Paytm eyes merchant acquisition in international markets with new subsidiaries in Middle East, SEA

One97 Communications, the parent company of fintech giant Paytm, is expanding its global footprint with new subsidiaries in the UAE, Saudi Arabia, and Singapore after reporting a marginal reduction in net loss to ₹208.3 crore in the third quarter, compared to the same period last year.

Paytm CEO Vijay Shekhar Sharma said that merchant acquisition and payment facilitation in new regions are key growth opportunities for the company.

“The intent here is to first go on the merchant side because it is a very long-term business model, and in every economy and geography that I am meeting different senior executives in, either in central bank or government, love it because SME credit is missing everywhere,” said founder and CEO Vijay Shekhar Sharma, in the earnings call on 20 January.

Paytm launched UPI International, allowing Indian travellers to make Unified Payments Interface (UPI) transactions at select global locations. 

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Madhur Deora, president and group CFO, said that the company’s increasing focus on international expansion, particularly in the Middle East and Southeast Asia, is driven by the need for more solutions and distribution in the merchant ecosystem. “We have been able to build great technology at very low cost in India, and we think we can service the merchants in these markets really well.”

Impact of new businesses

The impact of these businesses on Paytm’s revenue will not be visible in the short term as the incorporation of wholly-owned subsidiaries will be completed within the next 6 months, according to the company. “From setting up a subsidiary to, in some cases, getting licenses and then eventually having products launched and merchants signed up and then starting to generate revenue and profit will need some time,” Deora said.

To build its presence in the countries, Paytm is investing ₹20 crore (in one or more tranches) in each wholly-owned subsidiary to be incorporated. “The good thing is that these are largely B2B businesses, so they don’t have large upfront spend,” he added.

According to Rahul Jain, vice president of Dolat Capital, while the impact of international business is far away, all segments of the company’s business have posted healthy performances this quarter, especially its financial services business.

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Paytm earns most of its revenue from payment, financial, and marketing services.

In Q3 FY25, payment services grew 8% quarter-on-quarter (QoQ) to ₹1,059 crore (58% of total revenue), driven by merchant subscriptions and payment processing margins. Following closely, financial services revenue increased 34% QoQ to ₹502 crore, making up 27% of the total revenue, with merchant loans and trail revenue growth from Default Loss Guarantee (DLG).

In its quarterly commentary, the company said the higher financial services revenue was due to a higher share of merchant loans, higher trail revenue from the Default Loss Guarantee (DLG) portfolio, and better collection efficiencies.

The lending service provider (LSP) had started extending merchant loans under the RBI’s revised first loss default guarantee (FLDG) norms almost 5 months ago, which require LSPs to pay 5% of the loan portfolio to creditors in case of defaults.

The outstanding AUM for DLG portfolios as of 31 December 2024 is ₹4,244 crore, compared to ₹1,651 crore on 30 September. According to Deora, DLG merchant loans comprised about 80% of all merchant loans in the past quarter.

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Meanwhile, the DLG limit with SMFG India Credit Co. Ltd has been increased from ₹225 crore to ₹350 crore. “Our DLG book that we have done in the last five months has done noticeably better than our non-DLG book AUM that exists, and it is very much on track. If anything, it is doing slightly better,” said Deora.

Marketing services, including credit card distribution, ticketing, deals, and gift vouchers, added ₹267 crore, making about 15% of the mix, alongside ₹56 crore from miscellaneous revenues. While Paytm’s consolidated revenue from operations in Q3FY25 dropped 36% year-on-year (YoY) to ₹1,827.8 crore from ₹2,850.5 crore, its revenue rose 10% sequentially.

In early 2024, the Reserve Bank of India (RBI) barred Paytm Payments Bank, an associate of Paytm, from onboarding new customers over compliance issues, which impacted the company’s business in the subsequent quarters. NPCI has, in October last year, allowed Paytm to onboard customers onto its UPI app through tie-ups with banks so it can expand its consumer UPI business.

And read | NPCI extends deadline for compliance with UPI volume cap by 2 years