One97 communication Ltd (PAYTM) Q2 2022 Earnings Call Transcript

One97 communication Ltd (NSE:PAYTM) Q2 2022 earnings call dated Nov. 29, 2021

Corporate Participants:

Vijay Shekhar Sharma — Managing Director and Chief Executive Officer

Madhur Deora — President and Group Chief Financial Officer

Bhavesh Gupta — Chief Executive Officer, Lending

Analysts:

Robert Chu — — Analyst

Robert Marshall Lee — — Analyst

Ankur Rudra — JPMorgan — Analyst

Rahul Jain — — Analyst

Sophie Anne — — Analyst

John — — Analyst

Anish Rai — UBS — Analyst

Sameer Bhise — Axis Capital — Analyst

Nitin Aggarwal — Motilal Oswal Securities — Analyst

Viral Shah — Centrum — Analyst

Presentation:

Operator

Thank you and a warm welcome to Paytm’s Earnings Call to discuss its Financial Results for the Quarter and Half-Year Ended September 30, 2021. From Paytm’s management team, we are today joined by Mr. Vijay Shekhar Sharma, Founder and CEO; Mr. Madhur Deora, President and Group CFO; and Mr. Bhavesh Gupta, CEO, Lending.

Before we begin, a few announcements for all attendees. This earnings call is meant for existing shareholders of Paytm or potential investors and research analysts to discuss the company’s financial results. This call is not for media personnel. If any media representatives are attending this call, request you to kindly drop off the call at this juncture. The information to be presented and discussed on this earnings call should not be recorded, reproduced, copied or distributed in any manner whatsoever by any of the attendees.

Statements or comments made on this earnings call may include forward-looking statements. Actual events or results may differ materially from those anticipated in such forward-looking statements. Finally, this earnings call is scheduled for 75 minutes. It will have a presentation by the management followed by Q&A.

Kindly utilize the raise hand feature on your Zoom dashboard if you seek to ask a question. We would unmute your line and take questions in the respective sequence of raised hands within the schedule time. However, please do ensure that at all times, your name is visible as first name, last name, followed by organization name in brackets for us to be able to identify you before we take your questions. A replay of this earnings call and a transcript will be made available on the company website subsequently.

With this, I would like to request Mr. Vijay Shekhar Sharma to kindly initiate this earnings call.

Vijay Shekhar Sharma — Managing Director and Chief Executive Officer

Thank you, everyone. Good evening from India and good morning or good afternoon, as you would login from different geographies. It is my pleasure to welcome you for Paytm’s first earnings call after IPO. We have tremendous solid quarterly result out there, clearly showing platform, skill, ability of ours to monetize payments, expand our platform in terms of financial services and commerce. It is my pleasure and privilege to welcome you all to in-detail discussion of our quarterly earnings.

As you could see from our announcement, our revenues have increased year-on-year. Our revenues are increasing quarter-on-quarter, impact of COVID, scale off system deployment and scale in our non-UPI revenue where merchant give us revenue charges, MBR charges for payments and credit-led mentioned service which gives us next level of monetization is showing up. We believe in the next few quarters, we’ll be able to not just expand revenue but increase more number of monetization methods and subsequently increase contribution margins in due course.

Our team, myself and everyone is super energized seeing the opportunity in front of us and we are committed to execute and deliver great results forward quarters.

I invite Madhur, my teammate, President and Group CFO, to give you detailed report card of this quarter. We look forward to take every question that you may have. If we are not able to answer in this call, we look forward to have an engagement with you on ir@paytm.com. Thank you so much and look forward to an incredible discussion today evening. Thank you.

Madhur Deora — President and Group Chief Financial Officer

Thank you, Vijay. And welcome everyone to Paytm earnings call. This is for the quarter ending September 2021. And it’s my pleasure to take you through the presentation and then, as Vijay said, get into Q&A. So, just to remind everyone, for Paytm, our mission is to bring 0.5 billion Indians to the mainstream economy through technology-led financial services. And we believe we are making great progress on this journey.

This is our Q2 FY ’22 numbers in a snapshot. Our revenue from operations grew to about INR10.9 billion or about INR1,090 crores, close to $145 million for the quarter. This rose up 64% year-on-year. As Vijay mentioned, this was driven by 52% growth in non-UPI GMV. And this was the second consecutive quarter as we are getting into showing quarterly numbers. We are showing consecutive quarters or 60%-plus revenue growth on an year-on-year basis. So, clearly great momentum.

Our contribution profit hit a record high at INR2.6 billion or INR260 crores, about $35 million. This was up roughly 600% on an year-on-year basis. Obviously this is a very large growth in contribution profit. Our margin in the same quarter last year was about 6% and this quarter we hit 24%. So there is a huge step change and we’ll talk a bit more about that later.

Our EBITDA was — EBITDA loss was INR4.3 billion. That’s about INR430 crores or about $57 million, $58 million. This was at a margin of negative 39% of revenues. In the same period last year, our EBITDA loss was 60% of revenue. So we have made — bring significant improvement in this. In addition to contribution profit, this was driven by a reduction in indirect costs as a percent of revenue from 70% to 63%. So we continue to make organic improvement.

I should point out that this reduction was possible, along with increased investments in technology and increased investments in merchant base expansion. So this is an organic decrease. We have not slashed expenses, we continue to invest relatively fully in all the areas which we believe we are creating great long-term opportunities for Paytm.

Our GMV on the overall platform was about INR2 trillion, which is INR200,000 crores for folks joining from India, or about $27 billion. This grew at a 107% on an year-on-year basis and this reflects obviously users and merchants growing on the platform and also increase in engagement of both users and merchants.

Digging into revenues, we saw, as I mentioned, continued momentum in revenue growth, up 60% year-on-year. This was driven by Payment and Financial Services revenue growing by 69%, which further was driven by the 52% year-on-year growth in non-UPI GMV, as I mentioned earlier. Ae also had an increase in revenue from our Financial Services and Others segment or others business line — revenue line. This was a growth of over 3 times year-on-year in that revenue line. We also saw an acceleration of device deployment, which we’ll talk about some more. We did share some operating metrics last Sunday, which I hope many of you have had a chance to see, but we should talk a bit more about that.

Our Commerce and Cloud business grew by 47% year-on-year. This was driven by two major factors. Our advertising revenues are showing very rapid growth. This is a business which is only about 1.5, two years old and it’s ramping up very nicely. And in our Commerce business, just to remind everyone, a large chunk of this is entertainment and travel ticketing, which was heavily impacted during COVID, both wave one and wave two, and we’re seeing continued recovery post wave two.

Going back to GMV, our growth accelerated to 107% year-on-year in the September quarter. If you recall, in the June quarter, our GMV had also grown north of 100%. We also shared October metrics, which we have added here, where our GMV grew 131% year-on-year. And as I mentioned earlier, non-UPI GMV grew 52%. One interesting fact that we wanted to share with our investors is that, obviously we have a set of merchants who do not pay us any MDR for payments. These merchants generated subscription revenue and merchant lending revenue, which in aggregate was more than INR550 million in Q2 of FY ’22. So that is slightly more than $7 million. That is only 5% of our revenue from operations, which on the face of it may not look very high, but this tends to be very high margin revenue.

So we are seeing value in all merchants and all GMV and being able to monetize them either directly through payments or through subscription revenues and merchant lending revenues. Our GMV growth is accelerating on an year-on-year basis in Q3 of FY ’22 o and we have had very strong performance during the festive season, part of that is here in the October numbers as a part of that will be disclosed to the market as we go further into the quarter.

Our monthly transacting users grew 33% year-on-year in the quarter ending September 2021. In October month also, we saw strong growth, 35% year-on-year growth. This is an increase in MDU of over the last 12 months of 14.4 million. So we have had a very productive 12 months with respect to user growth. Our engagement on the platform is also growing very fast, 55% year-on-year growth in average GMV per MDU. And this has all been possible while not increasing our marketing cost dramatically. We have kept it flat as a percentage of revenue at roughly 9% year-on-year.

We talked briefly about devices earlier, so just share more color. Our device merchant base expanded by 1 million in the last 12 months. Now, as we stand today, 1.4 million merchants have devices from Paytm. We have really created this business over the last two, 2.5 years. Prior to that, our key merchant offering on the offline side was basically QR code, which we obviously continue to deploy. But now, we have a range of devices available as well. This is strategically important to us because our device merchants show much higher retention and much higher average spends. And that has been a trend which we have noticed over the last 12 to 18 months and that continues.

In addition, 4% of our device merchants have already taken the loan through our platform. So our merchant lending business gives — helps our partner banks and NBFCs to give loans to merchants, both merchants who have devices and the merchants who don’t have devices. The merchants who do have devices, 4% of them have already taken the loan. And obviously this number is growing.

You may have noticed some recently announced bank partnerships for POS. There is an announcement with HDFC Bank and there are also partnerships with other banks. This is giving us very strong momentum in the LFR market, the large format retail market, in the offline world. So it’s a huge push into the enterprise segment, which is being enabled partly through the bank partnerships that we have recently announced.

Coming to our lending business, our value of loans disbursed through our platform reached $1 billion annualized in October 2021. There is a business which has really gone from zero to this $1 billion run rate in less than two years. There has been the 700%-plus growth in number of loans disbursed in Q2 FY ’22 and there has been nearly 500% growth in the value of loans disbursed. And as I mentioned earlier, this is all translating into the [Technical Issues] financial services and other revenue growing by about 3 times on an year-on-year basis.

Just to remind everyone of a few highlights of this. All of our lending products, Paytm Postpaid, which is our BNPL product, our personal loans product and our merchant lending product, have fully digital journeys end-to-end. And we only do this in partnership and we only do this in partnership with Tier 1 partners, which is usually large banks and large NBFCs in the country.

Talk a little bit about the contribution profit that I mentioned earlier. Our contribution profit hit INR2.6 billion or 24% of revenue. I should point out that in the first half of this year, we have generated contribution profit of about INR5 billion, which is roughly $65 million. And this has exceeded the full fiscal ’21 contribution profit, which was INR3.6 billion. So clearly there has been a huge step change in this. This is partly due to the fact that high margin monetization is kicking in that scale. For example, in our lending business, for example in the advertising business, all of this helps change the contribution profile of the company.

In addition, our PG costs have reduced from 0.52% of GMV to 0.34% of GMV on a year-on-year basis. So, clearly PG cost is a large cost for us. And the more we optimize it, the more contribution profit we generate and the more investment dollars we have. In addition, our indirect expenses has reduced as a percentage of revenue from 70% to 63%, along with investments in people, marketing and technology. So, as I mentioned earlier, our marketing cost maintained at 9% of revenue, despite even as we have increased our MTU very significantly and our employee expenses have gone from 40% to 34% of revenue even as we invest more in technology and more in merchant growth and more in merchant devices growth.

Couple of breakdowns for segments. Our Payments and Financial Services revenue, like I mentioned earlier, grew 69%. We broadly break this up into payment services to consumers, which is up 54% year-on-year. This is primarily driven by increase in non-UPI payment usage on our consumer platform. Our payment services to merchants grew 64% year-on-year, which really reflects growth in non-UPI GMV on the merchant side on payment gateway and on our devices merchants. This has now hit a run rate of INR16 billion or INR1,600 crores, which is greater than $200 million revenue run rate. So just this business alone, our payment services to merchants, is a $200 million run rate business and very significant, very sizable. It is both for online merchants as well as offline merchants.

And our Financial Services and Others is up 250% year-on-year. This has grown from about 4% of our total revenues last year to 8% of our total revenues. And the major driver for this is growth in our lending business and our wealth business. Commerce and Cloud grew 47%. The dark blue bars here are our Cloud business where we are seeing rapid growth in advertising revenue. And the light blue bars are Commerce business where we are seeing continued recovery and ticketing revenue post wave two.

And just before we turn to Q&A, just a quick summary of our key trends. The trends in our businesses, on payment side, we are seeing growth of revenues and profitability due to growth of payments volumes from non-UPI instruments, including Paytm payment instruments and the growth in payment services to merchants. We are seeing recovery of high margin Commerce business and growth of Cloud business. And we’re also seeing an increase of financial services driven by huge ramp up in lending.

So that’s the summary of the trends in our businesses and how does that translate into operating and financial performance. We have been able to efficiently increase users, merchant and GMV on our platform. We are seeing strong growth and momentum in revenue growth and we think this will continue. We are seeing a step jump in contribution margin with clear trends towards continued year-on-year improvement. We are seeing indirect expenses as a percentage of revenue going down and we are very well funded for growth opportunities ahead.

Thank you very much. And I will turn this back to the moderator.

Questions and Answers:

Operator

Thank you, Mr. Deora. We will now proceed to Q&A. A kind reminder to all attendees. [Operator Instructions] The first question would be from Mr. Robert Chu. The line is open now.

Robert Chu — — Analyst

Hi. Thanks, guys. It’s Robert Chu from [Indecipherable]. I just wanted to ask about the indirect expenses. And I appreciate it’s starting to come down as a proportion of revenue. But — and I wonder, if you kind of think further out into the years ahead, what sort of growth rate do you need to be seeing obviously to support the investment and growth in the business. I just wonder on a kind of more absolute basis, how quick that needs to grow? Thank you.

Madhur Deora — President and Group Chief Financial Officer

Thank you, Robert. I would — over the next one and two quarters, we’ll probably do more work on figuring out exactly what investment areas we sort of want to factor into our plan and share certain guidance with the Street. I think, the main focus areas right now is to build more technology, particularly for our merchants and also the sales team, which is going and deploying devices and which in turn translates into massive merchant lending opportunity.

So, the present time, I don’t have sort of lot of guidance to share other than it should continue to come down as a percentage of revenue, at least on a year-on-year basis But over the next one or two quarters, we’ll do more work to see if there is something that we can more formally share with the Street.

Robert Chu — — Analyst

Perfect, thanks.

Operator

Thank you. The next question would be from Mr. Robert Marshall Lee [Phonetic]. Mr. Lee, your line is open now.

Robert Marshall Lee — — Analyst

Just talk a little about how you see the competitive environment and just dovetailing with that. The — your marketing expense, which [Indecipherable] of revenues. How do you assess the the successful failure of that? Are there particular metrics you are using? And are there also other parts of the business where you see greater operational leverage on the cost?

Madhur Deora — President and Group Chief Financial Officer

Yeah. Robert, maybe I’ll start and maybe Vijay can jump in as well. On the payment side, what I would say is that we have been very efficient and remained very efficient over the last six to eight months. And we’ve been very efficient over the last two years in particular on being able to grow our users and be able to grow the quality of those users to grow GMV on our platform, while being efficient in marketing cost both for user acquisition and retention and so on. And part of the deal win in our business is that consumer cohorts are behaving very, very well and improving just as we move forward, right. And part of that is product — a large part of that is product, part of that is large number of use cases and part of that is just very — doing a better job on getting the right source of users. So we have been able to be very efficient on that.

The second thing I would say is that on non-UPI GMV, we are seeing, in some ways, very strong momentum vis-a-vis competition, right. So whether it is on the issuing side where Paytm payment instruments such as wallet, which is going through very strong growth or whether we see BNPL which we can talk some more about, so on the issuing side as well as on the acquiring side, right, both in the offline world and the online world. So there are large merchants merchants in the online world with whom we have made significant jumps in terms of the amount of activity that we do with them as a percentage of their business, our penetration and our market share with them.

And in the offline world, as I mentioned, the number of devices that we have, you can obviously see the data and also the comment that we made about making a big push into the enterprise side of the business, including through — with bank partnerships. So, we are seeing the significant momentum in growing non-UPI GMV where — well, we’re seeing significant momentum across the board. We are seeing significant sort of outperformance of competition, particularly in non-UPI GMV and in payment services to merchants. So we are seeing that a lot of that market starting to shift towards us, which I don’t know if you want to make any additional comments.

Vijay Shekhar Sharma — Managing Director and Chief Executive Officer

Yeah. Thank you, Madhur. So, Robert, what we’ve learned is that once you have number of use case led by Paytm, for example like FASTag, which is a car tag for toll payments in India. Paytm is a market leader and the customer has to sign up for Paytm, Paytm Wallet where the — even on interchange, because we are on the issuer side of the business, along with obviously acquiring side business exist there. So we are able to make money from more number of Paytm payment instruments that customers are adopting, which we call non-UPI.

The money that is generated in this is something which is helping us drive the marketing optimum league, along with the marketing expenditures various banks are doing on Paytm. So, imagine large private sector bank, public sector banks are who sort of have their credit card, debit card usage going down because, let’s say, some or other reason that advertised [Phonetic] payment is looking out for customers so they are not using cards. So, these banks are using Paytm Wallet as a channel to drive card usage where they give free cash back, freebies, promotions and they are funding it. So, our marketing expenditure does not expand, while our platform expansion happens.

Similarly, there is also a very clear, I would say, network effect that we’re seeing. The keyword of product capability, for example, like Google, PhonePe who are sort of our consumer side competition, their products are based on third-party banks and systems. Our ability to run vertically integrated technology stack had started to attract the customer. Once they have experienced every other product and we are talking in a month growth of customer base merchant base with nearly flat marketing expenditure in a market where the competition has actually enhanced this expenditure. So, I call it, platform product leverage and overall as a business, obviously as you could see the other revenue line items are also, which is a platform monetization leverage, if you will.

So we continue to see this, Robert, that Paytm is becoming partner of banks to grow their payment usage and revenues. And we are also seeing obviously the monetization opportunities, which are expanding on our platform, very clearly see in the marketing.

Finally, one more thing, Robert, here. We have seen that customers are migrating from, let’s say, UPI to wallet to postpaid. These are typically the non-UPI payment instrument that we talked about. And there in these cases, we don’t have to spend additional incremental money because the customer is already on the platform. So, a payment customer of UPI is converting to a payment customer of Wallet because he gets cash backs on the wallet because merchants are paying MDR for the wallet. Similarly, the inter-person credit instrument by mobile instrument postpaid because customers getting credit. We are now starting to make money.

So, sequentially speaking, the product stack is driving the customer source Paytm and then product — because the customer is on Paytm app, the CLM, Customer Lifecycle Management journey is driving him towards more MDR interchange earnings revenue products that we have. So it’s sort of network effect and CLM, Customer Lifecycle Management, where we are seeing that we are not necessarily requiring to spend marketing expenditure and we are seeing the growth out there.

Robert Marshall Lee — — Analyst

Thank you so much. That’s very helpful.

Vijay Shekhar Sharma — Managing Director and Chief Executive Officer

Thank you.

Operator

Thank you. For the ones sending some questions on chat, kindly utilize the raise hand feature on the Zoom platform. The next question is from Mr. Ankur Rudra, JPMorgan. Ankur, the line is unmuted now.

Ankur Rudra — JPMorgan — Analyst

Hi, thank you. Thanks, Vijay and Madhur. Just — if you could, the first question, if you could elaborate on the advertising monetization in the quarter you highlighted. It’s done very well. How are you finding merchants using this feature? Are there any different ways that you’re finding them using advertising on your app? And how do you see this evolving over time? What’s the best way off of thinking about this in the medium to long-term?

Madhur Deora — President and Group Chief Financial Officer

Vijay, would you like to start with that question?

Vijay Shekhar Sharma — Managing Director and Chief Executive Officer

Yeah. The simplest thing, Ankur, you can — I mean, we are pleasantly surprised that we have deep relationship with payments that expense that — because you have a consumer side business. So, when you go to, let’s say, large retailer or when you go to a large online commerce company, these companies leverage Paytm app to drive traffic towards their business. And this win-win sort of combination because we are able to help them get customer is giving us a regarding revenue and it is also extending our payment business surprisingly much better and faster and sort of a network effect, if you will, from point players who are purely, let’s say, POS providers or payment gateway providers here. So, Ankur, it’s a combination of our consumer offering plus payment offering that gives payment merchants nd opportunity.

Second, we are able to also offer, as you can guess, customer on trading platform would have financially checkboxed KYC ratified customer unlike on open Internet or on a social network, you sort of are guessing who is this customer. On our platform, it’s sort of a KYC verified customer, which is a order of magnitude more valuable. And considering that we have more knowledge about this customer on our platform from financial status of the customer’s context, there is a lot of interest that we are seeing continuously increasing quarter-on-quarter or month-on-month when we are able to reach out to market years or advertisers.

Now, we have internally cross sell team of payment merchant sign up team to cross sell advertising. We also have started to build a separate independent advertising sales team. And even though very small, but they have shown really good strong results for us. We fundamentally believe that for the traffic and scale and quality of customer base that we acquired on Paytm app, advertising will be a very strong bottom line contribution margin business. And Ankur, I want to extend to next level here. Think about, for a brand in India or a retailer, including BFSI shops, if you will, meaning less insurance company or anyone, you can think what are the key avenues that they can go to do advertisements. The classic ad networks of social networks, content platforms and ad networks and now we are going next level where a payment platform, which has built its abilities networked with more data and figures of customer, it is actually coming out as we believe that we are going to expand much more on this. And it could come out as a legitimately sizable option for the partners.

When I say legitimate sizable, it means that we could potentially in future build a large enough choice for our advertising partners that they spend percentage, which is meaningful enough on our platform.

Madhur Deora — President and Group Chief Financial Officer

Ankur, maybe I’ll just add that I think when we started on this journey, and it really was number of our partners coming to us and say, at the present point of — we know that Paytm works for me for transaction standpoint, but there are times when I don’t necessarily want to convert to a transaction, but I know that Paytm has a user base to that I want to over time convert and is relevant for me.

And we had a whole bunch of tools built obviously internally in terms of understanding users and being able to show them relevant use cases. So it was quite seamless, but a pleasant surprise nonetheless about how seamlessly that move towards being able to open to third-party effectively to advertisers that they could come and — what we do try to do however is to show users things which are very relevant and which feel very negative on our platform, and this is. So we don’t sort of create additional properties because end of the day we are transaction app and users come to us for that purpose. So we show them thing — we try to show them things which are very relevant to them.

So for example, if you go to our travel section, you may see airlines and tourism boards who are trying to speak to you. If you go to our entertainment section, you may see certain OTT apps in there which speak to you, in addition to obviously being able to find movie show times and so on. So, we try to keep that very native on our platform. But just given the span of use cases that Paytm has, it can be very relevant and highly contextual traffic for our advertisers.

Vijay Shekhar Sharma — Managing Director and Chief Executive Officer

And then, one last thing to this, Ankur. Our Mini App platform, which is sort of customers — meaning — customer meaning merchant partner is able to build a mini app experience within the Paytm app is also one big driver of advertising revenue, because it is where — because they’re able to complete the funnel on Paytm app itself. And we promote them that you should try incentivizing customers or advertise on Paytm at different places. So, there is a better funnel conversion than a click that generates an app download outside. So Mini App is behind the scene another engine that supports advertising. Thank you.

Ankur Rudra — JPMorgan — Analyst

Thank you. It’s very helpful.

Vijay Shekhar Sharma — Managing Director and Chief Executive Officer

Thank you. Thank you, Ankur.

Operator

Attendees who seem to ask any questions, you could utilize the raise hand feature on your Zoom dashboard and we will unmute your line. Next question is from Mr. Rahul Jain. Rahul, your line should be muted — unmuted now.

Rahul Jain — — Analyst

Yeah, okay. Yeah, hi. Thanks for the opportunity. I just wanted to understand the commercials for lending business. We have seen a significant jump in the way we’ve been doing the new loans. In terms of the commission that we earn on distributing such loan, do we receive the revenue upfront and is it also accounted in that quarter itself or how it is done [Technical Issues]?

Vijay Shekhar Sharma — Managing Director and Chief Executive Officer

Yeah. Thank you, Rahul. So, our revenues are accounted upfront for the revenue that we receive. So, our revenues are broken into broadly three buckets. There is a distribution marketing revenue that we earn from our lending partners for helping them reach out to consumers and merchants to our platform. Then there is a customer service fee we charge from a loan tenure of that particular loan. And loan tenures are not very long as you can imagine billed is about 30 to 90 days and the rest of the stuff is about 12 months to 13 months itself. And then there is, in cases wherein the lending partners use our collections infrastructure. We also have our collection-led, what I can say is, the portfolio revenue that we get at the end of the tenure. So that’s how the entire revenue is generated. So we only account for revenue on cash basis and not on accrual basis.

Rahul Jain — — Analyst

Okay. And any color you may want to give in terms of the split of the book in terms of personal loan to BNPL kind of it?

Madhur Deora — President and Group Chief Financial Officer

Yeah. So, at a very broad level, we haven’t declared specifics, but I think you gave a broad indication at a very broad level and in terms of number of loans. As you can imagine, BNPL is a disproportionate share of our number of loans, followed by — equally followed by merchant and personal loans. In terms of value, we find that BNPL constitute maybe a shade over 50%, that some of them are split equally between merchant and personals.

Rahul Jain — — Analyst

And NSC amount per loan kind of it looks like sub-4,000 footprint…

Madhur Deora — President and Group Chief Financial Officer

Yeah.

Rahul Jain — — Analyst

…to 5,000 kind of a par number. And you say that 15%-odd would be around for the BNPL. So, is it fair to understand that even on the personal loan or the merchant loan, the ticket size that we may be operating within the 10,000 to 15,000 kind of a bracket?

Madhur Deora — President and Group Chief Financial Officer

No, actually not — that’s not the case, Rahul. The fact that we had number of loans that we issue on BNPL, as I said, is a very, very large number. So, it kind of pulls down the averages because BNPL, we are operating at sub-4,000 levels, closer to 5,000 and that’s by design. Whereas in personal and merchant loans, the ticket sizes are much higher, closer to INR100,000.

Rahul Jain — — Analyst

Right. Understood. Thanks for the clarification and join back the queue.

Madhur Deora — President and Group Chief Financial Officer

Thank you, Rahul.

Vijay Shekhar Sharma — Managing Director and Chief Executive Officer

Thank you.

Operator

Thanks. Next question is Sophie Anne [Phonetic]. Sophie, your line is unmuted now.

Sophie Anne — — Analyst

Hello. Could you tell us with your customers or your new users, are you able to say which apps you think that they are coming from? Are they completely new to digitalization or do you see that they are coming to Paytm from perhaps the less comprehensive service provider?

Vijay Shekhar Sharma — Managing Director and Chief Executive Officer

Sophie, we continue to see both kinds of customers. Surprisingly, we are seeing the churn from other apps customers coming on our platform. And it is purely because the technology limitations other apps structurally have. They are working on the back of typical traditional bank whose technology hasn’t got the scale or integration hasn’t got scaled or some of the problem of method or integration or something. I can say, we are seeing both kind of customers in — sort of in geographical difference where in Southern India, we are churning more customers from others. And in Northern India, we are getting new incremental customers, which are totally fresh.

Interesting thing number two, one of the reason that we did our own survey that where did they come, they do come for this. But then, the team themselves because there are Paytm payment instruments, which give them incentives, which are driven by the wallet and postpaid and bank bid bank account. So all these three things are the hook that retains them and keeps them. By the way, our dividends has been much higher in these quarters. I’m smiling at it because when we saw the churn coming to us, we were in last six months were concerned about that would — does it mean that these are temporary and they can go back surprisingly in our own feedback surveys from them. There was a lot more retention, thanks for the lock-in that they create once the customer has created a KYC. It takes a lot to do the customer KYC, etc., but once they have done KYC stored some prepaid deposit with us or open a bank account or locked in with, let’s say, FASTag, which is a toll tag, these customers are retained on our platform.

Sophie Anne — — Analyst

That’s very helpful.

Vijay Shekhar Sharma — Managing Director and Chief Executive Officer

Thank you. I think to Rahul, I wanted to add one extra thing, considering that we have Sofia so I didn’t expanded that. Rahul I wanted to add one more thing that I personally believe issuing and collecting a smaller ticket size of loan is the magic moment because it is not just costly and complex. It is also where the monetization meaning I would say profitable monetization is challenged even for the best of the financial institutions. I mean talk about NBFCs it is tough for them to distribute a loan of INR5,000 and collect it at a cost, which is profitable for them. For banks, it is even tougher for them to go below INR50,000 I’d say or INR20,000.

So I believe Rahul, what we’re doing is we are taking the tough thing first. It’s surprisingly tougher for anyone to not even touch it. We are able to do not just make money, we are able to rotate and have up sell, etc., also being done here. So we are actually liking that we are expanding smaller loan ticket size over larger loan bigger size because the magic happens when you are able to build a business model of large number of users with smaller loans, than a large loans of small number of users. And we fundamentally believe that we will continue to provide more number of users to the credit story with these small loans will in turn then over the period obviously start to take larger ticket loan from us.

Operator

Thank you. Next question is from Mr. John [indecipherable].

John — — Analyst

Hi, thank you for the time. I just wanted to ask on the collection experience so far. Obviously, the number of loans increased dramatically and originated and what’s the experience been like versus your own expectations and I guess, versus your banking partners.

Vijay Shekhar Sharma — Managing Director and Chief Executive Officer

John, the experience has been very good so far and I’ll give you while we do not have access to the portfolio performance directly because the lending partners in the risk on the balance sheet and not necessarily that every information they shared with us, so we have three ways of looking at this data, to give you some sense of how tenants are looking versus that be doing collections on the portfolio, which will go for a very large majority of the premises to our platform. We can clearly see that the efficiencies of collections both which consumer loans have been performing better than lenders have numerous targets and we, hence are also being able to make some bit of trading revenue and portfolio performance, which we are actually happy about.

The second piece is that we’ve been able to demonstrate even to COVID. The newer partners have looked at our platform positively, basically means very, very large banks and very large NBFCs we’ve added into our platform as the new partners in the last 6 to 9 months, which was actually the deep end of the core period we will see. So they felt comfortable seeing what we were doing with other partners and hence the obviously forced us and be of course then to kind of work together to add them to our portfolio.

And the third is in the credit business it is very clear that if the lending partners are not happy with the current portfolio, you would not see the roads that you’ve seen. So we are fairly confident that what seeing in the portfolio and what we can imagine that market experience. The portfolio is holding up much better than they thought it would and this has been the deep end of COVID as far as we are concerned. So all in all, it is looking fairly, fairly good and we feel very confident that we can continue to have up very long ahead for us as a business.

John — — Analyst

Okay, thank you. I just wondered given that there has been some more news on regulation recently around this area whether that has also been in line with your expectations or whether there is any kind of changes to your plans needed as a result of them.

Vijay Shekhar Sharma — Managing Director and Chief Executive Officer

So, John, glad that you asked this question, I think we been we actually welcome these regulations or proposed regulations, the balance there. While these are working group will just come out and there is time for the industry to respond to a band of December, then hopefully after they see regulator we look into the recommendations and working from recommendation together before they kind of formulate any kind of incremental regulations, but on the face of it, we see it in three parts.

Number one, we were always adhering to the existing this lending guidelines, which came in in June of 2020. So these guidelines that came in, in June of 2020 and when we look that those guidelines and along with the local paper, we see that there is a significant overlap of similar guidelines and to be a lot more clarity because maybe the working group that some of the players were not added to it in fully level is better. But from our perspective, we’ve always demonstrated that we strictly adhere to the outsourcing guidelines and is living that with existing today. The second piece to see this that there has been some level of grade In things like would you fund in a prepaid instrument, or could you go ahead and disbursed credit on your own balance sheet without having a license or you, could you give any kind of credit guarantees, etc.

I think working group has clearly called out. These are things which we don’t think are appropriate. We have not been following that model, our model is very clearly distribution technology and collection performance led which is fundamentally being called out as a good model in their working paper also. And the third thing is all about the size and scale that the working group expects the partners in digital space will have in fact they endorse that the credit dispensation in India is necessitated by the fact that technology is the only way forward to reach to the masses especially in small businesses and Paytm being a technology partner has demonstrated that we are in the forefront of being able to achieve that objectives, not only for our own customers, but in the overall ecosystem in development.

So I think we feel very happy and confident that if and when these regulations are our implemented either important, it is of the platform capability, the the monsoon the model with the more so. So yeah, there is nothing, nothing to be concerned from our perspective, model stays as it is and our lenders that also absolutely aligned with that model.

John — — Analyst

Okay, great, thank you very much.

Vijay Shekhar Sharma — Managing Director and Chief Executive Officer

Thank you, John. Thank you, John. The next question is Mr. Rahul Jain again.

Rahul Jain — — Analyst

Yeah, hi, thanks for the opportunity again, and thanks Vijay for that additional input. So my next question is on the devices business, we have seen a significant jump from point being 1 million device to 1.3 million, I just want to understand couple of things around it. A, how we are distributing this, what kind of KRAs do the distribution partners or employees, do they carry in terms of the number of devices or any of variable that you might have assigned, what is that variable. And secondly any split, do you want to share in terms of [indecipherable] device?

Vijay Shekhar Sharma — Managing Director and Chief Executive Officer

Rahul, you’re asking that what kind of inventory are the employees typically carrying within for devices, is that?

Rahul Jain — — Analyst

Incentives. So what are —

Vijay Shekhar Sharma — Managing Director and Chief Executive Officer

Our incentives are — incidentally, we have a business model led by performance and meritocracy. So incentives are not for selling, but getting a merchant who’s longer term on our platform. So a person who’s selling sound box does not necessarily need to sell sound box, he could get equally rewarded if this shopkeeper takes let’s say a static QR which is that’s a photo QR, personalized QR or sound box and directly with long-term. So there is sort of a biased selection by a salesman who discovered what this much and gets because it incentives are not misaligned to oversell sound box and the best part is that we have the highest retailers product ever and I’m, I mean obviously to the context in our own company. But I can tell that we see highest retailers product like iPhone level of customer on this product. I mean it’s phenomenal in terms of much in behavior need, love, affection, acknowledgment that we get on sound box from our customers.

So what kind of incentives and the incentives are led by, like I said not device or SKU only, they are led by that the merchant is staying longer term or fulfilling the service. Amount exactly. I don’t think so that it is same for Tier 1, Tier 2, Tier 3 or less than it is more in these markets. So it’s not that, but the best thing I can tell you Rahul is that our bonus on good customer service meaning good merchant service and good sign up is so much that FSE, field sale executive could comfortably and many of them earn INR30,000, INR40,000, INR50,000 a month.

Madhur Deora — President and Group Chief Financial Officer

So I just wanted to add that you know one of the things that we done do that obviously each product has its own launches but the experience of selling payment solutions to the long tail of merchants all over the country that in itself has created a certain amount of IP in the country and in the Company and we started doing QR codes in early 2016. So this is sort of five or six years of experience that is sort of built in the Company about that to do to solve for the types of questions that you’re asking, which is how do you incentivize folks should it be different in different cities, should it be different by different products and how do you create that has grown from 10% last year to 25.5% this year. So look at the year on year trend is the primary way of evaluating efficiencies on those lines especially given that QonQ is harder comparison.

Vijay Shekhar Sharma — Managing Director and Chief Executive Officer

And then one more thing that your statement on breaking of payment, while we have not disclosed or disclosing it like this, it is clear that some of the line item in our payment business are not just profit generating but free cash flow generating. So it should be clear that our payment business, which is, and that is the bigger piece on that we’ve called out non-UPI GMV in this quarter result that other revenues and contribution margins are clearly growing on the back of payment and financial services business where payment itself is the primary driver of that.

Rahul Jain — — Analyst

Thank you very much.

Operator

Thank you. Next, we’d like to call Mr. Anish. Anish, your line is unmuted now?

Anish Rai — UBS — Analyst

Hi, good evening, everyone. So this is Anish from UBS. So a couple of questions, one from the — so one question would be related to the MTUs we have. So I just wanted to understand, so if we see some 60 million or 60 million odd MTUs in a month, what would be, what would be the breakup of vintage of these users. I mean how many of these would be recently acquired. How many of these would be three years old on the platform or something or some color of that sort. And the other question would be related to merchants. So I would, if possible, would you — could you throw some color on the on the percent of GMV which comes from merchant which don’t pay in India. I mean, there would be a lot of intersection between UPI and QR codes — QR code based merchants who don’t pay in India. So I would just like to understand how that works and the other question for MTUs. Yeah, that’s it, thanks.

Madhur Deora — President and Group Chief Financial Officer

Right. So okay, well I’d say. MTU margins obviously very complicated to just to simplify it a little bit, what I would say is roughly in any period over 12 months, roughly 60% to 80% of our MTU are new and 20 to 40% of reactivated, over a 12-month period. Right. So I think those are the sorts of trends that we normally see. Of course they are somewhat dependent on how the reactivation efforts are working and how well previous efforts are working. But over the long-term trend. Right. Actually that data is a little bit more true for annual active users on a monthly basis of course there are users who will come and there are users in a certain month and organically, come back and use us maybe use us in the next month but even if skip a month they will come back and use us in the month after.

So on an annual active basis that trend has held up pretty well, which is 60% to 80% would be new and 20% to 40% would be reactivated. And I think on your second question, our merchant base is sort north of 20 million as we put in the prospectus and growing. We do, like I said, we have over 1 million merchants who have devices, right, so those are merchants who generate us in the offline world those are merchants who generate us revenue including large format retail and so on. So I would look at the start — to look at the merchant funnel in that way that the merchants who — the merchants who pay us MDR because they want to accept all kinds of payments those are online and offline. And there are merchants who are the sort of smaller merchants who may not pay us MDR but they pay us for devices and merchants that they get so on.

Vijay Shekhar Sharma — Managing Director and Chief Executive Officer

Correct. Yeah. So, what Madhur had just said, Anish, it would be nice to see our merchant base based into no India merchants or then second bucket would be MDR, which is Paytm non-UPI instrument led merchants like Shoppers Stop or Big Bazaar or any other ones which are credit card, buy now pay later, and Paytm Postpaid wallet etc., etc. And then in the two merchant, there are second merchant that you’re talking about are inevitably also paying for some of the subscription platform fields. So what we look at how much investors, one merchant base which makes money using payment itself as a line item of revenue. So second merchant base is a beautifully even more monetizable merchant base because that merchant base, even though he takes 0% payment on the platform but he does not have access to the credit in our credit partners banks and NBFCs are happy to extend credit, thanks to the payment rail that we create.

The advantage of payment rail is that they are not just able to disperse, but collect also from the collections every day that happen. So Anish, we own on a zero MDR merchant disbursement and collection margins on our flex. And that makes that merchant who is a zero MDR merchant very useful for Paytm platform and equally and even more useful for our lending partner because these become over the priority sector lending and whatnot. So Anish we continue to acquire merchants on both buckets, one who pay us for payment service and that is why we are talking about non-UPI GMV there and that talks about the merchants would give us money for payment acceptance and platform, device subscriptions and various other things. And second bucket even more useful because this is like you can guess tens of millions of merchants out there never have access to formal credit and financial institutions and partners are looking forward to a solution in the platform like us.

Remember [indecipherable] platform is an edge here. If we were truly a bank we would have only seen the bank account of this customer and then we would have wild guess that what is this kind of money, no reason for and no predictability while it is a payment platform where we also have a mapping consumer detail on our platform, we can say oh, Anish is paying the shop means that the shop must be a high value shop and oh we have seen other customers who are of high-value quality are paying the shop. So remember our merchant business is fabulous from two aspects, payments revenue and credits revenue.

Anish Rai — UBS — Analyst

Got it. Got it Vijay. Thanks.

Madhur Deora — President and Group Chief Financial Officer

Anish I just wanted to clarify my earlier comment on MTU, just to make sure it came out, right, which is we have this annual transacting user base. Vast majority of them transact in the next year as well. Right. And then the growth comes from largely sort of new users who come to our platform and in some cases, users who may have not users in the previous year, but use us in the year before who come back due to some of the reactivation efforts that we do. But the core base going into any new year, is that, vast majority of our existing customers do transact next year as well.

Anish Rai — UBS — Analyst

Right. So Madhur probably the fact we had to put this in another way, so just a follow-up to what you just mentioned. So if I — so if my question is, so, see if you have X annual transacting users this year, what percentage could I assume that these user will transacting even the next year, I mean what would be the drop-off rates or something of that sort, if possible, for you guys to sort of disclose.

Madhur Deora — President and Group Chief Financial Officer

We haven’t quite shared that number, but it is the vast majority of those users. [Speech Overlap] regardless. Yeah, sorry go ahead.

Vijay Shekhar Sharma — Managing Director and Chief Executive Officer

No, I was saying that Madhur is using the correct word. Anish, you can expect that, if you remember, a few minutes back, we were answering your question how a customer is spending more money and that happens because the customer is actually living on the platform more number of times. So over the period, thanks to the number of used cases and the opportunities of multiple funding sources and services that we bring that customer remains on our platform, surprisingly the commerce business that has been discussed in this call is one of the reason that we started that it is a key use case for customer to retain and come back on our platform.

Anish Rai — UBS — Analyst

Great. Sure. Thanks.

Operator

Thank you. The next question from Mr. Sameer. Sameer, your line is unmuted.

Sameer Bhise — Axis Capital — Analyst

Yeah, hi, thanks for the opportunity. Just looking at the number of sales employees, I see a sharp jump Y-o-Y probably that is also driving the merchant growth. What is the outlook here going ahead?

Madhur Deora — President and Group Chief Financial Officer

Yeah. I think last year, the comparison of this number on September on September is slightly tricky for two reasons, one is — overall for one primary reason because the offline world just sort of came back a little bit later in Q2 last year whereas this year also, we had COVID impact and wave in Q1, but by the time Q2 rolled around there’s plenty of opportunities for us to have [indecipherable] start selling devices and so on. Right. And we will continue to invest in merchant growth you would have seen Sameer from where you sort of digest all of this data, you will see that we’ve been able to reduce our employee expense as a percent of revenue despite increasing the sales force. Right.

So we have those levers in our business. We will continue to invest in merchant business, but we think we can do that while maintaining indirect expenses at a certain percentage of revenue and in fact decreasing it.

Vijay Shekhar Sharma — Managing Director and Chief Executive Officer

Yeah, it’s an important thing to remember Sameer that as Paytm vantage point, we see a tremendous opportunity to grow payments as more to acquire merchant. We continue to invest in use cases that engineering professional team made. So as you could see the number of employees, there are more and more [indecipherable] added to the system because we’re building for what new use cases and other financial services that we are building. Secondly, on the merchant side like Madhur said incredible large, strong growth ahead is possible clearly because more merchants are getting ready to accept digital payments.

Madhur Deora — President and Group Chief Financial Officer

I’ll just add Sameer that just from accounting standard perspective, if we have insourced field employees and they show up in employee costs, if they are outsourced employees and they show up in other expenses as an outsourced costs. So depending on our specific strategy during those quarters, whether we are having those employees on role, versus outsourced and there are some pros and cons of that you may see some slight differences. Right, so you may not be able to model number of employees straight in to employee costs.

Sameer Bhise — Axis Capital — Analyst

Sure. But this is the same number which shows in the RHP as around INR65,000 as of June. Is that the same trajectory or is there a slight change?

Madhur Deora — President and Group Chief Financial Officer

Yes, that’s right. Obviously, we have more disclosure around.

Sameer Bhise — Axis Capital — Analyst

Yes, yes, absolutely.

Madhur Deora — President and Group Chief Financial Officer

So if that’s what you’re referring to, that’s right. And if you have further clarification, you could send us an email and we will just triangulate all the data and make sure you have good clarification.

Sameer Bhise — Axis Capital — Analyst

Sure, sure. Thank you and all the best.

Madhur Deora — President and Group Chief Financial Officer

Thank you, Sameer.

Operator

Thank you. It is also getting close towards the end of the scheduled time. So we’ll have time for two more questions. Next question from Mr. Nitin Aggarwal. Nitin, you can unmute the line. Hi, Nitin.

Madhur Deora — President and Group Chief Financial Officer

Nitin, if you’re speaking, we are unable to hear you.

Nitin Aggarwal — Motilal Oswal Securities — Analyst

Am I audible now?

Madhur Deora — President and Group Chief Financial Officer

Yes.

Nitin Aggarwal — Motilal Oswal Securities — Analyst

Yeah. So thanks for you are doing the investor call and thanks for taking my question. So I think question is like, firstly, on the wallet load pattern if you can make comment as to how that has been keeping pace with the overall non-UPI GMV growth? And as we have charges also on the wallet load pay card, so how has been the mix changed in terms of loading the wallet via credit card for past one year? So what does the mix come down from here?

Vijay Shekhar Sharma — Managing Director and Chief Executive Officer

The best part I can tell you Nitin is that our business of wallet year on year has been growing and credit card charges have moved either moved the customer to other payment sources like UPI, like debit card, or net banking or made the customer comfortable enough to pay those charges. So the clarity here is that we want to continue to expand on wallet as a use case, because this is here and running as a revenue momentum for us and it’s, it is year-on-year very decent growth. In fact, in many cases we see that customers who use wallet to add money like we just now few minutes back shared, the banks leverage wallet as a platform who gave their debit card and credit card user extended acquiring network of Paytm. So this is a strong growth and we are very happy with how wallet growth is showing up.

Madhur Deora — President and Group Chief Financial Officer

I just wanted to clarify, when Vijay said, it has moved users to other payment sources, other payment sources to add money to wallet. Right. So, users who — there are many users who will decide they want to continue using credit card and pay the charges, which were implemented in calendar ’20. And there are some users who have said they will move to another payment stores such as debit card, net banking, UPI and so on and not pay the charges and what that has done, is that the wallet take rate has been the same, wallet and that it has become more efficient from a loading cost perspective and some of that does reflect on the year-on-year contribution margin and year-on-year percentage of premium cost as a percentage of GMV.

Nitin Aggarwal — Motilal Oswal Securities — Analyst

Thanks so much. And secondly, how do you really calculate the productivity on the GMV contribution of merchants where you have installed merchant device because sound box versus the ones that don’t have it and any approximations to because we have say around 20 to 25 merchants in terms of sound boxes [indecipherable] so how much can we really close the gap at the end of it.

Vijay Shekhar Sharma — Managing Director and Chief Executive Officer

Nitin, I can tell you that the merchant, who use sound box versus let’s say earlier that they were using static QR or plastic QR or paper QR. The one thing that happens there is that the transaction consolidates meaning no more multiple QR merchant and it sort of becomes nearly exclusive and clearly that would tell you that and then merchant become even more comfortable, because they are sure about the payment receiving. So we’ve seen the growth, which are I mean strong is the world. I mean, Madhur I leave you on —

Madhur Deora — President and Group Chief Financial Officer

So I wanted to maybe just make two or three points on that. So, one is like I said in the presentation device merchants and large percentage of them majority more than majority are sound box merchants. They do become significantly higher retention and also the volume of transaction goes up very, very meaningfully. And just sort of two separate points I just wanted to be clear, and that is very efficient, it is dramatically better unit economics for us and dramatically better CACC to LTV for us, because you’re not going out and sort of managing churn, you’re managing a very different churn profile than you would without devices.

The second part to call out is this behavior that I mentioned which is higher retention and and more spends which is higher royalty on the platform basically that is nearly sort of nearly perfect behavior for them to become eligible for merchandising because one of the things that we should be clear about is that we don’t lend to merchants on thin file and they are publishing that if there is a follow-up on that. So it just accelerates the behavior of a merchant who is creating that effectively loyal behavior and thick file on Paytm so that they are able to — because they become eligible for loans from our partners. So this is the — this was why I said strategically an important initiative for us. Nitin, I would refrain from giving forward looking numbers on this, you have clearly seen the trends. We added 1 million in the last year, roughly half a million just in the last, last few months. So clearly this is off — on a very strong trend and accelerating.

Nitin Aggarwal — Motilal Oswal Securities — Analyst

Thank you so much.

Operator

Thank you, Nitin. And now for the last question of this section of Mr. Viral Shah. Viral, we have unmuted your line, you can ask your question.

Viral Shah — Centrum — Analyst

Yeah, thank you for giving me the opportunity to ask the question. Actually I had two questions. So the first one is, I know we have touched upon this near on Saurabh’s question, but wanted to understand more so from a medium to longer-term perspective. Does the working committee report that has been put out alter the medium to longer term different profit pools that Paytm could have developed. So for example, an underwriting or basically underwriting decision looks to be made at the end of the banking partner right, probably say going down the line given the kind of scale and the base that Paytm would have generated it could have been one of the or monetization channel for Paytm.

And another thing linked to it is, does it kind of see impact from the BNPL business materially because the — primarily the economics in the BNPL business comes from MDR and if you look at it one of the recommendation is that this kind of credit needs to go into the bank account of the user. So, on which the MDR is typically are not what it is on sale wallet.

Bhavesh Gupta — Chief Executive Officer, Lending

So let me take both of your questions. From a — purely from a model perspective, it’s important to understand that the working committee as I mentioned earlier to Saurabh’s question, we currently practice what largely has been recommended by the working committee because we’ve been following the current laid down guidelines of June 2020 digital lending guidance etc. So from a purely from an implementation of working group, I think it will be very positive for our business model and it will further amplify what we have believed in building the credit business at Paytm and obviously it will remove some of the so-called smaller players who have been doing all kinds of things I think in the ecosystem which may not be helping the digital ecosystem to prosper.

Now, clearly from an economics perspective, there ar two things to really remember in our model. Our lending business is aligned with our payments business. So, as Madhur had mentioned that we do thick files, and what we mean by thick files is, we are not going and soliciting customers just for credit. So credit is a byproduct of what the customer and merchant does on our platform, more transactions they do, their apprehended to get credit through our lending partner increases and more credit they consume we believe the stickiness of the platform the consumer, the merchant increases. So it’s kind of a flywheel and that’s a flywheel we are currently focused on. So it’s just not the way to look at this business to make money from our element of a lending business. But in the total of flywheel we make money also on payments and also on credit and vice versa.

Viral Shah — Centrum — Analyst

Yeah, sorry, if I may just to interject apologies for that, but just from my question was not more so from how the business is currently. But what it could potentially be. See, for example, given the kind of data that you have over a period of time, you could have actually see provided the underwriting tools or the data that you have, you could have provided a score like we have say for example KakaoBank in Korea does or many of this neo banks now do, you create a score and based on which the lenders uses those scores to lend to customers, does this kind of take away those kind of profit pools, because now the lenders would be required to may if they document the underwriting at the process that they have at their end. And secondly, actually have you like in terms of your interaction that you have with your partners, have you seen some indications of them having to now reevaluate [indecipherable] clients or the arrangements that they typically have not just with you, but generally.

Bhavesh Gupta — Chief Executive Officer, Lending

Yeah. So Viral, to the second question, we don’t know about the other partners, but from a Paytm perspective, we continue to have very, very strong support from our partners and growing. So there has been no let down in terms of business, if you are indicating this is the working committee the answer is no, the previous question, I think we, our focus is always to build a legitimate business, legitimate business means that we would like to protect what is the right product for the customers and their interest and hence our belief has been that what Paytm offers is technology and what Paytm offers is a very, very unparallel opportunity to distribute credit to a very large segment of customers and also what Paytm offers is ability to collect using our digital tools, digital platforms and the merchant ecosystem.

So I think this is our strength. We would like to play to our strength. And I think there are enough and more revenue pools in our strength in medium to long term which we like to exploit.

Vijay Shekhar Sharma — Managing Director and Chief Executive Officer

Viral to what Bhavesh had just now said, it is important to note that our lending partners clearly see, not just the technology and like you said, let’s say, we could build some scores or certainly we could give them and that would help them they see two important line item, which is the disbursement and collection is even more critical KPIs than just let’s say helping underwriting issuance. The reason I want to tell you Viral is, if they go on open Internet, the cost of acquiring customer on open Internet for NBFCs and banks is dramatically higher because there are many aggregator platforms in the net verse that open Internet users that the CACC remains way, way, way higher off the margin that they create.

I mean, I would not hesitate to say that that nearly all the margin they could have made would have gone in CACC, if they would have chosen to scale on open Internet and the reason is, like I said that there are number of aggregators who sort of hijack the traffic plus even the financial institutions, don’t have wherewithal of even deployed third party agencies to acquire customers of that way. Companies inevitably seek multiple channels and the advantage of Paytm is like imagine a Diwali Mela and I ask our financial institution partner, bank partner, NBFC to say please open your stall here. And then the customers who may have been invited in Diwali Mela are [indecipherable] to you.

Paytm’s approach is this that come over, we have a customer base on the Paytm map, who in workflow could have a conversion towards your product. This approach, does not cost them increased cost off customer acquisition, if they go on loan disbursed platforms like you know many years as a bazar kind of products where there are just enlisted product they also do their own traffic to those platform, surprisingly in our case it does not happen because we don’t fight with them to acquire their own customer instead we offer potentially their customer or new customers on our platform that can be serving them. So Viral, important to note is that Paytm’s credit business is not zero some to bank or NBFCs customer acquisition strategy on Internet, it is actually adding to that as a key important channel, number one.

Number two, the ability, like you said the data and nuances of the system and abilities that we can help them with technology makes them percentage hit rate, much better than if this customer was coming from mobile Internet and hit rate stands for that their credit policy would happily accept this customer with the nuances that they get to know once the customer is taking an application using our platform. In other words, they have a high quality lead issue. Now once you disburse this loan and you know that we are talking about small ticket loans, we are talking about large number of loans. It is even more important for financial institutional bank who collect this. That is where the Paytm plays even more important role, and you can imagine for a merchant, they probably will not have wherewithal to collect unless it is deeply integrated with the thick file that we are discussing, sound box customer merchant, but there is a large number of payment incoming and from that we are deducting daily, weekly, monthly whatever the interest is.

So Viral while it is nice to think of Kakao-based business model where we could just throw very little and get advantage of that value, but it is far more fulfilling for our partner and us to deliver in these three buckets. Number one, disbursement. Number two, technology platform and number three, collection. And the best part like Bhavesh said in the beginning, are they also has called out but please don’t go in FLDG or loan guaranteed way because that is a credit agencies work and we work complementary, that is why the scale, that is why the margin growth and revenue growth. We are very, very, we are seeing very, very strong demand Viral.

I mean, number of queue of partners on joining Paytm platform for credit is so much that internally, Bhavesh and me were working on adding more number of only on adding integration partners if you will. Hope you get that.

Bhavesh Gupta — Chief Executive Officer, Lending

Viral, to your other question BNPL, I think small clarification. So there are two parts in the working group which at least has come out publicly. One part of it is that they have observed that there are lot of disbursements which other fintechs had been doing apparently as per that observation in two prepaid instruments, mainly adding a wallet or a plastic card which Paytm anyway doesn’t do, which is what they made an observation that that will not be the big case we should be that they are allowed and should that disbursement happen in bank account.

In case of Paytm postpaid and especially BNPL, the lending partner disbursal directed the merchant and hence that is absolutely [indecipherable] use case, because this is typically the way EMI financing happens on the ground wherein I go to purchase a good set of shops and the payment is being made by me for a loan that taken to buy that good from that shop. In this case that goods could be digital, goods could be physical and it is personally made directly to the merchant account. So I think there is, that clarification is important and hence the BNPL disburse that we run is absolutely in line with what has been recommended.

Viral Shah — Centrum — Analyst

Right. And just as a follow-up if I may. So how does the economics in this case work as to the bank disburses money directly into the bank account of the merchant so bank then deducted 2% or 1.8% that is typical MDR.

Madhur Deora — President and Group Chief Financial Officer

Yeah. So the economics, I don’t want to dwell further. The broad level understanding there is that Paytm is also payments platform. So the MDR is earned by Paytm and then there is a component of interest and other fees which is shared between the two platforms.

Viral Shah — Centrum — Analyst

Okay. Thank you.

Madhur Deora — President and Group Chief Financial Officer

Thank you, Viral.

Operator

[Operator Closing Remarks]