have some merchants who do not pay us any MDR for payments. These are typically merchants who are accepting UPI or wallet payments using QR code. Even those merchants are being -- many of them are being monetized by the company, not directly through MDR but indirectly through subscription revenues and merchant lending revenues. And our subscription and merchant lending revenues from this merchant base alone reached to INR 550 million in Q2, and that was around 5% of our revenue from operations. So this is a very large funnel that we have built where we may not -- for that portion may not make MDR for payments. We are able to make revenues and significant margins from other services. As I mentioned earlier, GMV growth is accelerating in Q3 of FY '22, and we have particularly strong performance in festive season. As you know, in India, October and sometimes early November is festive season. We had that last year, obviously, and we have it this year as well. So on a like-for-like basis, we grew 131%, and that continues in Q3. Our monthly transacting users grew 33% year-on-year. We increased our average quarterly MTU in the last 12 months by 14.4 million. So there is significant increase and MTU, just to remind everyone, is monthly transacting users. These are users who have to come and do a transaction. So it's not active users or somebody is just visiting the app. What is also encouraging is that the engagement on our platform grew by 55% year-on-year. So we're seeing strong NPU increase and strong engagement increase. And we have achieved this while keeping our marketing expenses flat at 9% of revenues on a year-on-year basis. So this has not been accompanied by significant or drastic increases in marketing expenses relative to our overall scale. Our device merchant base has expanded by 1 million in the last 12 months. We started this business a couple of years ago. A year ago, September 2020, we were at 0.3 million devices. Currently, we are at 1.4 million devices. And this is strategically important for us because device merchants continue to show higher retention and higher average spends, which are the primary indicators of loyalty on the platform. So they become very high-quality behavior on our platform. One of the things that I would share is that 4% of our device merchants have already taken a loan through our platform, that this is a merchant loan program that we have with partners. This business is accelerating. You would have seen some recently announced bank partnerships for POS, which is aimed at the enterprise segment. And that is really giving us very strong momentum in tailwinds into that segment. And over the next few quarters, we'll talk more and more about this. Coming to our lending business. The value of loans disbursed through our platforms has reached $1 billion annualized in October 2021. This is a business that we really started scaling up only about 6 quarters ago. As you can see, our number of loans disbursed on the platform grew over 700% on a year-on-year basis. Our value of loans disbursed grew nearly 500% year-on-year. And as I mentioned earlier, our financial services and other revenue line has shown a revenue growth of over 3x on a year-on-year basis. And clearly, as we will discuss later, there's a huge runway here. I just wanted to remind everyone that all of our products are fully digital end-to-end. The products that we have, which is Paytm postpaid, personal loans, merchant loans as well as credit cards, they're all fully digital, and we do this in partnership, and we do this in partnership only with Tier 1 partners, which are large banks and NBFCs. And you would have seen a few announcements around that. Of course, if you go to our app, you can see who are the partners are. Our contribution profit grew nearly 600% year-on-year. It was 24% of revenue in this quarter, INR 2.6 billion, as I mentioned earlier. I would just note that in the first 2 quarters of this year, so the first half of this year, our contribution profit is already INR 5 billion or roughly INR 500 crores, and this has exceeded already the contribution profit that we made in the entirety of FY '21, which was INR 3.6 billion or INR 360 crores. And the reason for this, as we had mentioned, in our meetings prior to IPO is that we are seeing high margin monetization kicking in at scale. And I would just want to give 2 examples. Obviously, there are many such businesses, but lending and advertising, in particular, are contributing significant amount of high-margin monetization. In addition, our PG cost has reduced from 52 basis points of GMV to 34 basis points of GMV. So we continue to focus on driving more efficiencies in our payments business. and making sure that, that business is improving its profitability profile. Our indirect expenses or % of revenues has reduced from 70% in the same quarter last year to 63% in this quarter. This, as I mentioned earlier, is along with investments in people, in marketing and in technology. So just to call out that our marketing costs maintained -- was maintained at 9% of revenue even as we have increased MTU by 14.4 million in the last 12 months. And our employee expenses are actually lower as a percent of revenue, gone from 40% to 34%. Even as we invest more in technology and more in merchant growth and devices growth. So we are able to improve the profile -- financial profile of our business while continuing to make investments in areas that matter. Just to give you a little bit of breakup for our revenues, further breakup rather. So as I mentioned earlier, our Payments and Financial Services revenue grew by 69% year-on-year, 52% increase in non-UPI payment volume. As you noticed in our disclosures, we break this up into -- the Payments and Financial services business into 3 components. Our payment services to consumers grew 54% year-on-year. This is driven by increase in non-UPI payment usage on our consumer platforms. Our payment services to merchants grew 64% year-on-year. This is growing due to growth in non-UPI GMV, particularly in payment gateway business and our device merchants. I should note that this business has reached at a run rate of nearly INR 16 billion of run rate revenues, which is greater than $200 million run rate. Our Financial Services and Other business -- Financial Services and other lines grew by 250% and went from 4% of our total revenues to roughly 8% of our total revenues, due to growth in lending and wealth primarily. Our Commerce and Cloud business, as we mentioned earlier, grew 47%. Our cloud business grew due to rapid growth in advertising revenue, and our commerce business grew due to continued recovery in ticketing revenues from the dip due to the second COVID wave in Q1. Before we finish, I just want to summarize our key trends. The key trends in our business are -- is that payments is -- there's growth in payments revenue and profitability. This is due to growth of payments volume from non-UPI instruments, including Paytm payment instruments that many of you are familiar with, as well as payment services to merchants. So both on the consumer side as well as the merchant side. We're driving adoption of differentiated instruments. We are seeing recovery rate of high-margin commerce business and growth of cloud business. we are seeing increase of financial services revenue, driven by the huge ramp in lending for which we have disclosed a number of operating metrics as well as revenue trends. In terms of our operating and financial performance, I just wanted to summarize some of the key trends. We are able to efficiently increase users, merchants and GMV. This is what Vijay described as platform growth. We are seeing strong momentum in revenue, and we expect that to continue with 64% growth year-on-year in this quarter. We have seen a step jump in contribution margin that we have achieved, and there are clear trends and tailwinds towards continued year-on-year improvements. Our indirect expenses as a percent of revenue is going down, even as we are making investments in the key areas, which have long-term positive impact for us, and we are very well funded for growth opportunities ahead. And that's all I had. Thank you very much. Maybe I'll turn it back to the moderator.

Thank you, Mr. Deora. We will now proceed to Q&A. [Operator instructions]. With that, I will ask the first question from Bhavik Dave at Nippon AMC.

Hi, Am I audible?

Yes.

A couple of questions. One is, if you can break down the GMV into UPI and non-UPI absolute number. Second question is on the financial services side, and we see a reasonable amount of growth on the revenue side. Just wanted to understand from a INR 1,200 crore disbursement that we have done during the quarter, what are the take rates like because the take rate calculation actually the financial services is not only lending, it would be the insurance and wealth business as well. So from that perspective, if you could just break down that piece for us, that would be helpful. That's about it.

On your first question, Bhavik, we're not sharing, at the moment, we're sharing all of this as the detailed disclosure, including non-UPI GMV growth. We believe that non-UPI GMV growth is a direct contributor to payments revenue, whereas both UPI as well as non-UPI GMV growth is a driver to a number of the upsell revenues that we have talked about, such as devices, commerce, cloud and financial services. So for the moment, we would love for investors to focus on, if they're trying to calculate payments revenue trajectory, we would love for them to have this additional information of non-UPI GMV growth. And to your second question, the financial services and others does include -- has a very large chunk of lending, of course. The wealth and insurance businesses are somewhat smaller. It is hard to sort of put take rates because the revenue model is quite different. So for example, in Wealth, of course, you make money on equity trading which is not sort of linked to GMV in that sense is linked to a number of transactions and so on. But so I wouldn't necessarily look at that revenue and divide that by one specific metric. But what I would say is that the growth that we are seeing in lending operating metrics, does translate into growth of that particular line item, which is financial services and others, and you should be able to track that on a quarter-on-quarter basis going forward.

Sure. Sir, one data point, if you could give us the disbursement that we have done during the quarter. Any breakup between consumer and merchants? And also, which are the large partners that are on-boarding, right? Today, we have, I think, CLIX and Aditya Birla Capital as a 2 main lenders with us. Have the banks or the large bank partnerships that we have, have they gone live? Which are the products that they are doing currently? Or how do we think about it? If you could just share some details on those 2 things.

Thank you for your question, Bhavik. So we have more than the 2 partners that you've mentioned. As we mentioned earlier in Madhur's presentation that we do business with Tier 1 banks and NBFCs. So on the card side, we do have Citibank, SBI, and we recently announced HDFC,while the card has just gone live, in a pilot phase. And hopefully, we'll do more of that in the future. On the lending side, you rightly said CLIX Capital and Aditya Birla, we also have in Hero FinCorp and a few others. And there are many more partners that we're currently in conversations with to integrate and scale. So in -- I can say that the portfolio of partners that we have today is reasonably sufficient for us to really manage the scale in the growth, and we're very confident doing that.

And the breakup of that INR 1,200-odd crores, merchant versus consumer?

We're not quite giving the breakup at this point. What I would say -- what I would just point out is that we also have roughly 100,000 credit cards in partnership with our card partners. We do not include the spends of those into our dispersal numbers. And so this only includes postpaid, personal loan and merchant loan. There's not a huge amount of difference. There's obviously, each business have different take rates. But it is not -- there's not a huge amount of difference in take rate between the 3 lines of lending that we're doing.

Next question, Mr. Jayant Kharote from Crédit Suisse.

Sir, again, dwelling a little bit on the Financial Services revenue. If you could give us some idea about how much is coming from lending and others non-lending. And then how do we sort of make sense of how much lending can scale up as a part of the mix?

I will probably turn to Bhavesh to answer -- to give you a broad framework for the second part of the question, and then maybe I can try to address the first part.

So thanks, Madhur. So Jayant, maybe -- as you can -- I'm sure you're aware of this piece that India is a very, very large opportunity for credit. We being a 2-sided ecosystem have a wonderful opportunity as we see both on the consumer and the merchant side. What we have seen thus far during the last 18 months, that the adoption of credit products on our platform, namely Paytm postpaid, which is product, consumer credit, which is personal loan and merchant credit and recently launched credit card, the adoption is very, very high. And the growth rate suggests that the scale-up can be fairly, fairly large from where we stand today. And I think it will be important for us to recognize that this opportunity itself in India and definitely the opportunity that presents on this platform on Paytm will be fairly large, and hence we are very excited to keep taking this opportunity forward from our perspective.

So in terms of the breakup, we have sort of outlined in the prospectus to some extent as well, which is that something like a majority of the financial services and others revenue has to do with lending. So we're seeing sort of that trend continue. But I wouldn't have -- each of these lines of businesses is growing, whether it's lending or wealth and so on. So I'd also leave that to you how to analyze that. But we are currently sharing financial services and others as a separate disclosure in the prospectus and in our quarterly financials going forward.

Next question from Mr. Gaurav Kochar from Mirae Asset.

M I audible?

Yes.

Coming to the payment processing costs. If I look at that number as a percentage of overall payments revenue, that has moved up from 83% last quarter to 89%. And given the non-UPI, revenue is up 52 -- sorry, non-UPI GMV is up 52% and the overall GMV is up 107%. It's safe to assume that the UPI GMV would have grown much, much higher than that. In that backdrop, what explains this rise in payment processing costs sequentially from 83% to 89%?

I don't know if I followed every part of your question, Gaurav. But we did have, yes, when you look at our GMV growth, our total GMV growth is higher than the non-UPI GMV growth. So you can make that deduction. And from quarter-to-quarter, there will be some volatility in terms of sort of payment instrument cost as a percentage of GMV and so on. And the reason for that is it is a pretty complex output of the type of instrument that is being used as well as the type of merchant that is being used at, right? So what we focus on is as a percentage of GMV, we just continue to bring that down. And part of that, like you have correctly inferred, is mix effect, but a significant chunk of that is also improvements that we continue to make. But some of those improvements may be sort of flattish in one quarter, but at reduction in another quarter and so on. So if you look at -- I would just encourage you to look at that whichever -- if you're taking as a percentage of something, I just look at -- encourage you look at it for over a slightly longer period. I think compare -- I think on a year-on-year basis, it has dropped by about 20%.

Yes, yes. And 98% and now it's down to 89%. But Y-o-Y, it's down. You just pointed on quarter-on-quarter basis, it's up slightly. But yes, you're right. I mean, one quarter can be have some number.

Gaurav, there's also some volatility and some mix effect issues with respect to June quarter being some sort of lots of COVID lockdowns, September quarter not being like that, December was obviously have festive, which means that there are slight differences in instrument usage and so on. So it's a little bit hard to really draw trend lines on a Q-on-Q basis. So that's why we'd encourage folks to do that on a year-on-year basis.

Correct. Fair enough. My next question is with regards to the non-UPI take rates. If you can disclose that number for this quarter or maybe on a Y-o-Y basis, where has that moved some directional. And going forward, how should we look at the non-UPI take rates.

I think there hasn't been any meaningful change in take rate of non-UPI GMV. And of course, this is also focused on effects -- mix effect of cards, wallets and many other instruments that we use, which are non-UPI, but we haven't seen any meaningful change.

Okay. And the share of commerce GMV, I'm sorry, the share of commerce would have gone up because last year, it was I mean the last year it was relatively weaker. So in that context, on the non-commerce sort of non-UPI GMV, has there been moderation or it's all the same?

Gaurav, when you say commerce would have gone up. I mean, commerce doesn't generate a huge amount of GMV for us in our scheme of things, right? Because when we're looking at sort of trillions of rupees of commerce revenues, sorry, payment volumes in the quarter or see commerce is -- commerce that happens on our platform is reasonably small. So I wouldn't try to take out sort of comments from that. The point on commerce is that it is very, very high take rate and very high contribution margin. So some growth of that results in revenue growth and contribution margin tailwinds.

Sure. So we should assume a flattish sort of non-UPI take rates going ahead, at least for this year, remain of this year?

That is the trend in the past, right? I'm just trying to...

Sure. And just last question on the lending business. If you look at the ticket size, it has not moved. I mean, even on a Y-o-Y basis or on a sequential basis, it's there about 4,400. Any color on what kind of ticket size should we look at, given that the customers do migrate to a higher limit going ahead based on usage and if that -- there is some sort of upgradation that happens from a postpaid loan to a personal loan, et cetera. So what kind of ticket size are we looking at? Is that the right metric to look at given that the penetration of number of users and the ticket size, I think both of that matters in the context of financial services revenue. So what kind of ticket size are you internally sort of targeting. Some color around what kind of ticket size should we look at.

Gaurav, the way to see this data is that if you look at the number of loans expansion has been very, very large. And that ticket size being same means that on an incremental basis, we have a higher ticket size. That's the reason the overall ticket sizes have been the same. What our belief is that the opportunity to give credit through our platform with the help of our lending partners is so large. And our focus is to expand the number of users who can get access to credit bid consumers and merchants. And ticket size is an outcome, which you rightly pointed out as the book matures with lending partners ticket sizes is a natural appreciation that we see on our platform. So in a nutshell, we -- our focus is to expand the number of consumers and merchants who can get access to credit, right? Ticket size is an outcome that we are necessarily not changing, but we definitely see the ticket size will keep improving as it will improve in the possible incremental business.

Understood. And on the penetration part.

Just before that, Vijay, do you want to add something to that as well?

Yes. I think Gaurav, one of the interesting thing I want to share with the experience of payments that it was tough to drive mobile payment for small tickets because this was consumer habit kind of thing. Similarly, in this case, as you can see what Bhavesh is sharing exactly what I would expand on to say that a smaller ticket size and completing the whole recovery and disbursement whole cycle of small ticket size makes the platform, understand the nuances and spread of customer type and various other system platform insights. So it is important for us to grow user base with a smaller ticket size. And obviously, like you said, the customer comes back on the same platform and our relationship with our lenders is also like this, that we are able to cross-sell or upsell another type of loan to the customer. So smaller ticket size is like I would say, performance metrics scale, not like a limitation. It is easier to issue large and larger ticket size, if you will, but we are keeping it very, very focused on spread on number of customers, then ticket size, then total dollar value of the loans and so on so forth.

Yes, I just wanted to add 10 seconds of just summarizing that point is that we do very strongly believe that if you get small ticket sizes, right, doing larger ticket sizes is much easier than going the other way around, which is that you start doing large ticket sizes and then you have to often reinvent your business to be able to do smaller ticket sizes. So we love the trajectory, and we've seen that in payments. And I think a lot of financial services companies have seen that the reverse is a little bit harder or significantly harder.

Sure, sure. That helps. And just lastly on the penetration. I mean if I look at number of MTUs, 6.3 or 63 million as in October. What is the sort of penetration of Financial Services product? And internally, if you would have identified what percentage of these MTUs would be eligible for Financial Services products, be it Wealth, insurance or lending. Can you give some color around it? Just to get what is the size of opportunity we are looking at over the medium term?

Maybe I'll start and then hand it over to Bhavesh to talk specifically, maybe about different products as well. So on the consumer side, like you pointed out, we have 63 million monthly transacting users. We have roughly 2x this numbers, annual transacting users. But if you just take that monthly transacting users number, then our penetration on lending side is roughly 2% on our BNPL product. It has grown dramatically over the last 1 year. but it is roughly 2% right now. If you look at, for example, our equity trading business that is less than 0.5%. It is significant numbers, a couple of hundred thousand users. But in the scheme of Paytm's things, in the 1 year, we have got less than 0.5% penetration, fairly significant user numbers. And then we sort of move on from there, right? Because obviously, the market opportunity is very large. And I should point out that we are able to address a large percentage of our user base because the business model is that we do it with very little or no incremental TAC. So when a payments user needs to move into lending or wealth or commerce or cloud or whatever it might be, there's almost no CAC to move that -- incremental CAC to move that users or payments to financial services. So that hopefully answers sort of the penetration question, also the question about ticket sizes, right? If we had a huge amount of incremental CAC, we would potentially not be able to do that, which is to address a large percentage of that base and be able to address it at all relevant ticket sizes. Bhavesh, do you want to add something?

Yes. I think I'll just add 2 sentences to what Madhur just said. So Gaurav, the way to look at this piece here is -- the demand for credit through our platform, we have seen very high adoption of our consumers and merchants. The fact that we have great partners on our platform who would love to have our merchants and consumers get access to credit, gives us tremendous confidence that the current penetration with itself is very low, but in absolute numbers, as Madhur said, is giving us a very, very high penetration with regards to the scale of this business. it can continuously keep growing, and we have a very large runway ahead of us. And that is actually what makes us very, very excited about this business.

Gaurav, I'm getting -- I need to do this, but I'm getting very nasty messages from the moderator because we are supposed to stick to 1 question. If you don't mind. We'll try to come back to you as soon as we have worked through the queue.

[Operator Instructions] Next question from Mr. Saurabh Kumar.

This is Saurabh from JPMorgan. So Bhavesh, a question to you is essentially what is the credit charge to what you're seeing with your partner banks. If you can just quantify what you're seeing this year versus how the portfolio was behaving last year. And the second related piece is essentially on the Reserve Bank paper, which has come out. I mean it has talked about FLDGs potentially not being allowed. And also lending rates that some the digital apps have been charging. So how does it alter your competitive landscape? How do you read the ramifications of that paper?

Yes. Thank you for the question, Saurabh. So Saurabh, the first question's answer may not be fully complete from our perspective because we do not manage the portfolio for any partner, they do it themselves. We definitely help them in connections. But we have a fair understanding of how the portfolio performing. And what we understand from our partners is that they feel very comfortable with what they see. The important element to see this particular piece here is that we are adding new partners to our platform. As you can see from our growth of credit, we're expanding credit very, very rapidly. So very clearly, one can assume that any partners are seeing a very healthy portfolio performance, vis-a-vis, what the last one even through COVID, which has given them great confidence to continue to grow the business as far as Paytm platform credit business is concerned. On your other questions about the recently introduced working for paper on digital credit. Actually, we find it, it's important for me to mention this piece that it is important that the digital lending space gets further organized, this paper aims to really further organize this and that thing. From our perspective, as we had mentioned earlier also in our road shows that we have always maintained that we are completely aligned with currently regulations that are prevalent in the country, which is a digital lending guidelines of June 2020 and also, the outsourcing guidelines. So from our model, we have always maintained alliance to what was available and present. The newer guidelines are actually aligned to what we do in our system. Actually, what we see here is that if and when these guidelines get implemented, it will further strengthen the platform and the way Paytm has been doing business versus what many of the other industry players have been doing business especially towards FLDG and funding into , et cetera, et cetera, that we do not pursue and follow.

Thank you, sir. Next question from Mr. Vijit Jain.

This is Vijit Jain from Citi. Just on the payment gateway business, can you talk a little bit about -- do you look at this business as e-commerce versus billing business? And how are you looking at this business beyond payments here as opportunity with the customer centers?

Vijay, would you like to take that question? Or I could start. So, I see Vijay on muting.

No, I think thank you, Vijit for this question, where -- when we look at payment gateway business as an opportunity to bring small, medium merchants and the large corporate, the advantage of Paytm's payment instruments. That is our primary use case. And then we also give opportunity for other bank issued, other partners issued instruments. What we've seen is clearly that the scale and the pricing that we are able to drive gives an advantage to everyone. I'm sure you know that Paytm is probably the largest, if not the largest and one of the largest acquiring site partner of all payment networks, whether it is Visa Master and PCI-MX, UPI or any other world, and that gives us a superior edge of scale of technology and pricing. And that advantage, we are able to pass to our partners, and that is why we continue to see large corporates, including Flipkart and including many other big corporates like large retailers, everybody using our platform, and we are very happy with the way the expansion is going on, on our online payment gateway. In fact, Madhur just probably shared that we have merchant side revenues of plus $200 million purely because of this fundamental advantage that we have, and A plus B on Paytm app and off Paytm app, both combination, continues to grow like you just saw the transaction volume.

And Vijit, maybe I could just add in terms of a couple of trends and recent developments. So the one huge advantage that we have is that it creates a really nice network effect because there are Paytm payment instruments at very large scale. That is one of the differentiators, I would say, one of the differentiators of why a partner would want to work with us and then they are able to see our technology, our rates and so on, given the scale of our payment processing. And over time, we are able to do many, many different types of payments for them with cards and UPI and non-UPI and Paytm payment instruments and so on. . And that does give more use cases to our consumers to use Paytm payment instruments. So there is a fantastic network effect that gets created as a result of this. Some of the recent trends that we are seeing is that there are even large merchants who are starting with Paytm right off the back with all payment instruments, right? And in some cases, exclusively, actually. And these are partners who would have been exclusive with a competitor for many, many years, if not over a decade. And they are just sort of switching lock stock and barrel to Paytm. And I think the next big opportunity for us here is to continue our penetration in the mid-market and the start-up community. And our product is certainly very ready for us to make that additional push.

Madhur, just one final question from my side. If you can share the current user base on the postpaid product in terms of number of active users using that anyway to color on that, that will be great. And that's my last question.

What I would say is that in October, we've shared October data of number of loans disbursed. In terms of number of loans, vast majority of number of loans is postpaid. That split is very different when you come to value of loans. But in terms of number of loans vast majority, as you might expect, is postpaid. So if you take a number -- if you put a very high percentage for that number, that would probably give you the monthly active users on -- or at least the October active users on postpaid.

Next question is from [ Nilanjan Katra ].

Just 1 question. I mean if I have to look at expenses, how would this split between the financial services and the cloud and other businesses? More specifically, if I have to, let's say, look at 2 years back when we are still growing that commerce business versus today when we are almost defocusing. Would it be fair to assume a very large percentage today of deposits primarily on to the financial services on? And how would you think this number will look like it's another year or years down the line?

Right. I just want to maybe start with just making a small correction. There's no defocus of the commerce business. The revenue split between commerce and payments and financial services has gone through some changes. Part of that reason has been because of COVID, because entertainment and travel, obviously, for periods of time, was very deeply impacted, in fact, entertainment was shut down for a period of time and also because there are multiple parts of Paytm that are growing most recently, the financial services business and so on, right? So there will be some sort of mix effect trends as a result of that. So -- but you should not take that away as there are any kind of defocus. Just to clarify, a vast majority of our commerce revenues come from commerce of digital goods, if you will, such as entertainment ticketing, travel ticketing and so on. And that has been doing quite well for us. In terms of costs attributable, we do very much run the company as a platform. So it is possible to allocate cost up to a point, but not entirely because then you start getting into debates of if the customer came in through payments, which a vast majority of customers do then should the payments business be charging commerce business, some internal rate and so on and all of that. But putting those aside, what we have indicated in our prospectus as whether it's in our presentations is that our commerce and Cloud business and our Financial Services business is very, very high margin monetization.

And we are not letting the GMV into cloud and commerce, at least for now.

The commerce -- I mean, just given the scale of Paytm as a platform, our own commerce is in terms of GMV is a very small percentage, right? Because they are very, very large merchants, very, very large use cases. that we do payments for, right? And if you look at our commerce businesses, they have been selected to be number one digital categories. Number two, places where we can, as a result, make a very high margin monetization. And we also have sort of large number of users who are interested in using those categories, right? So for example, if you are a payments user, the chances that you would use to go to the movies once a month or once a quarter is fairly high, right? So we have not gone to sort of niche categories. But it's not a big driver of our GMV, maybe I should put it that way. So Commerce business is not a huge driver of our GMV. It is a very good driver of retention of consumers on our platform. It is an excellent driver of high-margin monetization.

Nilanjan, I will add that the commerce GMV is led by, if you noticed, cinema ticket, movie ticket, travel tickets and so on, deals, et cetera, which are small GMV. And thanks to the lockdown much smaller than year-on-year, you could actually expect it in minute single digits, much smaller single digits as a GMV of commerce business on Paytm app as a percentage of total loan margin.

[Operator Instructions] Next question is from Mr. Chandrasekhar Sridhar.

This is Chandrasekhar from Fidelity. Just a couple of questions from my side. Just to be clear, your GMV per MTU is about 11,000. Now the average credit card user spends about 10,000 a month. And this cohort of 30 million, sort of 32 million unique users are actually at the higher end of sort of the spending curve. I'm just trying to understand I'm trying to reconcile the 2 numbers, given the demographics are a little different. And does that mean that there is a certain portion of GMV, which has a certain level of double counting? That's question #1. And second is just quarter-on-quarter, and I can understand there is some level of volatility in the business, which is on a quarterly basis. Our net payment revenues are actually down on a quarterly basis after adjusting for yes, after the payment processing charges. And after the promotional cash backs and incentives, it seems that we're about breakeven this quarter. So maybe just some trajectory on how this plays out over the next 2, 3 years?

And Chandra, I'm happy to sort of take some of these slightly more detailed questions offline as well. It's more sort of address these separately. I think Commerce business is seeing strong recovery. I think just to go back to your first question, which is about the spend. The span of the type of use cases that a Paytm user does across sort of the daily use cases such as bill payments or lifestyle use cases, either on the Paytm app or on our partner or with our merchant partners as well as the spend that they do in the offline world is, in many cases, a much bigger span than an average user would do using a credit card. So that may be sort of -- I see the comparisons that you're trying to draw, but it may not be sort of like-for-like in that sense because users are able to do -- our objective is that users should be able to do nearly all use cases that matter to them through digital payments through our platforms, right, either on the issuing side or the acquiring side. So I wouldn't -- I see the comparison, but it may not be sort of directly comparable in that sense. I don't know if Bhavesh or Vijay, you want to add something.

Yes. Chandrasekhar, I want to give you one of the very pleasant thing that I've seen that once a customer starts to use our platform, he starts to get into the use cases, which typically he would have not done using credit card. While this number from your reference point of credit card looks larger from our reference point of spend on payment platform using digital payments, which are driven by like bank account or wallet or postpaid, et cetera, are probably in the same range as it should be or it should grow further actually. We believe that it could grow further. And between us, the number that we have as a reference of our co-branded credit card user, it is not 10,000. I mean, it's significantly more than 10,000 on our co-branded credit card, per active card spend that we see. So this number of per user is significantly less than the credit card user actually. So maybe the reference point of 10,000 is something that we are not able to reach where are you to get reference from? And secondly, that number that we're seeing is very, very clearly depiction of the depth of the customer and locking of the customer or retention of a customer. And as far as our co-branded credit card spend is concerned, it is significantly more than the number that you could take in here.

I mean I'm just quoting the industry data, which is on that much. And this is sort of the top end of the spending spectrum spend on average of 10,000. So just previous to reconcile the 2. But we could take it up later.

Sorry, Chandra. I think the key difference may be just a span of use cases that the person who's spending 'X' thousand rupees on credit card, let's say INR 10,000 or INR 15,000 on credit card, their monthly spend across all use cases are, of course, significantly larger than that, right? And what I think the way this would reconcile is that the Paytm has been able to bring all new use cases for all users. And I'm saying that slightly, I shouldn't say sort of exaggerate by saying all, but a much greater span of use cases that users can use. So if they were not using credit card for a certain purpose, in many cases, they still use Paytm for that purpose, either it could be through cards or it could be through wallet or it could be through UPI and so on.

One of the important things, Chandrasekhar, we want to add is that we've seen credit card companies promoting adding money to the Paytm wallet as a feature because they want themselves to expand the use case of the money of credit card potentially out there. And that is also one of the interesting reason for our year-on-year non-UPI revenue to grow because many issuers of credit card and debit card want to increase the acceptability of that instrument, and that is possible using wallet as a method. And it is important to know that we've seen a tremendous number of banks, top-tier banks, long-tail banks, all alike pushing promotions on Paytm platform of spending cash back funded by them to add only to the wallet. And that probably is also probably the reason the acceptance network is behind the scene the biggest reason for it. I'm sure INR 10,000 like you suggested as an average is a clear indication that mobile payment will completely do off the credit card spend over the period, which it has when you see the retail payment overall dollar volume anyways.

And just on the second one?

Right. Could you repeat that second one?

Yes. I just said that the net payment revenues were actually down from INR 108 crores to about INR 84 crores quarter the payment processing charges. And then after the cash backs, which would have seem to have given it seems that the payment revenues effectively have just broken even for the quarter. So maybe just some trajectory on how we should think of things.

Chandra, what I would suggest is that you do look primarily at year-on-year trends rather than quarter-on-quarter trends. A couple of reasons for that. Because on a quarter-on-quarter basis, of course, we will make -- we will choose to make a little bit more investments in 1 quarter versus another quarter. The second is the quarters that we are comparing also do have Q1, which was heavily COVID impacted where the mix of the business was quite different versus Q2, where again, the mix was very different, right, with respect to percentage of off-line payments and percent of certain types of merchants and so on, right? So it is a little bit hard to compare any 2 quarters on a Q-on-Q basis, particularly this particular Q1 versus Q2. On a year-on-year basis, the trend line is very strong for some of the sort of percentages and so on that you quoted, which is translating into this contribution margin, right? So if you're taking out payment instrument cost and you're taking out cash back, we, in fact, take out those 2 costs as well as many other direct expenses and then come to the contribution margin. And that contribution margin has actually grown from 6% to 24%. On a first half to first half basis, just to take a slightly longer period, it has grown from 10% last year to 25.5% this year. So I look at the year-on-year trends as the primary way of evaluating efficiency on those lines, especially given the Q-on-Q is a harder comparison.

I will add too one more thing Chandrasekhar here that your statement on breakeven of payment. While we have not disclosed or are disclosing it like this, it is clear that some of the line items in our payment business are not just profit-making, but free cash flow generating. It is an important statement that I'm making here that some of the line items in our payment business are not just profit generating but free cash flow generating. So it should be clear that our payment business, which is -- and that is the bigger piece and that we've called out non-UPI GMV in this quarter result that our revenues and contribution margins are clearly growing on the back of payment and financial services business where payment itself is the primary driver of that.

Next, we'd like to call now Mr. Anish Rai.

So this is Anish from UBS. So a couple of questions, one from the -- so one question would be related to the MTUs we have. So I just wanted to understand. So if we see say some 60 million or 60 million-odd MTUs in a month, what would be -- what would be the breakup of vintage of these users? I mean, how many of these would be recently acquired? How many of these would be 3 years over on the platform or something? Or some color of that sort. And the other question would be related to merchants. So I would -- if possible, could you throw some color on the percent of GMV, which comes from merchants which don't pay in India. I mean there would be a lot of intersection between UPI and QR code-based merchants who don't pay any MDR. So I would just like to understand how that works. And the other question for MTUs. Yes, that's it.

So I think what I would say is that MTU math is obviously very complicated just to simplify it a little bit, what I would say is roughly in any period over 12 months, roughly 60% to 80% of our MTU are new and 20% to 40% are reactivated over a 12-month period, right? So I think those are the sorts of trends that we normally see. Of course, they are somewhat dependent on how well reactivation efforts are working and how well your user efforts are working over a long-term trend, right? Actually, that leads us a little bit more true for annual active users on a monthly basis, of course, there are users who will come and they'll use us in a certain month and organically come back and use us, maybe use us in the next month, but even if they skip a month, they'll come back and use us in a month after. So on an annual active basis, that trend has held up pretty well, which is 60% to 80% would be new and 20% to 40% would be reactivated. And I think on your second question, our merchant base is sort of north of 20 million, as we have put in the prospectus and growing. We do -- like I said, we have over 1 million merchants who have devices, right? So those are the merchants who generate us in the offline world, those are the merchants who generate us revenue, including large-format retail and so on. So I would look at -- start to look at the merchant funnels in that way that the merchants who -- they are merchants who pay us MDR because they want to accept all kinds of payments, those are online and off-line. And there are merchants who are all the sort of smaller merchants who may not pay us MDR, but they pay us for devices and merchant lending and so on.

Yes. So what Madhur has just said, Anish, it would be nice to see our merchant base bucketized into no MDR margins, or then second bucket would be MDR, which is Paytm, non-UPI instrument led merchants like Shopper Stop or Big Bazaar or any other ones which take credit card, buy now, pay later, and Paytm postpaid, wallet, et cetera, et cetera. And then in the 2 merchant, the second merchant that you're talking about are inevitably also paying for some of the subscription or platform fee also. So what we look at our merchant base is, one merchant base, which makes money using payment itself as a line item of revenue and second merchant base, it's a beautifully even more monetizable merchant base because that merchant base, even though he takes 0% MDR payment on the platform, but he does not have access to the credit and our credit partners, banks and NBFCs are happy to extend credit, thanks to the payment rail that we create. The advantage of payment rail is that they are not just able to disburse but collect also from the collections every day that happen. So Anish, we earn on a 0 MDR merchant disbursement and collection margins on our platform, and that makes that merchant who is a 0 MDR merchant, very useful for Paytm platform and equally and even more useful for our lending partner because these become over-the-period sector lending and whatnot. So Anish, we continue to acquire merchants on both buckets. One, who pay us for payment service, and that is why we are talking about non-UPI GMV there, and that talks about the merchants would give us money for payment acceptance. And platform basically device subscriptions and various other things. And second bucket, even more useful because this is like you can guess tens of millions of merchants out there never have access to formal credit and financial institutions and partners are looking forward to a solution in a platform like us. Remember, the two-sided platform is an edge here. If we were purely a bank, we would have only seen the bank account of this customer and then we would have wild guessed that who is -- what is this kind of money, no reason for and no predictability. While it is a payment platform where we also have a mapping consumer detail on our platform, we can say, "Oh, Anish is paying the shop, means that this shop must be a high value shop. And oh, we have seen other customers who are of high value quality are paying this shop." So remember, our merchant business is fabulous from 2 aspects: payment revenue and credit revenue.

Anish, I just wanted to clarify my earlier comment on the MTU just to make sure it came out right, which is we have this annual transacting user base. The vast majority of them transact the next year as well, right? And then the growth comes from largely sort of new users who come to our platform and in some cases, users who may have not used us in the previous year but used us in the year before who come back due to some of the activation efforts that we do. But the core base going into any new year is that vast majority of our existing customers do transact the next year as well.

Right. So Madhur, so probably just like we had to put this in another way. So just a follow-up to what you just mentioned. So if I -- so if my question is, so say, if we have 'X' annual transacting users this year, what percentage could I assume that these users would transact even in the next year? I mean, what would be the drop-off rates or something of that sort if possible for you guys to sort of disclose.

We haven't quite shared that number, but it is the vast majority of those users regardless of -- yes. Sorry, go ahead.

Yes. I was saying that Madhur is using the correct word. At least you can expect -- if you remember a few minutes back, we were answering a question how a customer is spending more money and that happens because the customer is actually living on this platform more number of times. So over the period, thanks to the number of use cases and opportunities of multiple funding sources and services that we bring that customer remains on a platform. Surprisingly, the commerce business that has been discussed in this call is one of the reasons that we started that it is a key use case for customer to retain and come back on our platform.

The next question from Mr. Sameer Bhise.

Just looking at the number of sales employees, I see a sharp jump Y-o-Y, probably that is also driving the merchant growth. What's the outlook here going ahead?

I think last year, the comparison of this number on September and September is slightly tricky for 2 reasons. One is or for one primary reason because -- so the offline world just sort of came back a little bit later in Q2 last year, whereas this year, obviously, we had COVID impact and wave in Q1. But by the time Q2 rolled around, there's plenty of opportunities for us to have feet on street and start selling devices and so on, right? And we will continue to invest in merchant growth. You would have seen Sameer, from -- when you sort of digest all this data, you will see that we've been able to reduce our employee expense as a percent of revenue despite increasing the sales force, right? So we have those levers in our business. We will continue to invest in merchant business, but we think we can do that while maintaining indirect expenses at a certain percentage of revenue and in fact, decreasing it.

It's an important thing to remember, Sameer, that as Paytm vantage point, do we see a tremendous opportunity to grow payments as a more to acquire consumer and merchant. We continue to invest in use cases at engineering, professional teammates. So as you could see, the number of employees. There are more and more engineers added to the system because we are building for what new use cases and other financial services that we are building. Secondly, on the merchant side, like Madhur said, incredible, a large, strong growth ahead is possible, clearly because more merchants are getting ready to accept these repayments.

I could just add Sameer, that just from an accounting standard perspective, if we have in-sourced few employees, then they show up in employee cost. If they are outsourced employees, then they show up in other expenses as an outsourced cost. So depending on our specific strategy during those quarters, whether we are having those employees on road versus outsourced, and there are some pros and cons of that, you may see some site differences, right? So you may not be able to model number of employees freed into employee cost.

Sure. But this is the same number which shows in the RHP as around 6,500 as of June? Is that the same trajectory? Or is there a slight change?

Yes, that's right. And obviously, we have more disclosure around on-roll and off-roll, and so on. So if that's what you're referring to, that's right. And if you have further clarification, you could send us an e-mail and we will just triangulate all the data and make sure you have good clarification.

Thank you. It's just also getting close towards the end of the schedule. So we'll have time for 2 more questions. Next question from Mr. Nitin Agarwal.

So I have 2 questions. Like, firstly, on the wallet load pattern, if you can comment as to how that has been keeping pace with the overall non-UPI GMV growth. And as we have those charges also on wallet approved by credit card. So how has been the mix change in terms of loading the wallet by credit card would pass from here. So what has the mix come down to now?

The best part I can tell you, Nitin, is that our business of wallet year-on-year has been growing and the credit card charges have moved, either moved the customer to other payment sources like UPI, like debit card or netbanking all make the customer comfortable enough to pay those changes. So the clarity here is that we want to continue to expand on wallet as a use case because -- this is here and running as a revenue line item for us, and it is year-on-year, a very decent growth. In fact, in many cases, we see that customers who use wallet to add money like we just now a few minutes back shared, the banks leverage, wallet as a platform to give their debit current credit card users extended acquiring network of Paytm. So this is strong growth, and we are very happy with how wallet growth is showing up.

I just wanted to clarify when Vijay said, it has moved users to other payment sources, other payment sources to add money to wallet, right? So users who -- there are many users who have decided they want to continue using credit card and pay the charges, which were implemented in calendar '20. And there are some users who have said they will move to another payment source such as debit card, netbanking, UPI and so on and not pay the charges. And what that has done is that the wallet take rate has been the same and it has become more efficient from a loading cost perspective. And some of that does reflect on the year-on-year contribution margin and year-on-year percentage of -- payment cost as a percentage of GMV.

And secondly, how do you really compare the productivity or the GMV contribution of merchants where you have installed merchant device like a soundbox versus the one really don't have it. And any approximation as to because we have, say, around 25, 20, 22 million merchants putting down for soundboxes, there is a huge room to expand. So how much can we really close the gap between the two?

This is -- I can tell you that the merchant who use soundbox versus, let's say, earlier like they were using static QR or plastic QR or paper QR, the one thing that happens here is that the transaction consolidate, meaning no more multiple QR merchant and it sort of becomes nearly exclusive. And clearly, that could tell you that -- and then merchant become even more comfortable because they are sure about the payment receiving. So we've seen the growth which are, I mean, strong is the word. I mean, Madhur, I leave you on the same.

Yes. So I wanted to maybe just make 2 or 3 points on that. So one is like I said in the presentation, device merchants and a large percentage of them, majority more than majority are soundbox merchants, they do become significantly higher retention, and also the volume of transaction goes up very, very meaningfully. And which are sort of 2 separate points, I just want to be clear. And that is very efficient. It is dramatically better unit economics for us and dramatically better CAC to LTV for us because you're not going out and sort of managing churn. You're managing a very different churn profile than you would without devices. The second part to call out is this behavior that I mentioned, which is higher retention and more spends, which is higher loyalty on the platform basically. That is nearly sort of nearly perfect behavior for them to become eligible for merchant lending because one of the things that we should be clear about is that we don't lend to merchants on thin file and we if there's a follow-up on that. So it just accelerates the behavior of a merchant towards creating that effectively loyal behavior and take file on Paytm so that they are able -- they become eligible for loans from our partners. So this is -- the strategically an important initiative for us. Nitin, I would refrain from giving forward-looking numbers on this. You have clearly seen the trends. We added 1 million in the last year, roughly 0.5 million just in the last few months. So clearly, this is off on a very strong trend and accelerating.

Thank you, Nitin. And now for the last question of this session. Mr. Viral Shah.

So actually, I had 2 questions. So the first one is, I know we have touched upon this earlier on Saurabh's question, but wanted to understand more so from a medium- to longer-term perspective, does the working committee report that has been put out alter the medium to longer-term different profit pools that Paytm could have developed say, for example, an underwriting or basically the underwriting decision needs to be made at the end of the banking partner, right? Probably say, going down the line, given the kind of scale and the base that Paytm would have generated, this could have been one of the monetization channel for Paytm. And another thing linked to it is, does it kind of, say, impact the BNPL business materially because the primarily the economics in the BNPL business comes from MDR. And if you look at it, one of the recommendation is that this kind of credit needs to go into the bank account of the user. So on which the MDRs typically are not what it is on same wallet?

So Viral, let me take both of your questions. From a -- purely from a model perspective, it's important to understand that the working group committee, as I mentioned earlier to Saurabh's question, we currently practice what largely is being recommended by the working group committee because we've been following the currently down guidelines of June 2020, this lending guidance, et cetera. So from a -- purely from an implementation of working group, I think it will be very positive for our business model, and it will further amplify what we have believed in building the credit business at Paytm. And obviously, it will remove some of the so-called smaller players who have been doing all kinds of things, I think, in the ecosystem, which may not be helping a digital ecosystem to prosper. Now clearly, from an economic perspective, there are 2 things to really remember in our model. Our lending business is aligned with our payments business. So as Madhur had mentioned that we do thick files. Now what we mean by thick files it is, we are not going and soliciting customers just for credit. So credit is a byproduct of what the customer or merchant does on our platform. More transactions they do, they ability to get credit through our lending partner increases. And more credit they consume, we believe this thickness of the platform, be it the consumer, the merchant increases. So it's kind of a flywheel, and that's a flywheel we are currently focused on. So it's just not the way to look at this business to make money from a element of the lending business. But in the total flywheel, we make money, also on payments and also on credit and vice versa.

Sorry, if I may just interject apologies for that. But just my question was not more so from how the business is currently, but what it could potentially be? See, for example, given the kind of data that you have over a period of time, you could have actually see, provided the underwriting tools or the data that you have you could have provided a score like we have, say, for , for example, KakaoBank in Korea does or many of these new banks do, you create a score and based on which the lenders uses those codes to lend to customers. Does this kind of stake with those kind of profit pools because now the lenders would be required to maybe document the underwriting the process that they have at their end. And secondly, actually, have you like in terms of your interaction that you have with your partners, have you seen some indications of them having to now reevaluate say, their plans or the arrangements that they typically have, not just with you but generally.

Yes. So Viral, to the second question, we don't know about the other partners. But from a grading perspective, we continue to have very, very strong support from our partners and growing. So there has been no let down in terms of scale of business. If you are indicating basis of working group committee, the answer is no. To your previous question, I think the -- our focus is always to build a legitimate business. A legitimate business means that we would like to protect what is the right product for the customers and their interest. And hence, our belief has been that what Paytm offers is technology, what Paytm offers is a very, very unparalleled opportunity to distribute credit to a very large segment of customers, and also what Paytm offers is ability to collect using our digital tools, digital platforms and the entire merchant ecosystem. So I think this is our strength. We would like to play to our strength. And I think there are enough and more revenue pools in our strength in medium to long term, which we'd like to exploit.

I would like to add more Viral to Bhavesh has just now said. It is important to know that our lending partners clearly see not just a technology and like you suggested, let's say, we could build some score source and we could give them and that would help them. They see 2 important line items, which is the disbursement and collection as an even more critical KPIs than just, let's say, help in underwriting, if you will. The reason I want to tell you Viral is that if they go on open Internet, the cost of acquiring customer on open Internet for NBFCs and banks is dramatically higher because there are many aggregator platforms and the methods that open Internet uses that the CAC remains way, way, way higher of the margin that they create. I mean I would not hesitate to say that nearly all the margin they could have made would have gone in CAC if they would have chosen to scale an open Internet. And the reason is, like I said that there are a number of aggregators who sort of hijack traffic plus even the financial institutions don't have wear with all of even they deploy third-party agencies to acquire customers of that grid. Companies inevitably seek multiple channels and the advantage of Paytm is like imagine a Diwali mela, and I ask a financial institution partner bank, partner NBFC to say, please open your stall here. And then the customers whom I have invited in Diwali mela are available to you. Paytm's approach is this that come over, we have a customer base on the Paytm app who in workflow could have a conversion towards your product. This approach does not cost them increased cost of customer acquisition. If they go on loan disbursed platforms like many years as a Bazaar kind of products where there are just unlisted products, they also do their own traffic to those platforms. Surprisingly, in our case, it does not happen because we don't fight with them to acquire their own customer. Instead, we offer potentially their customer or new customers on our platform that can be serving them. So Viral, important to notice that Paytm's credit business is not zero-sum to bank or NBFC's customer acquisition strategy on Internet. It is actually adding to that as a key important channel, number one. Number two, the ability, like you said, the data and the nuances of the system and abilities that we can help them with technology, makes them percentage hit rate much better than if this customer was coming from open internet. And the hit rate stands for that their credit policy would happily accept this customer with the nuances that they get to know once the customer is taking an application using our platform. In other words, they have a high-quality lead, if you will. Now once you've disbursed this loan, and you know that we are talking about small ticket loans, we are talking about large number of loans, it is even more important for financial institution and bank to correct this. That is where the Paytm plays even more important role and you can imagine for a merchant. They probably will not have bet with all to collect, unless it is deeply integrated with a click file that we are discussing, Soundbox, customer or merchant that there is a large number of payment incoming. And from that, we are deducting daily, weekly, monthly, whatever the interest is. So we -- while it is nice to think of Kakao-based business model where we could just throw very little and get advantage of that value. But it is far more fulfilling for our partner and us to deliver in these 3 buckets: Number one, disbursement; number two, technology platform; and number three, collection. And the best part, like Bhavesh said in the beginning, -- Are they also has called out that please don't go in FLDG or loan guarantee way because that is a credit agency's work. And we work complementary that is why the scale, that is why the margin growth and revenue growth. we are very, very -- we're seeing very, very strong demand growth. I mean, a number of few our partners on joining Paytm platform for credit is so much that internally, Bhavesh and me were working on adding more number of engineers only on adding integration partners, if you will. Hope you get the [indiscernible].

To your other question, BNPL, I think small clarification -- So there are 2 parts in the working group, which at least has come out publicly. One part here is that they have observed that there are a lot of disbursements, which other fintechs have been doing apparently as per their observation in 2 prepaid instruments, namely a wallet or a plastic card, which Paytm anyway doesn't do, which is what they have made an observation that, that will not be the big case, which should be further allowed and should that disbursement happen in bank account. In case of Paytm postpaid and especially BNPL, the lending partner disburses directly to the merchant. And hence, that is an absolutely questioned use case because this is typically the way EMI financing happens on the ground wherein I go to purchase a goods at a shop and the payment is being made by me for a loan that I've taken to buy that good from that shop. In this case, that goods could be digital, goods could be physical and the disbursement is made directly to the merchants account. So I think there is that clarification is important. And hence, the BNPL business that we run is absolutely in line with what has been recommended.

Right. And just as a follow-up, if I may. So how does the economics in this case work as to say the bank disburses money directly into the bank account of the merchant. So does bank then deduct a 2% or 1.8% that is the typical MDR?

Yes. So the economics, I don't want to dwell further. The broad level understanding here is that Paytm is also a payments platform. So the MDR is earned by Paytm, and then there is a component of interest and other fees, which is shared between the 2 platforms.

Thank you. And with that, we come to an end for the first earnings call. A reminder that the presentation, a replay of this earnings call and the transcript will be available on the company's website subsequently. Thanks to everyone for joining us.

Thank you, everyone.

Thank you.

Thank you, everyone. Take care.