Prosus N.V. (PRX.AS) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Prosus PayU Credit deep-dive call. [Operator Instructions] Please also note that this event is being recorded. I would now like to turn the conference over to Eoin Ryan. Please go ahead.

Thanks, Chris. And if that hold music didn't get everyone excited, I don't know what will get you excited. Good afternoon, everyone, and thanks for joining us today on our third of a series of deep-dive calls that we are doing to give a better understanding of our businesses and the key growth initiatives within them. Today, we're moving to PayU and taking a deeper look at our initiatives in credit and specifically in India. And on the call with me today are the CEO and CFO of our Payments and Fintech segment, Laurent Le Moal and Aakash Moondhra; and then we also have Prashanth, CEO of Credit, with us today to talk us through the new initiatives there. We'll talk you through a quick presentation, and then, as always, we'll open up for Q&A. On today's call, I just want to give you a heads up, though, that we will be doing a demo of the LazyPay product, and that is on the IR website. So if you're dialing in on the phone, also go to the website just to catch that demo. If you don't see it today, you can -- it will be up there for you to look at later. And with that, I will turn the call over to Laurent. Laurent?

Thank you, and for this introduction, and thank you all for joining us today on this payments and credit deep dive. Hope you will get out of this deep dive as excited as we are, actually, about the opportunity. And before I get there, with Aakash and Prashanth, I just want to step back a bit and remind all of you of the mission of PayU. PayU really exists to focus on high-growth markets and connect merchants with consumers and banks to foster digital pay. That's fundamentally what we do. And the reason PayU exists is that we are in all the right markets, from India to LatAm, to Africa, to Central Europe. And we have access to all the payment methods that merchants of every size need actually to conduct their digital business. So we are touching potentially 2.53 billion consumers with our payment solutions. And today, we are connecting hundreds of thousands of merchants with hundreds of millions of consumers. So that's really the context of PayU as a payments company. But I want to take you through the journey that we've been through to come from a pure payments company to actually a financial services player. And this very deliberate strategy was really put in act in India, where we see the biggest opportunity. So before I get there, really, into the details and have a demo, which have a lot of potential to excite you, I hope, I just want to lay out to really not just the strategy but the context and what's happening in the market. So if you look quickly at Slide #3, let's start really with the markets where we operate and how do we make sense of the different trends. The first one is, as I said, we exist purely for digital payments. And in that market, what's paramount is to get to scale. Just give you two examples of why it's important. Look at the payments system that didn't exist a few years ago, like UPI, right, the Unified Payments Interface that was introduced in India just a few years ago. This is now [ wound into ] retail payments in India. This is really unique. When something like this happens in a market like India, we are, of course, well positioned to take advantage of that and grow very fast. And what it means, it's actually when you have introductions of new platforms of that sort, what it means is that there is a premium to scale, to actually grow your business very quickly, but also attract capital to grow it. I think just by looking at these numbers, this is why we've always been very bullish around the opportunity in India, but also very deliberate in our M&A strategy to be the one very active in growing organically and also through acquisitions. And that's the second big trend is the payments industry has always been defined also by M&A and consolidation. In most mature markets, this has been seen as a way to accelerate growth rates in maturing and slowing down markets. But for us, this has been really seen as an acceleration to actually quickly grow and take more market share. But I think what has been interesting over the past, I would say, 12 months has been really the integration between payments and credit solutions, more specifically buy-now-pay-later solutions, seen as a way for payments company to actually increase their share of checkouts and actually increase their position with merchants. And here, you have some of the examples of very big operations that have happened. For me, one of the most interesting has been between Square and after Afterpay, for instance. And the last thing we have seen in most of our markets is actually, our innovation has quickly brought us to a position where you can leverage your payment data to start building new products to actually address a bigger problem and, therefore, big opportunities and pure payments, which is affordability. How do you give the possibility to the young affluent middle class to buy the product they want by accessing credit, purely using your payment space. And there is certainly a flywheel between the two businesses that we will explore in a few slides. But that trend that we have seen taking over the payment industry over the past couple of years, we were actually one of the first to work on in India. So if we move really, Slide #4, you will see if we move to a bit more detail of the underlying strategy of PayU. Clearly, we see that we started as a payments business. And certainly, today, this is still the core business, right, in terms of growth, in terms of revenues. And certainly, this is a business that is growing domestically, but also, and more importantly, at a cross-border level. But when it comes to India, what has been interesting is that, for us, we always believe that beyond the opportunity. This was the best market for us to innovate because we add all the elements of the business model with a merchant distribution network, with the consumer base also that we could rely upon to distribute new credit products, and also because we have deep and entrenched relationship with the bank. So with all these 3 elements together, we've seen how India was the best place for us to start the transition from pure payments to credit and actually start building the whole credit business, which is the topic of today. On Slide #5, I just wanted to give you an idea of the scale of the business over the past few years. The most recent public numbers we can disclose are FY '21. Soon, we will be closing, as you can imagine, our fiscal year. But just looking at these few years, you can see the growth of our Payments business in terms of volumes, right? We're talking from 12 billion to 55 billion of volumes in our key markets, but also how we've been able to increase the revenues in that business 4x. And what is more interesting is as you start seeing the contribution of what is labeled as new initiatives, part of it is credit. And that part will become more and more important and more and more relevant when you get to the last section, which is on trading profit. When Aakash and myself, you joined 6 years ago, this was a business at $12 billion of revenues and $114 million of revenues, losing $60 million. We spent really the first couple of years turning around that business to make sure that we have a solid platform for growth then really consolidating through acquisition. And with Prashanth and the acquisition of the business that Prashanth founded, PaySense, we started building in parallel a credit business. To build the credit business, it takes about 5 years. Today, we are in year 3 and really start seeing the acceleration. But this has been also a big area for us of investment. As you can see on Slide #6, India is one of the biggest opportunity for credit around the world. In fact, when we were looking at comparable markets, we're actually to the U.S., just to give you an idea, of two different markets, but India will be a top 5 global economy in a few years, right? If you look at the potential in terms of penetration of credits for the overall population, let alone the middle class, this is certainly a market that has been untapped. And one of the reason is that the product available in the market, we are still, until a few years ago, just credit card, which banks, the incumbents, actually didn't really push beyond a very, very small part of the population. What we've seen here for us is a huge potential for new generation products like buy now, pay later, which are truly a credit product but derived from a payments product. And what we've seen here is, of course, how the part of online payments will start shifting to these credits businesses. We are talking about $80 billion, $100 billion of volumes quickly shifting to credit in just a few years. So when we look at these numbers, when we look at the positions that PayU had in the market, we thought this would be the best strategy for us and the best allocation of capital. In Slide #7, what we want to show is basically that our plan today, as built from payments using data and the merchant distribution network, to move into credit and build a full range of products. And what we are now building as we scale our credit business is actually the path to moving to digital banking, which is truly the end game for us, to have a digital bank in India to serve the young affluent middle class. We're talking about 500 payment people here. And we will build this by leveraging actually our credit business. So that's really for us, the strategy, leveraging at every stage the business that we have. And right now, we are at this stage, which is the digital bank. So on these few words of introduction, I would invite Prashanth actually to take us through the journey of PayU Credit, built on PaySense, and explain, as you know, how we're going to get there.

Thank you, Laurent. Folks, I'm Prashanth Ranganathan, the CEO of PayU Credit. Look, I think what Laurent has laid out is this massive market opportunity that's in front of us. We have some big aspirations. But let me start you off on Slide 8 by sharing with you why we will win and what it takes to be successful in a credit business. So there are 3 key elements of any credit business anywhere around the world. The first is, one needs to have access to a low-cost customer acquisition flywheel at scale. The second is you need to have access to multiple data sources, some of which that are proprietary to yourselves, right, to your entity. And the third is, of course, capital being the raw material in any credit business, you need to have access to both low cost as well as fairly infinite amounts of capital to be able to build a highly scalable, successful credit business. Now how do we stack up as PayU Credit against these? On the first dimension, which is the access to customer acquisition, we, as LazyPay, which is a branded payment mark, offer a deferred payment product. This is less than about affordability and more about convenience. We have some 3 million users who use our product quite extensively. We are present across 45,000 merchants across India. We're adding 150,000 new customers to our platform every month. This is without significant rewards, without significant cash backs. This is without actually digging a big hole in terms of economics. This is because the product has surely found product market fit, and consumers love the utility and the simplicity that comes with LazyPay when it comes to online payments. So that brings us -- and that's -- and I'll talk a little bit more about that customer base and the acquisition flywheel itself. But we have that fairly well squared away and in our favor. The second is access to multiple data sources. I think even in Laurent's introduction, he talked about the amount of payments we process and the ecosystem play that we have that gives us access to significant and unprecedented amount of customer payments transaction data. That data, combined with the data around how people perform on their buy-now-pay-later transactions, gives us a unique data set that allows us to serve a very large base. In fact, in India today, we have preapproved 62 million consumers for our product. This is the largest by any standard across any fintech, any bank, any payment service provider. So 62 million consumers are preapproved for LazyPay, which means when a merchant turns on our payment mark, they have basically pretty much all their customers potentially preapproved. So anyone who is digitally savvy, particularly active in India, there's a very high likelihood that we have re-underwritten them, and we are able to serve them. The third is access to capital. And this is where we really benefit from both the parentage of process as well as -- given that we run an NBFC, which is a nonbanking financial corporation. We benefit from the fact that we carry an A+ credit rating on the NBFC. So the A+ credit rating on the NBFC, plus the parentage that we carry from process, actually gives us a significant advantage in terms of accessing the debt markets in the country, from the public sector banks and some of the other financial institutions that are willing to lend to us at a very low cost. So we have access to both, very deep capital markets as well as debt markets as well as a very low cost attached to the borrowing itself. Now let's go a little bit further on the transaction credit consumer flyer, right? That's the first part that I was mentioning. So today, the LazyPay mark, like I mentioned, is available on 45,000 merchants, and this is truly in partnership with the PayU Payments business, which is fairly omnipresent in the country. Now the consumer discovers us on these payment pages across these merchants. To give you a few examples, we are live on pretty much every high-frequency merchants in the country. And mind you, I said the LazyPay brand is a convenience deferred payment product, not an affordability products of consumers, want to use it because they don't want to go through the hassle of entering their card information, entering their OTT and going through a painful multistep process. They want a quick checkout. So you'll see us very actively used on merchants like Swiggy, Zomato, BookMyShow, Dunzo and a lot of -- and a few hundred very common household names. So there is massive transference of trust that happens when consumers find our payment mark, which is LazyPay, on these merchants. So there consumers, of course, understand the brand and the value and the utility of those merchants, but they discover LazyPay on those merchants and hence start to associate us with the same level of trust. This drives the adoption of LazyPay across high-frequency merchants, right? So merchants where a consumer on average will spend 3 or 4 times a week. This also gives us access very deep unprecedented data and stickiness with those consumers, which allows us a unique opportunity to be able to underwrite them or pre-underwrite them for a longer tenure -- for longer tenor of credit products like our personal loans. So we have a very large and thriving personal loans, unsecured lending business, which, basically, is benefiting from the fact that consumers come adopt a lazy pay product upfront. Use that for convenience. And then if and when they need a loan of sorts, which most consumers do at some point, they turn to us versus turning to anywhere else because there's also familiarity and there is stickiness that's already been reestablished. Now 3 million consumers have adopted this product. One million of them come back every month to use our product. This gives us a unique opportunity to not just serve them with credit products because these consumers are frankly underserved, right? India is a country where people are both overserved and underserved at the same time. So overbanked and underbanked at the same time. So we actually have an opportunity to serve these 3 million consumers in more unique ways. And I will show you later is us actually going beyond credit into more unique diversified financial services to serving 3 million consumers in more unique ways. But before we go there, let's talk a little bit more about how we've gone about these last 2 years. I'm now on Slide 10, in building a resilient consumer credit portfolio. If you look at the chart on the left, so this is Jan 2020, this is when I came on board, and I took the consumer business, and we had 1.3 million consumers where -- whatever who used the product. That number today stands at 3.1 million. And this is through a pandemic, right? The last couple of years have pretty much been a write-off in terms of pandemic for most of us, but this is where we also really thrive. We've grown 2.5x in December. But not only have we grown, but if you noticed, the rate of change has fundamentally changed. The first year, we went from 1.3 million to 1.8 million. For the second year, we've jumped from 1.8 million to 3.1 million. So the rate of rate of change in this consumer business is fundamentally changing in our favor. So if you go to the chart on the right, what you will see is exactly how our monthly issuances played out during these last two years, right? So we were doing about $30 million of issuance per month. That is as of Jan 2020. And then slowly by Feb, we'd all discovered ourselves to be in the middle of a pandemic. And there were lockdowns and there was a fair bit of panic on how to deal with a global pandemic, right, one that we have -- none of us have ever experienced before. So if you noticed, we received it to a high brand, just like everybody else, we were unsure as to how the business plays out, and we wanted to save the franchise first, right? So we received a high brand, and we pretty much pulled the issuances all the way back to something very [ negligible ]. During this time, while we were doing very little large, 10-yard-long cycle personal loans, what we did is we systematically and continuously maintained our buy now, pay later or our transactional credit product. Now mind you, any credit professional in the world will tell you the true secret or the true essence or the way to judge a credit business is to see how it performs in a down cycle, right? And we've had two down cycles back to back. So the testament to us surviving two down cycles, and thriving through those and thriving through those is actually noteworthy. So if you noticed, we systematically grew all the way to April 2021, and we had COVID wave 2. In India, COVID wave 2 is quite painful. But if you notice something quite different happened here, we didn't pull the stick all the way back. In fact, we had a minor little blip that lasted about a month, and then we kept going. And not only did we -- not only did we continue to accelerate the issuance through the second wave because we learned our lessons and learned our new way of operating from COVID wave 1, but we also wrote the best book and the most performing book we've ever written in the history of PayU Credit during this period. So this is a clear demonstration of not just prudence but also of resilience. So we demonstrated prudence right upfront, which like I think most credit managers around the world did. But then we also demonstrated massive amounts of resilience through the cycle, not just once, but twice, and then we now stand at $68 million worth of issuances on a monthly basis. So quite a jump from where we were in Jan 2020. And we've definitely lasted two credit cycles and actually thrived through them. So moving forward, so how are we doing -- I'm going through like Slide 11. How are we doing as a business? So while we've scaled our issuances, we've also, in this period, done 3 phenomenal events. One is we have 4x-ed our revenue. This is year-on-year. We have 4x-ed revenues over the last year. We've also cut our annualized loss rates for our personal loans. So we were initially coming in at 6% the year prior. And now we're coming in at 2.8%. So a fundamental change. So like I said, we're not only growing our book, but we're also pulling back on the risk. We're cutting back on the risk in a very, very meaningful. And all this while, like I mentioned, doubling our issuance, right? So this is all a systematic effort to build scale in a very sustainable way, right? The two assets need to come together in a credit business. We're building a scalable but highly sustainable business. So that's what you're going to see here. So we're increasing our scale. We're diversifying our source of funds. So how we're accessing debt. Our cost of debt capital has been going down systematically because we continue to outperform our own targets. And we're using data in a more interesting and in a more capable way. Our models have seen a lot of good, bad and ugly, and they've learned. And we're able to then use that data to actually redirect credits in a much, much, much better way. And then now, in many ways, we've also hit economies of scale. So like Laurent mentioned, this is year 3 on a 5-year journey, but we're already turning a massive corner in terms of the economies of scale that we're hitting in terms of our costs. So moving on to Slide 12. We see a clear path to profitability. So building on the story of scale, building on the story of like improving our revenues and reducing our losses, our credit losses, and I think we doubled our issuance. What you're seeing is a snapshot view of how our loans are doing, right? So this is the unit economics slide, steady state and the current state. If you notice, the bottom half of this chart shows the current state. So today, we're lending out at 22%. In fact, as of mid-April, we've already taken it up to 23%. Our cost of capital, while highly diversified, was coming in at 10%, we've already reduced this down to 9%. Our loss rates were predicted to come in at 4%. We're actually, like I mentioned in the previous slide, coming in at 2.8%. So we're already in the long-term view in many ways of this business. And finally, our marketing and overheads, right? This is basically our cost of acquisition, our cost of selling low into a customer. Typically or currently runs at about 7%, and that's coming down to about 5%. We have clear line of sight, and primarily because now we're sitting on a very large base of very highly sticky and recurring customers. So we are able to cross-sell them a lot more effectively than we did 2 years ago. So what does that mean for the business? Today, our trading profit that we carry is about 1% on a 22% net revenue margin loan. But that, in the very short future, will go up to 6%. Our trading profit goes up to 6%, a big jump, and that's only because we are systematically investing across the board on every vector that affects our credit business. So you'll see us making these deep investments to kind of basically make our business a lot more resilient as well as profitable. I'm going to switch gears again. So what does all this mean? I'm now on Slide 13. We're setting ourselves up beautifully towards building that digital bank that Laurent mentioned, right? We have the data. We have the aspiration. We have the customers. We have the demand, where consumers are saying, hey, look, I want -- I look at LazyPay as a trusted partner to do more than just convenience, to do more than just a short-term personal loan. I'm looking at LazyPay to do a lot more with, right? So they are looking for a card. They're looking for more payments. They're looking for wealth management. They're looking for insurance. And if you look at the chart in front of you, you'll see that each one of these are poised to explode in coming years, right? So the payments business, while large in India, is still a fraction of what it will be 4 years from now. Credit, as you all know, India is massively undercredited from a credit standpoint, where the top 30 million consumers have all the fun and the remaining 300 million have almost no access to credit, and we are changing that. And then when it comes to wealth management and insurance, the story is pretty much the same. There will be a significant jump in how the addressable market comes into the fray and how we, as a -- we are the digital-first credit provider who has the customers' trust, who has the customer using our app on a monthly basis, we'll want to be that port of call for all this financial services beyond just credit. So the opportunity for credit is massive, but the opportunity to springboard from credit onto digital services or digital financial services is that much bigger, and it's our right to capture, hence the excitement. What you will see next, I'm now on Slide 14, and Chris will soon play the video for you. What you'll see next is where we are going. And what you will see is how we see us capturing the full digital bank opportunity on the back of the LazyPay brand. So some of the stuff that you'll see is already in play and some of it is coming within the next year. So enjoy. [Presentation]

Thank you, Prashanth, for this. And I just want to leave you with a few takeaways that you can see in front of your Slide #15. I think you can see really the massive potential that we have in building not just the merchant business, but really a consumer business and an SMB business around credit in India. And we can do that because we already have a business at scale in payment that gives us the competitive advantage through the distribution network, the flywheel for consumers and the data to actually build our own product, build our own balance sheet, to be the largest digital credit provider in India. And we can do this with a clear view, not just on the revenue model, actually, but the profitability of that business as it compounds over the years. And as we're building a digital bank, it means that, first and foremost, we are bringing a value proposition of credit to consumers, but we are enriching this experience with a lot of other services. And this is the reason we have done also several investments in leading companies in India, Wisdom, for instance, in wealth management so that we can bring the product and services from these companies where we own a significant stake, into our digital bank platform and then really have the full view of the financial services' life of our consumers. Thanks for your attention. Now I'd like to turn to you for questions that we will take with the Chiefs.

[Operator Instructions] Our first question is from Lisa Yang of Goldman Sachs.

Thanks very much for this very comprehensive presentation. I have a few questions. You talked a lot about the opportunity for further M&A and consolidation. And obviously, you have announced the acquisition of BillDesk, so you're going to be a clear leader in payments. So do you think you need to acquire anything in [ credit ]? Like how do you see the landscapes of consolidating? And what role you intend to play in that space? That's the first question. The second one is more specifically on the competitive environment in credit, especially in BNPL. So it feels like a lot of your competitors, including Paytm, are talking about aggressive expansion plans there. So just, really, could you talk about the differentiation of PayU and LazyPay? And what's sort your market share ambitions in that BNPL segment over time? And the third question is just on the digital lending and payment landscape in India. Could you talk about your thoughts on the devolution of the regulatory landscape. It feels like there's been some new draft guidelines last year, which could potentially impact the lending model of fintech platform. So how does that impact your businesses when you're aiming to descale your lending book?

Yes. Thank you for your questions. So look, I will take the first one on the opportunity for further investments/consolidation in the credit space. Prashanth, I will let you tackle the one around the competitive landscape in India, while Aakash will give you an overview of the changes in regulations and how we think, net-net, it's a positive for us. So the first one, look, BillDesk acquired, okay. We spent close to $1.7 billion of investment in the past 6 years. 75% of that has been truly on M&A, which means buying and integrating businesses. And part of that actually has been laying out the foundation of our credit business, and Prashanth is well placed for that because we acquired actually his company, PaySense, to give us the foundations of our personal loans business. At this stage, I don't really see the need to further do M&A in the credit space. Because actually, we believe that now, we have all the different elements we need: the data, the credit scoring and the distribution. Now the investments -- it's truly organic investments to accelerate our own business. And we believe, quite frankly, right now, that we are already the leader in digital credit in India. So right now, for me, it's all about focus on scaling our products and business as fast as we can. Prashanth, can you tell us how you see the various proposition of competitors and actually maybe potential partners?

Yes. Thanks, Laurent. So look, I think I'll come back to -- I've done credit for like some 10-odd years now. I'll come back to the 3 key tenants, right? I think access to customers at scale, access to multiple unique data sources and access to capital, all 3 have to play a meaningful role for a company to be successful in credit. While it has the most competition to speak generically, have 1 or 2, and perhaps stake their way into the third, I think we have a stronghold in basically having all 3, right? The LazyPay brand is a phenomenal flywheel for customer acquisition at scale. We do have unique data sources that are proprietary to us that we enjoy over others. That's because we're part of the PayU ecosystem in India, one that's been built over many, many years. And then we also have access to the deepest capital. We've also -- and I don't say this lightly. We've also been very disciplined about how we've approached our business, right? We have not taken shortcuts. We've not accelerated when we should. And we weren't the first at the gate in credit. It never pays to be the first out of the gate. We've been very disciplined in how we've approached the market. We are very patient in growing our book. And that's actually served us well, both through our rating as well as the market and how it sees us as an avenue for debt capital deployment. So we enjoy that. In terms of competition, look, I'll just speak very generically. You have the banks who are just not savvy with being able to go beyond what the bureau will let them underwrite. So I mean, alternate means of underwriting, they are not capable of doing. You have the fintechs, but they seem to be quite distracted in terms of their offerings. They're definitely not focused or disciplined. And while they may have customers, they don't have sticky customers that come back to them and use them as utility. They don't have a differentiated product that allows them to uniquely solve a customer's pain point, which means they just don't have -- they have a generic product that does not have clear product markets. So they have to buy their customers every transaction, which means they do not have a flywheel that allows them access to massive amounts of customers. And finally, I think where companies have solved 1 and 2, they don't have access to deep capital, nor have they demonstrated the ability to lend in a very disciplined way and maintain an A+ rating. So nor do they have the parentage, also like a process. So then they are disadvantaged on paper. And that's, to be honest, like how I can accomplish and why we win.

And on the third question, on the regulatory landscape, Aakash.

Yes. Thank you, Laurent. So on the regulatory landscape, I think, first, Prime Minister, Mr. Narendra Modi, has been on the Digital India mission for the last 7 years. And so all the regulatory framework is to proactively increase digitization in the country. The regulator has been very proactive. The two recent things are: one, on the payment side, it's the PayU effigy licenses. Which actually will increase trust in the consumer digital services, and we have applied for that license. We have a great standing on the payment side in India. So that will help us in strengthening that business. the most recent guideline that has come out, and this is early days, but a very, so to say, forward-looking regulation is around the digital banking units, which Reserve Bank of India has allowed. Reserve Bank of India has said that they will allow up to 75 DPUs to be set up by 2023. Fintechs will be allowed to partner with banks. Currently, it's just 1 regulation, and we are working with the regulator very closely as to how this will unfold. But our relationship and partnership with the regulator also in terms of formulating the policy is going to help us in building the digital bank of the future in India.

The next question is from Catherine O'Neill of Citi.

I just wanted to understand a bit more about the point on the sort of the capital requirements. Is all the lending on your own balance sheet? Or do you sell the loans? I just want to understand a bit more about the details of that and how it works on the balance sheet side of things. And then in terms of your target for the 6% trading profit margin, what kind of time frame are we looking at? And what sort of scale do you need in terms of those number of users in order to get there? And then the final thing, I was going to ask about, actually, was on the license requirements, which. You just mentioned, but what are the license requirements would there be to get to that end point of the digital bank. How long does that take?

Thanks for your questions. So Aakash, I'll defer for you on the capital requirements. These unit economics evolution really and, we'll wrap up with the license actually.

Yes. So thanks for the question. On the capital requirements, right? It is important to understand how we are building our credit business. We are building our credit business with two different ways. One is the on-balance sheet side, and the second is the off-balance sheet side. Now we have already aligned with almost 25 different banks and nonbanking financial companies on the on-balance sheet side, where we book the loan on the balance sheet. And then on the off-balance sheet side, which is kind of co-lending model, where we take a little bit of risk, but the loan sits on the balance sheet of the financial institution. That's kind of one piece. Given that we will scale the business significantly over the next 3 years, what line of sight I have today? We are way ahead on our capital needs in terms of whatever we need, we have -- we have that. And we actually have much more than that aligned with the banking institutions. The banking -- and Prashanth also made one point, which is this whole risk model that we have. And going from 6% to 3% by itself has encouraged a lot of financial institutions to come back to us and say, "Hey, look, we want to lend you more." So on the capital piece, we are very, very well covered. The 6% trading profit margin. I just want to draw the attention that the profit margin in that business is actually 25% overall. That unit economics slide shows that you make on every loan that you give out, you make $23 at your APR if the loan is $100. You make $23 as your APR and your profit margin is 6. So 6 on $23 is close to 25% margin. So that's what we are aiming at. We are already at about 5% margin because on '22, we are making one today, but we will get to a 2025, in the next 2 to 3 years, is my sense. The last piece, on the licenses. I already talked about it. But we have all the required licenses in place to do lending and credit. We already have a nonbanking financial company license, which is the NBFC license. And as we go into digital bank, we are working with the regulator and with other banking partners to see what is the best model to pursue our digital bank going forward for us.

Okay. And just back on your point around the margin, I just wanted to understand what -- if you got -- I think it's 3.1 million customers at the moment. What your sort of assumption is you'd need in terms of scale on the customer side to get to that level by 2025?

So unfortunately, we don't give out any forward-looking numbers. And so I would refrain from saying anything as to what numbers will look like going forward. And also, the FY '22 results are not published. So I cannot mention the numbers here right now. But you will see as things unfold going forward. But we have very aggressive plans, and we are doing very well in the business.

The next question is from Cesar Tiron of Bank of America.

I have 3, if that's okay? The first one, I wanted to understand better what range of loan amounts are you considering for the digital lending business going forward? And also, what is the average loan duration? Second question would be to understand better the overlap of users that would indirectly use PayU and clients of the credit business? And the third one, I just wanted to have a better sense. I mean, you gave us this lending -- digital lending addressable market of 1.6 trillion. What type of market share you have in mind in the very long term? I'm not asking for anything precise, but are we talking about single digit, double digit, et cetera?

Thank you for this question. Prashanth, I think you're best placed to take the first two, really, to understand the continuum of the products we have and the type of users. I will let Aakash answer the third one.

Yes. So first, with the size of loan and duration of the digital loan, look, I think, again, I'll explain this. We have -- there's the LazyPay product, which is a convenience product. There, the ticket size is immaterial, right? It's basically a deferred payment product. Consumers use it not because they can't afford their next meal, but because they just find it a lot more convenient to pay for it using a LazyPay instrument, right? So there, the ticket sizes are less than $5, if you may, right? And except -- it repeats itself so many times and across so many users that you get a massive buildup of a few million -- a few tens of millions and then it gets paid off within 15 days. Now when it comes to the longer-form personal loans, those loans on average are about $1,000, and the average duration right now is anywhere between 13 and 15 months. So $1,000, 15 months. Anything short of that creates a spin effect. So these issues, what we'd like to avoid, and we like to keep it in that 15-month range. In terms of overlap of users, look, we have an approach, which differentiates us in the market. We like to pre-underwrite our users before we go out and acquire them. That makes our funnel a lot more efficient. So our overlap with users coming through PayU -- and PayU, mind you, as a payment product, pretty much sees all of transact in India. So I would say, the overlap between PayU users and the digital loan users is going to be fairly close to 100%.

Aakash?

Yes. On your third question on addressable market, right? Look, first of all, the market consists of digital as well as non-digital, right? That's the first part. But we are already the largest digital lender in the country when it comes to fintech lending in India. So while I don't really pinpoint and say what market share we are looking at, but I'll give you an example of Bajaj Finance. Bajaj Finance is one of the largest NBFCs in India today. And we would like to be as large as them in a few years' time. Bajaj took about 14 years to get to $100 million of revenue, and we will do it at probably 1/3 of that time or even lesser.

Ladies and gentlemen, we have time for one more question, which will be from Siman Thind of Barclays.

It's Andrew Ross here from Barclays. I hope you can hear me okay? I've got 3, if that's okay? The first one is just to come back to Slide 12 and the unit economic breakdown you gave on below. Can you just talk a bit about the fees that you also get on the merchant side for LazyPay transactions? And when we think about LazyPay kind of 5 years out, how should we think about the split of gross profit between fees from merchants and the interest income on the loan? The second question is to go back to the core payment business. And clearly, there is kind of slightly positive on a trading profit basis as it stands today. Can you just remind us as to what you need to do to make that core payment business more profitable? Because I guess, kind of comparable models in the West are, more profitable than that. And then the third question is, I don't know if you gave any stats on the kind of conversion uplift that merchants see when they start to use LazyPay? But if you have any to hand, that would be interesting.

Thank you. Aakash, if you want to take the first two questions and Prashanth on the third one, and then I will add my comments.

Thanks, Laurent. On the first question on the economics of BNPL, right? I think it is important to first state that BNPL is a short-term loan product, and it is also positioned more as a convenience product, right? It's not technically a credit product. Yes, it is a credit product in the strict sense, but it is a convenience product. And we make -- on every transaction, we make money through MDR, which is the merchant discount rate. So merchant pays us for the transaction going through. It increases the success rates for the merchant. So that's the benefit the merchant gets. And then over a period, if the consumer either delays the payment or if the consumer wants to use a dialer, where it wants to say, "Hey, look, I have an outstanding of $100 on my BNPL. I want to only pay $50 after 14 days, but I want to revolve the other piece," then we make money on that. So that's kind of the BNPL. The BNPL economics are, we are getting positive at CM2 level even in spite of the fact that we position it as a convenience product because cross-sell becomes very important there. The second question was around PayU payments and the profitability of PayU payments, which you wanted to know about that. Look, the markets where we operate versus the markets in the Western players is slightly different. For example, in India, in the value chain, you make very limited gross margin in the payments play. That being said, we are already at a very healthy margin. And when our results for FY '22 come out for the payments business, you will see a significant improvement in those numbers as well. Laurent, back to you for the third question.

Yes, Prashanth, you could...

Yes. I'll take that. So I'll answer it slightly differently. So the reason merchants actually pay us a higher MDR than they pay the average credit card or debit instrument or UPI is for the following reason, right? So in India, unlike the Western world, the payment rails are still evolving, right? On average, transaction success rate hovers anywhere between 75% and 80% for a merchant. So for high-frequency merchants, which is where LazyPay is prevalent, this is a huge pain, right? Because the cart abandonment issue is a very significant issue for them. The LazyPay success rate is 99.99%, right? So which is an order -- a significant deviation from the average in the favor of the merchants. So the merchants continue to push for a LazyPay, even if they don't -- even in the early days, even when they don't have data on significant uplift. Now the second thing, what happens is truly magical. What happens over time is merchants start to push more and more of their consumers towards LazyPay as the preferred instrument because they don't want cart abandonment. So what ends up happening is the most loyal customers of a Swiggy, or a Zomato or a Dunzo any of the other merchants, slowly but surely become LazyPay users because they get that one [ looks like ] a checkout experience, partly because LazyPay initially promotes it and then, over time, the mercury continues to promote it. I don't have a quantified view on what the true uplift would be. Anecdotally, merchants have said anywhere between 7 to 10x of like what they would expect from their highly retained, but that's also slightly skewed because they end up pushing on their highly retained customers to us. So it's a tough one. But clearly, there's a product market fit for both the merchants as well as the consumer, which benefits us.

I would like to go back to the second question, which was really the -- how do we think about the overall profitability of our payments business, right? The way I think about it is -- if you look at our payments business globally outside of India, what we see, you know, for us, has really strategic objective over the next 3 years is we're going to double the share of our cross-border, okay? Cross-border means FX cross-border means payment instruments with higher merchant discount rate. And this is something that today is already the fastest segment of volumes for our payments business. This is going to double. Therefore, this will have a significant impact on the gross margin and the net profits of the business. I think the second element that for us is also important is we spent the first few years and some of the investments really consolidating our own platforms to get to platforms at a regional level. Now we're starting to approach the second phase, which is we are moving upstream in the value chain and starting to incorporate more of the elements of the payments value chain. I give you a concrete example. Just last week, we announced the acquisition of our business in Colombia. Colombia is very big market for us. It's one of the most dynamic economy actually in Latin America. And we announced the acquisition of a business called Ding, which gives us not only capabilities because we can do our own acquiring and own issuing, but also it gives us the licensing. And this will actually have a very positive impact on the overall profitability of [ AB ]. We want to do more of that, okay? And the last one is -- like we've seen this playing out in India, we are starting actually to build a credit business outside of India, starting from Central Europe. I guess, Eoin, this is maybe the topic of another call, right? I just want to keep you guys in suspense for a bit. But you should expect us to really quickly scale our credit business outside of India. With these 3 elements, this is how you know how we're going to significantly change the profitability of our business in the core payments business.

Ladies and gentlemen, we have no further questions. And I'd like to hand the call back to management for some closing comments.

Well, thank you, everyone, for your attention and for your time. We will share, of course, this presentation with you. And we'll make sure to keep you updated on our progress and across all the different markets, not just India. But thank you for your attention today.

Thank you, everybody.

Thank you very much. Ladies and gentlemen, that then concludes today's event, and you may now disconnect.