Confident Paytm will solve 'concentration risk' in UPI ecosystem: CEO

One97 Communications announces consolidated profit of Rs 928.3 crore in Q2

One97 Communications, which operates fintech firm Paytm, on Tuesday announced a consolidated profit of Rs 928.3 crore in Q2FY25, compared to a loss of Rs 290.5 crore a year ago, on the back of selling its movie ticketing and events business.

Paytm reported the Rs 2,048 crore transaction with food aggregator Zomato as an “exceptional gain” of Rs 1,345.4 crore, resulting in the company turning profitable after losses in previous quarters. Paytm’s losses had swelled to Rs 838.9 crore in Q1FY25 after the Reserve Bank of India (RBI) early in 2024 put restrictions on its banking affiliate.

Meanwhile, for the company, year-on-year (Y-o-Y) revenue from operations declined 34.1 per cent from Rs 2,518.6 crore in Q2FY24 to Rs 1,659.5 crore in Q2FY25. Sequentially, revenue grew 10.5 per cent from Rs 1,501.6 crore in Q1FY25.

 

The company’s founder and CEO Vijay Shekhar Sharma said he was confident that Paytm would solve the problem of a concentration risk in the Unified Payments Interface (UPI) ecosystem and would not remain a mediocre player in the market.

“In the UPI ecosystem, when the RBI allowed us to become a TPAP (third party application provider) player, it very clearly marked a responsibility to Paytm that we will be able to potentially solve concentration risks that the system carries,” Sharma said in a call with analysts after the results.

The company, which received approval to operate as TPAP on UPI in March, owns a 7 per cent market share in an ecosystem dominated by players such as PhonePe and Google Pay, who cumulatively have a share of 85 per cent.

The concentration of just two players processing more than eight out of every 10 transactions on UPI has led to discussions around a potential 30 per cent market cap on the volume of such payments processed by players.

Also Read: Paytm share price slips 5% post Q2FY25 results; Check details
 

Paytm’s total expenditure in Q2FY25 was Rs 2,244.8 crore, down 23.5 per cent from Rs 2936.7 crore it spent in Q2FY24. It saved costs by reducing spending on marketing, employee benefits, and payment processing charges. Quarter-on-quarter (Q-o-Q) expenses reduced 9.3 per cent from Rs 2,476.4 crore in Q1FY25.

The company has brought down its employee costs by 24 per cent on a Y-o-Y basis from Rs 807 crore in Q2FY24 to Rs 613 crore in Q2FY25. This expense is down 13 per cent on a Q-o-Q basis, from Rs 706 crore in Q1FY25.

“I personally remain committed that technology-wise, for a per-transaction and per-bit of revenue, we should (have) lower cost for people, lower cost for machines. As you are aware, we are talking of AI (artificial intelligence), which is a little bit of cost, but we would remain even further cost-efficient on that,” Sharma said.

He added that the firm reduced manpower costs for support functions by around 60 per cent in the past ten months.

The company’s marketing expenses reduced 30.2 per cent Q-o-Q, from Rs 221.4 crore in Q1FY25 to Rs 154.4 crore in Q2FY25. Y-o-Y marketing expenses were down a little over 60 per cent from Rs 252.8 crore.

Paytm has seen its payment processing charges decline from Rs 816.7 crore in Q2FY24 to Rs 516.8 crore in Q2FY25.

The company said that it had entered into a First Default Loss Guarantee (FDLG) agreement with SMFG India Credit — the first of its kind for Paytm.

“We were reviewing our old regulated businesses and we were seeing what is the market practice and regulatory sort of guidance on those businesses. As you are aware, more or less the industry had matured or materialised, (it) had reached towards a DLG-based structure…,” Sharma said.

As part of the agreement, Paytm will provide a DLG of up to Rs 225 crore for merchant loans disbursed by SMFG.

Paytm broadly categorises its revenue streams into lines of businesses such as payments and financial services, and marketing services.

The company earned Rs 946 crore in payment services revenue in Q2FY25, a 37 per cent Y-o-Y decline from Rs 1,499 crore it earned in Q2FY24. Its revenue from other financial services, including loan disbursements, declined 34 per cent from Rs 571 crore in Q2FY24 to Rs 376 crore in Q2FY25.

The value of personal and merchant loans that the company disbursed in Q2FY25 was recorded at Rs 5,280 crore, a 27 per cent Y-o-Y decline from Rs 7,202 crore it disbursed in Q2FY24.

On a Q-o-Q basis, value of loans disbursed inched up 5 per cent from Rs 5,008 crore in Q1FY25. Its revenue from marketing services was recorded at Rs 302 crore in Q2FY25, a 29 per cent Y-o-Y reduction from Rs 423 crore in Q2FY24.

Cumulatively, the company has a base of 11.2 million merchants, who pay for its payment acceptance devices such as soundboxes. This has grown from 9.2 million in Q2FY24, and a minor increase from 10.9 million in Q1FY25.