More money projected from expanded UPI use cases: Paytm CEO Vijay Shekhar Sharma

Expanding use cases of the Unified Payments Interface (UPI) to instruments beyond bank accounts might lead to income creation for Paytm, the company’s chief executive Vijay Shekhar Sharma said in an earnings call.

“I believe that UPI has started going towards monetisation…various payment tools will arrive on UPI.

(The prepaid wallet device) has an unusual MDR (merchant discount rate) structure… If our Paytm wallet is being used on someone else’s QR, the merchant-side QR will have to pay us,” Sharma told analysts, a day after the company declared its March quarter numbers.

“QR payments from bank accounts are free, and which we believe in the long term will remain free, and other payments sources like wallets, which are getting visibility benefiting from interoperability, will also generate revenue for us,” he added.

In March, the National Payments Corporation of India (NPCI), which manages the UPI infrastructure, had fixed the interchange charge at 1.1% for merchant transactions started using a prepaid payment instrument such as mobile wallets on the UPI network.

The Reserve Bank of India had declared last year that the UPI may be connected to credit cards issued by banks on the NPCI’s RuPay network.

Paytm is intending to shortly offer a RuPay credit card in conjunction with a bank, Sharma added.

The fintech platform’s newfound emphasis on the UPI gains importance since it has long delayed pressing the pedal on the payment infrastructure owing to the absence of monetisation channels.

This allowed its arch-rival PhonePe seize pole place in the UPI circuit, capturing as much as 47% market share in March. Paytm was a distant third with a 15% share of the entire UPI volume in the nation throughout the month.

Paytm’s goal in developing UPI-based channels also became obvious when the firm launched UPI Lite, one of the first big payments platforms to do so. This incentivises Paytm to promote both its UPI and wallet operations to collect user income on payments.

In a statement announcing its profits, Paytm had claimed that it was planning to leverage on the rise of the UPI by delivering new solutions. It claimed it had onboarded 5.5 million consumers since the debut of its UPI Lite platform in February.

“Core thing is that different UPI payment modes will have different payment charges… anyone supplying services to the merchants might also alleviate the merchant's burden,” said Sharma.

“Let me not say whether the merchant will be charged or not, let me say that issuers will fetch charges.”

In 2022-23, Paytm’s parent firm One 97 Communications Ltd earned Rs 182 crore in UPI incentives from the government.

The company’s net loss for the March quarter dropped to Rs 167.5 crore from Rs 762.5 crore a year earlier, and Rs 392.1 crore in the preceding three-month period.

Quarterly revenue from operations climbed 13% sequentially and over 51% from a year earlier to Rs 2,334.5 crore. In the core payments services, revenue climbed 41% on-year to Rs 1,467 crore.

Sharma also told investors that Paytm is now not just focusing on raising its sales but also on boosting its earnings before interest, taxes, depreciation and amortisation (EBITDA) before employee stock option (ESOP) expenses indicator.

“In two years, when we’ve grown our revenues by 2.9x, our margins have also improved by 57%. So, we are really positive that we will continue to expand our EBITDA,” he said.

The firm generated positive EBITDA before ESOPs expense in the quarter ending December 2022 for the first time.

For the March quarter, EBITDA before ESOPs expense was Rs 234 crore, an increase of Rs 602 crore year-on-year.

"Happy to report our second straight quarter of operational profit. As we have discussed before, we are striving for free cash flow next,” Sharma said during the call.

For the year ended March 31, the Noida-based firm posted a loss of Rs 1,776.5 crore on total sales of Rs 8,400 crore (approximately $1.03 billion).

While the deficit reduced 26% from a year earlier, sales surged nearly 60%. Revenue from operations amounted at Rs 7,990.3 crore.

Paytm’s shares closed trading 2.75% higher than its previous close at Rs 689.45 on the BSE. The profits were disclosed after market hours.