The Noida-headquartered company is looking to add three new lending partners to its platform over the next two quarters, which may include a domestic bank, Gupta said on an analysts’ call to discuss September quarter earnings.
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Over the last two quarters, Paytm – which acts as a loan distributor for its nine lending partners – has forged partnerships with Tata Capital and Shriram Finance for credit and is currently running pilots with both. These new partners will officially begin issuing credit on Paytm’s platform by November, which also coincides with the Diwali festival when credit demand is expected to rise.
“Personal loans for the foreseeable future, at least for the next couple of quarters, will remain muted. We would not see the 100%-150% growth as seen in previous years for the category. My sense is 30-40% growth year-on-year on our base is what we can expect in personal loans. Merchant loans will be growing at a higher rate,” Gupta said.
He said merchant loans are expected to grow 50%-60% annually, helped by growth in its Soundboxes as well as the eligible base of merchants meeting lenders’ risk criteria.
“In a stable case situation, anything between 40%-50% on a blended credit basis over the next two to three years should be a growth we should see here on for the credit business,” Gupta added.
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Paytm provides merchant loans, personal loans and Postpaid, a buy-now-pay-later or credit line product. Credit distribution contributes 23% of quarterly operating revenue.Turning conservative on personal loans
Having tapped only 1.1% of its monthly transacting user base of 95 million for personal loans, Paytm has been conservative about scaling the vertical after seeing potential early signs of delinquency and high leverage.
As a result, while overall credit disbursements on the platform more than doubled on-year to Rs 16,211 crore in the September quarter, disbursement growth slowed to 9.2% from the previous quarter.
Disbursement growth had slowed to 26% and 18% respectively in the March and June quarters. However, this may change this quarter due to the festive season and expected increase in credit demand.
“As we’ve been mentioning, over the last three quarters. We have muted growth in consultation with our lending partners on our personal loan (PL) business because we saw some early signs of the portfolio, which could not be built in a manner that we would like. Our Postpaid and merchant loan business continues to see very early growth,” said Gupta.
Paytm’s total personal loan disbursement fell nearly 3% on a sequential basis to Rs 3,927 crore in the September quarter. Personal loans continue to be the second-biggest credit vertical in terms of average loan size at Rs 1.65 lakh per user, after merchant loans (Rs 1.8 lakh).
Farming on existing customers
Paytm is also currently betting on its user base with matured loans to upsell more credit.
Elaborating on the general mix of personal loan clients, Gupta said 40% upgraded from a Postpaid line, another 25-30% were existing personal loan users who had paid the amount and were eligible for the next loan.
“We have a Rs 300 – 400 crore worth of portfolio which gets matured every month, which is available to further upsell to our partners, and that bucket is growing quarterly … So, our muted stance on personal loans have not impacted us materially,” added Gupta.
Paytm charges lending partners a take rate or commission of 3.5%-3.65% for distributing loans to its user base.
“We don’t want incremental new users for credit distribution to grow and it is better for us to farm current users and penetrate on them,” said Paytm founder and chief Vijay Shekhar Sharma. “We are talking penetration percentages which are less than 1% today. There is a huge upside and dramatic distribution of credit volumes as per dollar value (which can be enabled by us).”