A few quotes from VSS and the management, from recent few quarters, which shows their thought process and execution. Pardon me for the long post, but this gives a sneak peak into how they run the business:
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Our bet is payments. Our bet is distributing credit, leveraging payments, data and access that we have.
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I believe that payment is giving way to those customers and small businesses and merchants who did not have access, but deserved credit meaning people who could have had higher CIBIL score or could have got better credit pricing from a formal financial institution, these are the kinds of people who are getting access to large financial institutions (who are our lenders), and our marquee lenders are getting access to this new customer base. I believe that credit, which is in its infancy, has started showing that it is a long-term sustainable space, and is going to become a pretty large business for us. Our bet is payment. Our bet is distributing credit, leveraging payments, data and access that we have.
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You will see that merchant side device-led strategy where merchants are paying for cloud, and for device subscriptions and rental is growing and it shows in this quarter’s number also.
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Our number of loans is something that we index ourselves on because the entire focus of the management team, of the credit business is to see that we’re getting more and more merchants and consumers is the mainstream ecosystem of getting credit.
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Our model is very simple: we are distributors and marketers of loans, we do servicing of loans and we also have collections outsourcing agreement with a lending partner for most of our businesses, through which we have an upside that we get if the portfolio was to perform better than what the lender would expect to.
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The expected credit loss, the number that we’re quoting here, is a number, that cumulatively we understand from our partners is what they’re providing for. I can only say this here in utmost confidence, so far what we’ve seen over the last year on a static pool basis that the net credit loss is much lower than expected credit loss being called out here by our partners
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marketing costs to drive MTU 40% yoy, employee costs to drive 8L-1mn devices per qtr and tech
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we have our own collections infrastructure, which is a company called CreditMate, which is a 100% subsidiary of Paytm. three parts of collections. We do pre EMI delinquency management, which is using the entire Paytm app infrastructure to reach out to consumers and merchants far more effectively, and smartly to make them and to nudge them to make a payment in time. second part, which is a digital engagement model, which has zero cost to us because all of it is led by technology, both in terms of digital engagement of the app, and bot engagement, which is done through either the app or through our progressive and predictive dialing infrastructure that we have. A very, very small percentage of our consumers and merchants have a physical leg of collection for which we have more than 100 people on rolls of Paytm, which number hasn’t been growing.
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at the time we hit breakeven, I do expect that both in areas like lending commerce and cloud and so on, we would have still barely scratched the surface and these are large profit pools, large opportunities, and very profitable for us.
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If you see here, we have stated that our core business is to acquire payment customers and distribute loans. Everything else has to amplify either the ability to acquire payment customers, or amplify the ability and capabilities of disbursing loans. In our payments business, as you see, we acquire consumers who in turn, work with merchants and in other words, make payments to the merchants. And merchants in turn, give commerce services to the consumers. This business model, where we have more than 75 million monthly transacting users as of June 2022 and 28 million merchants, allows us to create a brand, distribution, insight and technology that allows us to create an incredible loan distribution and collections business.
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we acquire customers, and we had 80 million transacting customers, and these customers in turn bring us merchants and we have 30 million merchants who in turn work and give commerce services to consumers. This makes our core business model to acquire customers on payments. And in turn, because this gives us insight, ability to distribute and a great brand name, we work with our lenders to distribute credit. over the last four quarters, we have trimmed, since the IPO, a tremendous amount of businesses and focused on key business areas and pruned many business line items and made it very clean and clear that we acquire customers for payments and distribute loans from our credit partners”
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the business model is very much aligned with how the regulator sees it. We continue to believe that this loan disbursement and collection business for India will play an important role in democratizing credit. If you remember, at one point in time, RBI leveraged public sector banks, then created private sector banks, then created NBFCs. Through this, different buckets of credit requirements were satisfied. Today, digital lenders, lending service providers or LSPs as RBI calls them, is what Paytm is here for and it will generate and create new opportunities for disbursing digital credit.
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the best part is that our focus on merchant payments instead of focusing on consumer led UPI payment has created a scalable UPI revenue model in subscription
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we probably would have purged literally hundreds of various different kinds of merchants if they were not profitable or if they were not useful for us or generating some pain in the system.
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Lending upsell which is now in my opinion a scalable opportunity and it doesn’t have any regulatory arbitrage and I am especially calling out this line because many credit businesses in the country or Fintechs have been built around some or other regulatory arbitrage. While what we have built is a mature business where the partners have a comfort of credit quality, the regulator has the comfort of the guideline and we have grown organically not acquiring or by making a desperate push of any kind of product in the market.
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In fact our belief is that with the increase in the digital payment ecosystem in the country there will be market risk or different kind of frauds that would come in the system but I’m very confident with the quality of work Paytm is doing the right operation risk and compliance is a USP of our company and the attention that we are driving on the risk and fraud in the market will become a continued benchmark in the country
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we are a merchants side business. We always call it payments when you are paying a merchant. So, yes, our P2P business numbers are not that great as a market share, we are very aware of it but at the same time we are proud to say when it comes to the merchant, whether consumer making payment to the merchant or merchant choosing a payment solution, Paytm is the market leader here.
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