One97 Communications Limited ($PAYTM)

Good morning, everyone. Thank you for joining, and welcome to Paytm's Earnings Call to discuss our financial results for the quarter and year ending March 31, 2026. 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, 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 minutes. A replay of this earnings call and transcript will be made available on the company's website subsequently. [Operator Instructions]

We will start our Q&A now. I'm just waiting for the queue to line up.

Hi, good morning. I think thank you for joining us early in the morning. And like I'll say it all the time, you may not switch on the video because I understand this is early in the morning, that's very much fine. Keeping in the tradition, we are in the switch video. And at the same point of time, this time, we changed the earnings release. We try to make it crisper. We try to make it simpler. We try to bring about what is important and our communication style to tune a little more about how we believe that it should be read. So I'm sure you will have feedback, love to get the feedback, and we will tune accordingly. I hope you like the one right now. With me is Madhur here, and we can start. Thank you.

Thanks, Vijay. The first question will be from Mr. Manish Adukia from Goldman Sachs. I think we are facing some technical difficulty. Please allow us, okay, Manish is here.

Sorry it took me a while to get in the room. Good to see you. First one, maybe just on the guidance. A bit more color on the revenue growth acceleration that you've talked about in fiscal '27. Now I understand that F'26, you had double-digit decline in your marketing services revenue growth. So how much of the guidance acceleration in F'27 is just a function of marketing services revenue growth recovering versus you probably also seeing an acceleration in revenue growth across payments and financial services. And maybe a related question also on the EBITDA margins. I know in the past, you've talked about medium-term aspirational margin of 15% to 20% EBITDA and you have ended the year at about 6% with very strong expansion. Qualitatively, how far away are we from getting to that 15%, 20% EBITDA margin number? That's my first set of question, please.

Manish, let me talk about marketing services. Marketing services and cloud and commerce, if you remember, all this combined, we call marketing services because we have small merchant, large merchants about making sure they get from checkout to check in. I mean we call these services that once the customer is checking out on the shop or counter or online, the customer comes back. Thanks to AI agents. This is the area of focus for us in the next 12 months and let's see how we do it. I do believe that it is an extraordinary bigger opportunity considering we've been able to take care of our core payment and financial services. So it will rather about choose what is your moat, head down and execute it and then extend towards next side. If you read the intent in our AI page, it is hinting towards that.

But just to add, I think the overall acceleration given payments is about 55% of the revenue in financial services about 30% of the revenue to answer to -- I think the short answer to your question is it is across the board. We are seeing strong tailwinds in payments, both in offline merchants as well as online merchants, which obviously has a full license now and is adding new customers and so on. And we are also seeing very good growth in financial services. As we have mentioned before, merchant loans continues to be solid. And we are now seeing recovery in personal loan and market share growth in wealth. So in addition to what Vijay said about marketing services and sort of crux to your question, yes, we expect that to be a contributor going forward. It has been a bit of a drag last year, but we think the growth will be across the board. And on EBITDA, we will maintain about 2.5 to 3 years from now that we should be able to get to those sorts of EBITDA.

Very clear. Maybe a second question on financial services, which you touched upon in the earlier question. And I know you stopped giving out disbursal number, but from the postpaid launch that you made earlier, if you can just talk about the traction this time versus the earlier postpaid is the traction in terms of ramp-up of the product, scale or disbursal tracking better or similar versus the last iteration, any differences in consumer traction, that would be great.

Yes. Manish better than last time. Classic internet dissemination or diffusion of services style, it took x number of time. This is taking x by a significant large number time. So it's -- I mean I'm really happy. We will not give disbursements. I think this pushes us towards as if that we are a credit issuing entity, which we are not. So we are pure technology platform, which helps different distributors. This is the nearest most agents in product to our payment, and I think it is doing phenomenally well. I'm not going to say it is doing well. I'm going to use the word phenomenally well. And I'm very happy about it that on the back of it, our personal loan disbursements in last month, I mean, this will show up in the next quarter, have started showing up. I mean, we have started to go back to if you read a particular text of personal loan disbursement, it is not that we are any more measured about or limited about it. It is rather going next level.

And just to remind everyone, this is a classic compounding business because our sign-ups are very strong and repeat rates are very strong. So it just sort of compounds upwards as you sort of just go through time. So we're seeing that sort of compounding traction and is significantly faster, as you can imagine, from the first time we started the postpaid journey.

Sure. Just a quick clarification on that one. And I know you don't give disbursals, but I recall last time when you used to give disbursals, the peak of the disbursal for postpaid was about INR 9,000 crores a quarter. And given that you're saying that the ramp-up is actually faster. No reason why you should not get to the number at some point in time in the foreseeable future? I mean, would that be a fair statement?

No comments towards any guidance of end of it.

All right. Great. I tried. Maybe just last question before I just jump back in the queue. PPBL ban, I know you are -- it's an associate for you. You don't have any management control there. But in terms of just any early impact on your listed entity OCL just because you share a common brand in terms of consumer merchant acquisition or churn? And what does that mean now from your own wallet or prepaid instrument application to the RBI and the outlook for that. That's my last question.

I think no impact. We did it in the press earnings release on the system and we remain committed.

Sure. And wallet license?

No, we have been committed.

The next question will take from Mr. Sachin Salgaonkar from BofA followed by Pranav Kshatriya from Emkay.

First question, generally a follow-up when we look about growth accelerating in FY '27, there are multiple other small businesses, which are yet to scale up, wealth management, brokerage, insurance even on the personal loan basis. Any color in terms of -- I mean, should we see a good amount of acceleration coming from these businesses scaling up? Or it's the existing merchant loan business, sound box as well as the core payments business, which will help accelerate the growth. In a very simplistic manner, I mean should the core business show acceleration of growth? Or should we see a combination of both actually?

So first of all, the business model is straight and simple that we acquire customers using payments and we cross-sell financial services. We've done good in credit. We definitely are right now focused on or wealth or wealth or securities brokerage, whatever the line item that we want to call combined into one wealth item. It is critical for us to make it the third leg of growth. It is. It may not -- and I've said it in last earnings call that we want to see ourselves in top 5 sooner than later. And that remains a focus area individually for me also. In other words, I'm saying that payment has to scale because that is the TAM. So there is no alternate to that. We will keep investing. If you notice, we have very clearly articulated the amount of invested in expansion amount in creation. So our cost optimization is rather about creation of the product and platform of payments because the cost is much lesser than that and continue to reduce. But the attention is more about expanding the platform to a dramatic large enough optimum TAM. Dramatic large from today, optimum because we don't want to acquire everyone. That is the word I'm using. So it is an obligation. And right now, we are so happy seeing the monetization cycle showing up, that is the primary opportunity of it. In fact, over the period, Paytm could be looked at as the payment platform that monetized in financial services so well.

But Sachin, message you should take away is it is more or less across the board. Our large established businesses, we see huge opportunity ahead. We love our merchants online and offline. Last year, online had a headwind that we did not have permission to onboard new customers for about half the year. That's lifted. We're seeing good traction there. Off-line, obviously, there's huge market opportunities still ahead. I know that's a very popularly asked question. which is, hey, you have added x number of merchants. Do you still see growth ahead? Absolutely, we are seeing market expansion, and we are seeing market share growth. So that's going really well. So that's one bucket of large established overall profitable businesses. The second bucket is businesses which had scale, but had some headwinds in the last couple of years. So advertising because of our MTU and app revamp had a headwind. Personal loans had a headwind because of credit cycle. A lot of that is turning into tailwinds from a slightly lower base. And then the third one like Vijay said is where is the third pillar. And the third pillar, we think, is in wealth. And there, I would characterize that as a slightly different business where we are younger and have no market share with great opportunity to increase market share and these are proven businesses. So that's why we're sort of retail broking, if you will, gets filtered to the top. So those are sort of the 3 legs of revenue growth and we're quite excited about each 1 of those 3 buckets.

My next question is our statement you mentioned in your shareholders letter that you're looking to keep some dry powder for selective inorganic action. Now on a really big picture basis, how could we think about this? Any specific areas in the current business you're looking to focus? Is it more on international lines? Or is it any kind of a new opportunity which is going to open given the fact that AI could open up doors for new businesses as well?

Yes. Any new investment only in AI.

Sorry?

Any new investment only in AI.

Only in AI, okay. And I mean, Vijay, when we talk about AI, is it something which is going to help the existing businesses or it could be a completely new line of business actually?

It's primarily the same customer, same merchant, primarily making their life better. Like I told last Manish's question that we believe there will be a significant amount of opportunity for us to create agents and so on.

Got it. And lastly, just a bit of a follow-up on this RBI thing, where what kind of further permissions licenses are we expecting from RBI? One is wallet, which is largely known. But beyond wallet, is there anything which is pending per se from an RBI point of view where you guys have applied? And Vijay any time line when we could expect the wallet license?

I'd rather put head down and execute. There is so much on the plate that I will say that ambiguity is behind us.

We'll take the next question from Pranav Kshatriya from Emkay followed by Vijit Jain from Citi.

My first question is regarding the higher promotional and cash back incentives. We've seen this expense going up quarter-on-quarter. But correspondingly, we've not really seen any jump in the marketing services. I understand this is a seasonally lean quarter for marketing services, but there is no increase in the MTU as well. So how should we see this trending? And what is the time line for it to give outcome?

I think it is the marketing services where you sort of expect, let's say, our commerce line items to do a good job, but it is also going in expansion and cleanup of our existing customers trying towards other services beyond just marketing services. For example, like there is digital gold on our platform. There is element of the discount gift vouchers. We believe that strengthening the moat of customers and locking in on our platform is the first priority which is what the payments core job is. And we do acquire customers. I mean, Pranav, it's a 2 choice to put that we can continue to acquire an incremental cost -- incremental lower-cost customer who is not in the ecosystem. And the cost of that is that you will not have large users because the new incremental customer left in the ecosystem has a very low connecting or low-value customers, if you will. So we are trying to acquire high-quality, good quality customers. So the increase in spend will consistently go up, but it will not go up in the ratio of what you could just recklessly spend. So we have been measured and will remain measured in spending. But -- at the same point in time, we are conscious about what kind of quality of customer are we getting and what purpose the customer is coming. So there these things go through quarter-on-quarter measurements and recalculations. At the same point in time, I'm committing this once again that we will continue to spend it, not more than what the ratios have been right now, like we have always said it. So it is not an incremental excess spend at all, first of all. It is within the guidance we have given. At the same point of time usage of this money will continue to calibrate towards which service is what we continue to do it.

Just a couple of tactical things to just contextualize. One is you have to look at it sort of like marketing expenses and cash back together because some of those are decisions that the teams make in terms of where they want to spend their marketing dollars. The second is while the MTU number may not reflect all the impact of the spend. But if you look at our engagement, that has gone up dramatically. So the market share growth that you're seeing is far exceeding, if you will, MTU growth to underline the point that Vijay mentioned about quality of customers and engagement of customers. And take a step back, if we were to break our business into consumer side and merchant side, we have had the best quarter from a profitability standpoint on the consumer side in the last 8 quarters. So it is flowing down to the bottom line despite these additional spends.

Okay. Fantastic. My second question is regarding indirect cost. So typically, Q1 will have higher employee costs on account of appraisals and salary hikes. So how should it trend from here on? Should we expect that to remain in current 1,150 thereabouts? Or it can be significantly higher than that?

So there are quarter-on-quarter changes, particularly including the impact of appraisals. But if we look outwards towards the next year, we do think that like we have said, this will grow significantly lower than revenue and contribution profit growth and continued operating leverage as a result of that. And the second point I'd make is that we still see efficiencies in various parts of the organization due to use of AI.

The next question is from Vijit Jain from Citi, followed by Jayant Kharote from Axis Capital.

Can you hear me?

Yes.

My first question is...

He's going to be joined by other analysts [indiscernible] that someone. I think.

Can you hear me now? Yes, sorry, I think yes. So my first question is on net payment margins. Good to see 9 basis points overall. You've said that it's remained above 4 basis points despite the PIDF subsidies and on going away. Looking ahead, what would you call the major drivers for it continuing to go up. I know you have various streams, merchant fees, instant settlement. I don't know if you're deploying working capital towards instant settlement. And then, of course, you have UPI credit and EMI. So I just wanted to get your sense on all 3 or 4 different drivers where you still think there are -- there is decent upside? And how do you get those upsides? Are these going to be more push driven or just organically will happen?

I think there's a whole bunch of smaller factors. But the 2 major factors, especially when we think about payment processing margin, which is what we have said is higher than 4 bps. The 2 major factors are our product improvements giving us a luxury of having pricing discipline. So we have talked about pricing discipline in the presentation, but the underlying piece is that our product keeps getting better and better. And as a result, customers -- merchants in this case, are seeing more value in our product. And the second is just a shift in the industry, which is credit instruments being on UPI rails and growing at much faster pace than overall GMV. So we talked about credit card on UPI before. Obviously, Paytm postpaid is starting to be a contributor as well, still relatively smaller compared to a couple of years ago, but becoming a contributor as well. And if you can have a -- even a small percentage of giving you 20, 30, 40 bps of margin then obviously, it does change the overall mix significantly.

Got it. So Madhur, safe to say there are plenty of upside drivers to those core net payment margins, right, from what is right now greater than 4 basis points. And then specifically on some of these -- a lot of your merchants are obviously in the long-tail mid-market side of things. And I would imagine things like I think settling the balances faster and so on and so forth is potentially more useful thing to those kinds of merchants and to larger merchants. Is that a product that has a lot of success and adoption from merchants? Just want to get a sense of whether you see more avenues for where you could deploy your capital, it gets you some fees and is useful to your merchants as well?

We do a settlement as a product. It's a good product. It's an industry product, we do it.

Got it. The next question I had was on Paytm Money. So in general, are there any product investments that you still need to do within Paytm Money to kind of make the proposition more compelling to heavy user traders versus, say, investors? Any -- I'm just trying to get a sense of whether there are gaps there.

Short answer, dramatic more. I mean, obviously, the AI is changing everything. I mean, the agents will show up, that will do trading. Agents will take care of your portfolio readjustment. Agents will show up the trading strategy of yours will be reviewed. Agents will create optional chain for you. Agent will create scalper. There is -- I would rather say I feel lucky that we did not dump a lot of money earlier because in the AI world, everything resets. So we see there's an opportunity of bringing some product that is materially matter for from now to 2030. I mean the point is what got created in 2020 is not going to work in 2030 that I can like it. So anybody who's not investing is an opportunity for us that persons customers.

Got it. And Vijay, so just sticking to that point a little bit more. So what you're talking about is consumer-facing experience of how you trade. Is there anything on the back end also that you need to invest in to be able to serve?

I mean consumer facing is -- rather consumer facing is going to get easier because you will not [indiscernible]. So everything is back-end investment. I mean, everything is core investment machine. Anything that shows up in the front. It is only as good as it in the back.

Understood, Vijay. My last question, any comments on how Paytm Check-in has done since you've launched it. I think it's been a few quarters.

So Vijit, this is our dip test that how Indian consumers are okay for a face that is chat interface, agent interface, completely agent. So it's our perfect experiment to look at it, and we picked up a different brand name so that people don't perceive that, okay, this has got popped out or something. It is completely agentic approach towards consumer interfaces. I see agentic interface as rejuvenated new opportunity for Paytm to gain consumer shares in dramatic -- in a number of categories. And this is our experiment, which is one side note. You will be shocked the funnel conversion on agentic when a customer starts, typically, these 2% or 3% in a funnel that starts where the commitment is the customer can be browsed, but funnel converts meaning 100 people if they're searching, it goes 2%, 3% in a good scenario, a good product company would do that. It's 7x or 8x more than that, my friend. 7x or 8x more. It is 700% better funnel because of agentic I mean, boom.

So people go closer to transaction.

7x more people complete the funnel in agentic workflow than our [ TPAP ] workflow.

We'll take the next question from Jayant from Axis Capital followed by Kaushik Agarwal.

I think it forces people if I enter so I got it. No, no. I just made him a panelist -- and because you can get some of that.

Hello. Yes. I don't know how promoted to panelist. Yes, congratulations for great performance on financial services guys. First question was on the payments piece. I see you have done a very strong growth over there. If I see this quarter versus last year's fourth quarter, both your GMV is up 27% and margins are moving from that more than 3 to more than 4 basis points. That actually throws up a very high growth number on the payment processing margins more like 50%, 60%. Is this a real number? Or are we missing something? I mean, that is quite high growth in payment processing.

So I mean, just to be clear, our guidance earlier was greater than 3%, which is not to say that we were exactly at 3% but the math that you're doing, while adjusted for that number is correct, that our payment processing margin has been very strong.

Great. Now unfortunately, what that implies is the subscription revenue has not grown at all Y-o-Y. And this is despite us adding 27 lakh devices, which is 22% on our base. Is that because a lot of these would have gone for PIDF-linked devices? And then, of course, how do we think about this? Without any price hike, it means the device addition is not fully translating to revenue growth?

Yes. So it is the case that PIDF has an impact. And it is also the case that adjusted even -- sorry, without adjusting for that, the device subscription per device overall is slightly lower. But we do see this as a very good funnel to merchant lending. So what we look at internally is payback periods at a very, very detailed cohort level. and those payback periods are improving significantly. And part of that is also because we are getting more efficient at acquiring customers and our CapEx per device as well as retention of merchants.

But does that mean -- because you have 2 strong pillars in the net-net payment revenues. Does that mean that essentially looking ahead, it's going to be largely net payment processing margin that's going to do the heavy lifting on this revenue line item?

It is the case that payment processing margin is growing faster. And because payment -- partly because payment processing margin is growing faster, but combined with the fact that our lending penetration is going up, we are okay to make a little bit less money on device subscription per merchant.

Great. And just one follow-up on that only. The credit card on UPI growth, I mean, you've seen the whole industry credit card growth is just created right now to single digits. And generally, what we've been observing is credit card on RuPay UPI moves 2x of that number roughly so that has been like 30% when industry was at 15%. Now that industry is down to 7% to 10%, are you observing similar moderation from that 30-odd to 20%-25%? And then of course, the worries our GMV growth then moves in sync with credit card on RuPay UPI? And then how does the margin expansion happen?

What you're saying logically should have some impact, but I don't think we're seeing anything noticeable there. I would point out that credit card on UPI is a very small -- very, very small percentage of overall credit card.

But one thing we can tell that our credit card on UPI percentage is more than the standard bank account payment percentage that tells that we have a higher-quality customers on our app.

No, definitely. But that has been giving a very good margin improvement for...

Margin improvement is rather about because we have a high-quality -- I mean Paytm has been ever since, and all these events have still made the customer retain means they are long old customers, and that means that they are high quality, which extends towards credit worthiness, which extends towards credit card usage. Our credit card usage is more than the market share and order of magnitude. Once again, I mean, that is why our JV growth has been higher because if you notice the same number of MTU didn't grow, but usage grew because the product became better, product became better for the customers who are better quality customers. So we talk about product quality, customer quality, not just the volume.

Great. And lastly, on costs and margin. We are guiding for more than 22% growth. And if I'm correct, now contribution margins, we should expect between 55% to 60%, but maybe more 55% to rather than 60%, what was happening because of the PIDF impact. So that -- I mean -- and then indirect costs, I'm seeing after a great performance for 8 quarters is rightfully so you're investing in growth is picking up. So does that mean that from here on, the journey is going to be incremental rather than what we saw last year. If you see Q4 versus Q3, adjusted EBITDA growth is a decent INR 30 crores, but does it mean we should look at something more linear now than the exponential numbers that we saw through last year.

I assume you're talking about EBITDA margins like we said in the writing, we do expect significant operating leverage going forward because logically, the math that you were doing, if we have revenue growth acceleration, which we are confident of and indirect expenses growing significantly lower than just -- the math is just embedded in that, that you would see significant operating leverage going forward.

I was talking about the journey, Madhur. Is it going to be upfronted or should we now think of this to be slightly more back ended?

I don't want to get into quarter-on-quarter. But if we were sitting here a year from now, we're confident that we would see -- we would have -- we'll look back and say there was significant operating leverage and EBITDA margin expansion as a result.

We'll take the next question from [ Kaushik Agarwal ] followed by Rahul Jain from Dolat Capital.

Rahul you can -- Rahul go ahead. You can ask us the question.

Yes. Firstly, we have highlighted about the investment we intend to do on the cash back side. Can you highlight some of the consumer use cases. And also from a run rate point of view, do we see a meaningful increase from the exit of 1 billion odd we invested in this quarter?

Can you just go to the first question again? I didn't quite catch up.

Yes. The cash back investment that we want to do, are there any specific areas where we are trying to -- because we highlighted there are a high-margin segment that we would like to invest.

So Vijay, I think sort of already touched upon this. Our digital gold is one of those categories and then which is covering financial services, just a housekeeping point. And in -- they have several use cases on marketing services, particularly travel, where we see good ROI on investments. And then there's always a chunk of investment that goes into ensuring that you're building more engagement and more retention of merchant -- of customers.

Surely. And on the sales headcount side, do we see some more optimization to happen since the sunset on the PIDF scheme?

I think it's a combination of sales optimization as well as subscription revenue per device optimization. We had said last quarter end of January that we'll be able to significantly offset it over the next few quarters. And our Q4, and I think it was in response to a question was that we would be able to offset 30% to 40%. So I'm pleased to report that we did achieve that, and we are confident that over time we'll be able to significantly achieve near full offset and some of that will show up in sales cost of that.

Sure. And just lastly, of course, people have tried asking this on the AI investments. Would this could be also on line of creating a captive data center for more data inferencing? Or this would be purely from an M&A point of view?

There is nothing like -- we don't have a CapEx plan on yet. I mean, there is enough amount of CapEx that U.S. big guys are doing, and we don't think that we have a game in that yet. We do believe there is an opportunity for us to invest in AI equal to like saying let's say we are using agents for our customers. We can rent somewhere a data center. We can rent, let's say, [indiscernible] and then on our own model on top of it, that kind of investment. Investment is attention and deferred, not just capital. We don't have a material capital investment plan right now on the table or is in plan.

We will take the next question from [ Harshit ] from PNG, followed by Sachin Dixit from JM Financial.

So the question was more to get some sense of our merchant ecosystem base. So Vijay, I think the point was that probably we are lending to a segment where they are okay to borrow at that 25%, 30% rough IRR for them. Now -- and probably obviously, I know that you guys won't give the disbursement number, but some sort of calculations, et cetera, whatever that number is. That number is even if I take a INR 40,000 crores, INR 50,000 crores of annual run rate, we would be a large part of that market itself, the addressable market. Now so I just want to get a sense that our payment service or financial distribution revenue growth from here on, will it be driven by the consumer loan products incrementally? And in case of merchants, do you envisage a situation that probably it's the lower-yielding segment where we'll have to move to expand to maintain this growth run rate? So broadly, some color on the merchant profile and probably your market share within the -- whatever you guys think as the addressable market share market for this range of merchant lending.

The best part is that we don't own the book. So everybody wants to serve this customer is our potential partner, including banks or anybody else, if you want to acknowledge that. So we don't have a market share problem because we own certain book versus somebody else on certain book. They go to the current lenders who are interested in the tender. We become the channel. Now the most logical captive customer of the customer are merchant where we are capturing everyday payment flow is just most logical. Anybody else can also do it, but most logically does. On our customer base, we have benefited less than 5% or 5.5% revenue.

On merchant base, about 7%.

About 7%. And that too, based on subscription merchant denominator. Remember, the person who has a selection bias of paying a subscription, we are talking 7% penetration. Obviously, there is a large number of merchant base otherwise beyond that. We fundamentally...

Got it. No, my point in competition was more -- no, my point on competition when I asked was more from the distribution itself that, for example, many other players will also have access to that customer over time, if not today, and the engagement, everyone will try to increase their engagement. So competition as a distribution partner is what I was trying to understand rather than from the lender's point of view.

All right. So the merchant who is our merchant, if that merchant reflects from us as a payment merchant, we don't think that we would be in a superior state or somebody who does not have that much help will have a superior state of distributing. So it's a counter share kind of question, as you know, Harshit, that if you -- so there are 2 kind of merchants exclusive to us or nonexclusive to us, only that. In a nonexclusive case, if we are getting a lesser data, we anyways are not going to help him get loan unless we have a larger enough payment flow data that we are able to partner with our lender, lender believes that, yes, this is good enough. I would like to extend the loan. We don't, I mean, we don't have, again, much more to do, but to retain our payment merchant and do a good job of distributing and collecting.

And if I may just expand the question a little bit just to the building blocks of this. So one is we have the core product of merchant loan which you described is to smaller merchants, smaller ticket size. We've been doing it for 6 years really, really well. And there, as Vijay said, we have about 7% penetration. So huge room to expand that. The second is the TAM expansion story, which I think you touched about a little bit, Harshit, on the merchant loan product that we do have types of merchants who may not find our current products or the products that we had in FY '26 suitable. So those could be larger ticket size loans, for example, where, like Vijay said, because we partner with lenders and if lenders want to distribute such loans to them, then we are a logical partner for that. So that's the merchant loan story. And slightly more broadly, we expect things like wealth and personal loans to be a much bigger contributor next year than before. So what we're excited about in this financial services line is that there are multiple drivers of growth next year, which are quite visible.

We will take the next question from Piran Engineer from CLSA, followed by Sachin Dixit from JM Financial.

Congrats on the quarter. Just firstly, on the retail broking thing, you touched upon using AI to sort of grow that business. But firstly, are we targeting customers who don't have a broking account? Or are we going after everyone? Because I'm assuming that out of your INR 7 crore, INR 8 crore active customers, a lot would already be broking with one of the incumbent platforms, right? So how are we thinking about that?

We add on both sides. We add customers from both sides. We are net churn gainer from other platforms and we get new customers.

But then...

New customers, mostly new or mostly towards mutual fund and the SIP creations. And typically, it may be called churn from other platform or customers are okay to have multiple accounts.

But then what's our value proposition for the core F&O kind of traders versus, say, a Zerodha or a Groww platform? See, also, I get a sense, we analysts are not allowed to trade, but most traders want to be in charge of their trading where they probably don't want an AI agent to recommend, et cetera. So I'm not too sure how that strategy will help the core.

When you launch the product, you'll get to see it. I mean there's a thing more about it. I mean it's nothing better to say than when it's launched. I mean there's no secret spice. It's very visible to everybody. I'd say it is writing on the wall, I see as everybody knows that what impact of AI and addition of AI, we lose the product for any segment that you want, it's as normal as that.

And we will not indulge in price discounting, et cetera, right, to gain share there?

So always remember, Piran, our customer acquisition is payments. This is our monetization layers.

Which means that we are okay giving it slightly cheaper, like if Zerodha is doing INR 20 a trade.

I don't think this is a price question. I mean you're going now probably the time when we are competing with anybody else for the price. You see our pricing. We don't think the price is a value. We believe product is a value. Pricing is like commodity any which ways for anyone to price. Those who discount their product, they feel that is a value of this product.

Okay. Just secondly, a data keeping question. This quarter and last quarter, what is the proportion of DLG in our merchant loan disbursements?

Proportion of DLG is broadly flat, maybe slightly higher as a proportion of loans that go through -- that comes with DLG is probably slightly higher. The amount of DLG is flat, flattish.

Should I take it at 20%, 25%? Or a bit higher than that?

I don't think we've guided that before, and it's not a metric that, honestly, we try to sort of keep within certain guardrails or target a certain number. So I'd rather not to get into that.

Got it. Okay. And just lastly, can you give us some color on online versus off-line growth on the merchant processing side?

Online, I'd say we've started to grow the GMV. We've started to farm the account better, and we obviously started to add new customers. So there is -- I would rather say that online has bigger opportunity now considering there are B2C brands, there are off-line people going online, then we envisaged a year back, that I can say. So we will address and are addressing it accordingly in that approach.

And Vijay, what proportion of our merchant GMV would it be now? I understand it's small, but like single-digit small or...

No. I mean -- I'm sorry, I will let Madhur add something.

We are a very significant player in online merchants despite the assumption back then until last year, we will not be adding new customers for credit in 3 years, right? So we're a very significant player there. It is very meaningful double digits GMV. So it's not single digits and all. I won't dispel that. We don't really look at it as a percent of total because they have independent growth drivers. There's huge now hunting opportunities as well as farming opportunities in online merchants while maintaining pricing discipline. And in the offline merchant base, we have a very large enterprise business as we have talked about before, which is independently profitable. And then we have the SMB business, as we call it, which has investments because that is very sales team heavy, but that it also is the target market, primarily for our merchant loan business. So these 3 things have sort of independent growth drivers and run by very, very strong management teams in each case and they march ahead. There is a common issue that there are certain merchants who benefit from omnichannel solutions. So that sort of overrides and that's just a collaboration between the teams, but they're largely sort of independent operations.

We will take the next question from Sachin Dixit from JM Financial, followed by the last question of the day from Alok Srivastava from UBS.

On the question side, my first question was on basically monetization of some of the AI products. I do understand it's still early days. But can you talk about anything that we are seeing on the -- especially on the soundbox with AI capabilities part or any other products where you are actually seeing some monetization benefits also creeping up already?

Yes. So classically, marketing, which we use to give them tools, now we are asking them to do it through agents. So we believe that merchants will be able to do it easier because agent will do the necessary job of workflow, taking care versus let's say, we are giving certain market products. So that is the kind of approach that we are taking. So the product line item still will remain the same, and it will become better as a penetration and usage because we are using AI or allowing merchants to use or customer to use AI.

Sorry, Vijay, if I understand it right, monetization is users linked. Is it?

Monetization is, let's say, I'm saying the customer that you can use us for acquiring or retaining customers. So the person maybe we charge subscription plus usage or only the usage so that the person does more usage. The approach will be somebody wants to reach out -- make an outreach to their customers. We can give it on a -- let's say, you can run an ad on Paytm app. You can run communications through different different communication channels to their customers and then you can get the customer acquisition sorted out through our platforms. So these platforms, monetizations. Eventually, what you're doing, it is a tool to achieve more customers, acquire more customers retained and repeating or stopping the churn. Now the customers, our customers can pay for certain per consumer basis, platform subscription basis, per usage basis, we are in the midst of these kind of discussions that which of these line items work for us or work for our customers.

Understood. Understood. On the second question side, sort of a top-up on Harshit's question as well. Is it possible for you to break down the growth drivers of merchant lending, right? I do understand it's growing almost like high 30s, if not 40s. Going ahead, can you break it down between that maybe the soundbox devices grow at this rate, penetration goes up by this rate or ticket size or any such things grow at this rate. Just to make it more sort of apparent for people like us.

So good modeling question. I think.

I have the data, so I can share it. So historically, what we have seen is 3 primary drivers of growth. One is the expansion of the base, the second is the penetration rate and the third is the increase in ticket size. And each one of these has been broadly similar. So roughly, call it, 15%, give or take, on each one of these drivers. And we can dig into this, if you would like to. Now going forward, for our core business, we think this will probably remain the same. But at an overall level, because as you go for TAM expansion, you may see that ticket sizes might on a blended basis, be slightly higher especially if we are more successful in the slightly higher ticket size loans and so on. So if you look at that separately in the core business, it remains intact with those drivers, but there's an opportunity to sort of expand TAM beyond that.

And where do we see the penetration levels reaching like the 7-ish percent that you mentioned in terms of merchant lending as a percentage of subscription license?

Yes. It is broadly been going up at 1% a year. So if you think about a year ago, we were probably at 6%. Now we are closer to 7%, and that's about a 15% increase that I was talking about earlier.

And the core is about the more aged merchant on that form the better the lending partners have a trust and confidence that this person's ability to repay back.

And just to add to that, and this is sort of a logical follow-up to this is that our engagement with merchants is going up very meaningfully, and that shows up in our GMV data, et cetera, as you would see. And that could mean that the penetration rates start to look a little bit better. The ticket sizes start to look a little bit better and sort of break out a bit. So those things do happen and business has obviously evolved as a result but it is a very interesting. I think about 3 quarters ago, we had sort of called out and we can share that earnings release with you separately, exactly what we have seen over the last 4 years.

Understood. Understood. I mean basically, the math that I was trying to do that we effectively can be talking about almost 40% growth if you look at these 3 drivers is how I've seen it. Understood. Just one final question and more like a quick response. There has obviously been chatter posted Paytm payments, bank licensing happening that Paytm might go for a new license, maybe an NBFC license as well. Any comments, any thoughts on that? That's my last question.

We do have a comment on that, and it is in our Q&A at the back of the earnings release. But just to summarize for this audience. One is -- there are 2 broad thoughts on that. The short answer is we're not super excited about going for an NBFC license. And the rationale for that is probably 2 things. One is we really like our model where we stick to what we are uniquely good at, which is distribution, building great technology so that customer -- merchants can convert better, insights on these merchants as well as collection abilities. And our partners than they are very blue-chip partners are very good in managing capital, managing risk, managing cyclicality and so on. So we do think this is a win-win partnership, and Paytm does try to be a win-win partner for whoever we partner with across the board and, obviously, we're talking about lending. The second point is, to your earlier question, we see the opportunity as absolutely massive. We have a very large payments market, that market is growing, our market share is growing. And that, combined with low penetration means that the opportunity is in the short to medium term already is very, very large. We do think that logically, that loan book should sit on multiple balance sheets, not a single balance sheet, not neither ours nor a single partner's. So aggregating many, many more balance sheets, we think, helps us achieve our medium-term goals a lot better than trying to anchor it on one balance sheet.

I have Mr. Kaushik Agarwal asking a question in the chat window, and I'm answering until the time period, whom are you getting?

So we have the last question from Alok.

Alok you could unmute yourself and so on, but I am just answering what is written here that can you give color around asset quality and lending distribution business and so on. Sir, we are absolutely not in the asset quality business because we do not own the risk or the credit that is disbursed on any book if ever, our commitment is towards FLDG, it is completely the decision and ownership of the book that sits with lenders. So this question does not sit with us. This is our role is -- it's like saying [Foreign Language]. So we are the retailers, not the manufacturers, if you will, of this. And then second question you were asking, sir, is that what is the non-MDR linked payment instrument to GMV. It's very easy. RBI has different different kind of data, our mix of MDR bearing instruments is growing. That is why net payment margin is growing. And I think...

On question number 3, it is the case that we have CapEx. But next year, we expect EBITDA to be significantly higher than CapEx. So the observation about last year is correct. INR 500 crores EBITDA, but we have CapEx. Should I take Sadia's question as well? Sadia, on the merchant side, we have 3 or 4 drivers of monetization, one like you mentioned, is subscription. The second is MDR on MDR-bearing instruments. So if they're accepting credit cards or credit card on UPI or Paytm postpaid. All of those are MDR-bearing instruments. And the third, as you pointed out, is merchant loans. So those are the 3 big drivers of monetization. It is the case that not every merchant may be paying us at least 1 of the 3, but vast majority of merchants do. And at the cohort level, the payback period is always within acceptable bounds.

Yes. Thank you for asking these questions in the open chat, as you know, we can take those also. And then we have Alok here.

Thank you. Alok, you may unmute your line.

I just have one question. If you could provide some color on affordability. So in your earnings release, you have mentioned that it has supported margin. So just in terms of whatever you are comfortable sharing in terms of, let's say, GMV, what percent of our machines have affordability enabled? What is the outlook here, value proposition and so on?

I think the one thing I can say is more than half of our machines are enabled and for dispersing EMIs. I don't think that we have GMV numbers by the instrument. But you can be very sure this is in enterprise segment, in long tail segment, both alike -- it is liked because they want to make affordability as a feature for the customers on the shop and we continue to aggregate everybody and aggregation, as you know, is our primary role here. So we continue to aggregate from as many people.

And we have very, very strong partnerships with both brands and banks. Are the other pieces of the ecosystem. So there's merchants and there's banks and brands. And then that's obviously the consumer and the rough -- greater than half number that Vijay gave for enablement on card machines that is very significant, because not 100% of merchants need EMI necessarily, right? So it's limited to certain categories of merchants generally those who have higher ticket size transactions. And we're making huge progress in this. We are gaining share because of our focus on this business. And obviously, we have talked about the impact on processing margins.

Okay. And fair to say, Madhur, that this will be largely in electronics, the machine in terms of....

Electronics is an anchor category, but there are many other categories. Health care is a category.

[indiscernible] everything else. Beyond electronics, furniture, subject of...

Furniture, fashion even beauty products.

Something like that, INR 5,000-plus ticket size helps us.

Even if something like quick commerce, which you may not expect does actually have some percentage EMI-based transaction. So I'm giving you the sort of contrasting example, which might not be super obvious. It wasn't to me until I saw the data of where is our EMI volume coming from.

I'll take question from Arjun Juneja who said that any interest in building paid loyalty program on consumer merchant side for drive data lock-in. We have Gold coin-based product, my friend, and it is not paid. It is for everybody who uses more Paytm gets more Gold coins. Use Paytm for every P2P to P2M payments or every other thing. And then [indiscernible] says, congratulations on good set of numbers. Thank you sir, eagerly waiting for AI-led agentic capabilities tools from Paytm. Thank you. Same here.

Thank you. 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 subsequent. Thank you all for joining. You may now disconnect your lines.

Thank you.

Thank you.