PayTM (One 97 Communications Ltd)

@Nitin_Naudiyal

1. Bank may get data, but at which contact point they push a loan? The merchant has to go to the bank or its app for some transaction, which could be once in a while. Whereas Paytm can do it easily from their digital interface touch points they have already made. Merchants have paytm business app and they use it very often, as far as I understand, they will get offers on it, for example. This is the benefit of a captive customer distribution and an ecosystem. For consumers, imagine once you make a transaction in Paytm, you get a simple prompt to use BNPL (paytm postpaid) for 30 days, who can refuse it?

2. If loans are defaulted and collections do not come there are two things – 1. Paytm loses the collection incentive – lending partners usually have a standard credit loss rate, say 5%, Whatever Paytm collects above that is their incentive (or a portion of it). 2. The partner will stop giving credit to Paytm, which reflects on its revenue straight away. Paytm has done a lot of work on the collection side, right from acquiring Creditmate in 2017 to develop the platform to building various touchpoints/nudges to take collections from the users.

3. Paytm does not give PL to every consumer straight away. They first extend paytm postpaid to a consumer who make payments on the paytm app, which is a BNPL for 30 days. This is how they credit qualify a user. Once the user pay back the postpaid, they will be extended with a PL offer. This will form 50% of PL users. The remaining who come to Paytm and request PLs straight away, as far as i understand Paytm does some kind of credit qualification for them also.
   But yes as you said, Paytm is vulnerable to credit cycles as it doesnt own supply. For eg, when interest rate goes high and credit tightens, lending partners might reduce or stop lending, which will affect Paytm’s revenues. But remember it is a cycle, when credit cycle loosens, these lenders and customers both will (have to) come back to Paytm.
   Long term, I believe they will find ways to overcome these cycles by having long term supply agreements for example, which can mitigate this cyclicality. But this will be after reaching some book size.

Hope this helps.