Second question is, you know I wanted a bit more clarity in terms of your lending book. I know in the past, you guys used to give a good amount of disclosures, but any color in terms of how is the mix between, let's say, personal and merchant loans? I do think this quarter, the value of the loan disbursed is also not given. So I do want to understand where the numbers are. And a related question is, the mix between DLG and non-DLG, is it because of the lenders where the mix is now getting skewed more towards non-DLG, or could that change basically how the lenders get changed from a medium-term perspective?
So first thing first, it is the same lenders who have decided to forego DLG-based math because they see the book performing great for their references. It is not about adding new lenders who are not taking DLG. So it is strictly about current lenders that have existed previous quarter or previous to previous quarter, number one, which inherently inherits that the book has performed incredibly good for lenders to have their risk and comfort to be deciding because you know there were various clearances and clarifications that got issued. And as far as the mix is concerned, I can say that we've linearly extended the previous quarters. The problem of not giving the numbers separately, as you are aware, we've been discussing it many more quarters before, it gets misconstrued that we are the lender or we are lending when we say we distributed so much of loans. We kept trying different, different words, but we do not want any ways whatsoever, anybody to misunderstand that we are not owning responsibility or book of these loans. So we being the fee-based income, we started to say, let's just talk about the fee. I'm very happy to hear or learn, all of us are available, as to what KPIs should better help you understand these things that you are asking for. As of numbers, they've been very linear, traditional sequentially and the previous lenders who have been continuing with us ever since are the lenders who have decided that they don't need DLG.
In this quarter, ballpark, what percent of our disbursements would have been under FLDG?
I think we'd rather not give the exact percentage, but I mean, you can see from our direct expenses decrease quarter on quarter, and that will give you a sense. We also report partner portfolio, AUM, on a monthly basis as per RBI guidelines. But I can tell you that that number is down, even that AUM number is down over 40%. So you can imagine that the new disbursements are significantly lower under DLG than before DLG.
My second question is on the contribution margin side, right? Obviously, this quarter, we reported a 60% contribution margin, which looks quite good from a sequential or YoY basis. But there will obviously be some impact of FLDG-based trail revenue coming in from the last few quarters that we have issued, while there is no DLG expense on the like-to-like. So, I'm guessing there might be some one-time impact being there in that contribution profit.
So, to be clear, this is not … I wouldn't quite call it a one-time impact. I think you're right in observing that this quarter, we rather suddenly don't have a significant amount of DLG cost. But the fact that we are doing a large amount of non-DLG business will mean that the trail revenue will be a bit lower compared to if we had done DLG business. So, yes, there will be some impact of not doing DLG on just future financial services revenue. We don't think that's very significant. And like I mentioned when I think Sachin had asked … Sachin Salgaonkar had asked the question that that's part of the reason why we think our guidance should be high 50s rather than guiding to specifically 60 percent, which is what we have already achieved, although there are drivers in the rest of our business that can move this number upwards.
Second question is on your lending business. What percent of these persons will your largest partner account for?
It would be somewhere between 30 and 40%. And there's a reason for it. While we have a huge amount of lending capacity available with other lenders, especially the lenders who have joined in the last six or nine months, who have done successful sort of scale up, up to a certain level, but have a lot more appetite, especially in merchant lending, majority of the business is repeat business. And in the case of repeat business, the partner who gave the first loan always has the RoFR, and the vast majority of repeat business, nearly 100%, gets done by the same partner. So, as a result, even though we have a huge amount of capacity available from other lenders, the same partner actually effectively ends up getting all the repeat business, and the new business is distributed based on various logics, such as which is a better fit, who has better conversions, better commercials, etc.
The first one is on this quarter's payments revenue. So, if I look at the device addition, POS device addition has been pretty strong. And if the net payment margins are north of 3 bps, is there a decline in the yields for the devices, QoQ?
UPI volume is not accounted for, for any revenue till the time period final bonus is given or the grant is accepted. So, the yield looking less is not because of rental or any other thing or subscription fee that we charge from the merchant or any other thing. It is because growth of UPI effectively shows incrementally less bps payment processing because we only account for it in the quarter where we get the amount. And UPI is growing.
Most of the businesses have stabilized now, Vijay, whether it's lending or payments. There is decent, healthy linear growth here. But if I were to, again, push you towards any non-linear variables there that can lift the revenues. So Credit card on UPI, we discussed four quarters back, you had guided 5% of GMV. But it doesn't seem that the pace is, you know, going at that rate, maybe the issuance side. So anything else that you can call out that can introduce non-linearity to the revenues?
Some of the consumer products, if you remember, we just talked about BNPL, we just talked about wallet. We just talked about many of those products. Those were non-linear. I mean, those were getting incredible top-line, bottom-line both. Once they start showing up, I'm going to tell you that that linearity just changes the orbit to the next level and after that, we could think about newer products and technologies for our merchants. We have some of those being in the pilot stage as we speak. I'd rather speak about them once we see a sizable number.
So just kind of putting some of this math together, would it be fair to say that you could probably hit early double digits before the end of the financial year?
I don't want to give specific guidance for the end of this financial year, because that is also what one does with quite a lot of sort of proactiveness when one is ready. But we do see significant improvements in EBITDA margin between now and the end of the year. We're currently at about 4 percent, but that is like 4 percent just in the first quarter that you have hit profitability. So you can imagine that there's a lot of upside there.
I want some color on the GMV growth for this quarter. And how do you see panning out for the year?
Ma'am, I think, if you notice, the GMV growth is driven by UPI expansion and expanding the merchant base. And lately, we augmented our management team on online merchants because we already have had them onboarded for a long time. And by focusing on more farming, we hope to get even more growth. So all three buckets, adding more merchants, farming the current online large merchants, and expansion of UPI or say merchants growing more. So we continue to see that payment has 4-5x growth left in this country from today.
The other question was on the MDR for large merchants. Is there any clue or, you know, you could help us understand if it's some time away, it's still a long time away, what's the sense on this?
And we are as aware as you are. So no extra comment or input that we discover. So we will go by what happens and get informed. We are not basing our business on one hope of the future. We are rather committed to continue to drive profitable business even today.
Would it make sense to, you know, provide also the number of transactions that actually happen under the financial services bucket where you realize some revenue? And relatedly, you know, you have mutual funds, stocks and loan distribution under that bucket. And the revenue incidents on each of them would be fairly disparate. Would it make sense to disclose the number of transactions under those broad categories for this quarter?
So, just to clarify, mutual funds are not there. It's personal loan, merchant loan, equity broking and insurance. I think we separately would love to collate feedback on what would help, what would be the simplest way for analysts to model financial services better. So we'll take this on board and maybe engage with you to get some feedback on that and then we'll also talk to other analysts. On how many products, so if you have 5.6 lakh customers who took financial services, the number of products would be a single digit percentage point higher, it will not be massively higher.
And, you know, a related question on the enterprise POS side, right? So from a market landscape point of view, there, you know, I mean, when I look at the various banks and who their POS partners are in the current system, of course, there are a number of players. Some of them may still be on, you know, distributing old-school POS devices versus you guys who obviously have a software stack on top, a lot of instruments, a lot of capabilities, etc. So is that a big opportunity here?
Yeah, I think there's a very large opportunity on the card side still in the country. And obviously there'll be developments around, you know, UPI and RuPay cards on UPI and cards as a form factor. So there'll be industry level innovations as well. So I don't want to talk too far ahead, but let's say over the next two, three, four, five years, we do think that there's an opportunity for more card acceptance. However, we think that a larger part of that opportunity is probably in taking these card machines a bit deeper. And for that, you need to have the payment gateway model that we have.
First question, clearly, Vijay and Madhur, we did see a good amount of cost control, be it marketing, other expenses and capex for sustainably in a number of quarters. So the question out here is, is there further room to cut without impacting, let's say, revenue growth? Because obviously, if you cut marketing, there is a bit of an impact on growth.
Hi, thank you, Sachin. I do think there is always a corner where we are able to find some cost, but they will not be material. So it is not the agenda. It is rather investing in a few more line items that we believe are long-term growth. So we are not actively pursuing cost cuts, while I'm definitely pursuing whatever is not necessarily drop it out of the window.
But just given the fact that the mix has not changed as compared to last quarter between personal and merchant loans, the question out here is we were expecting recovery in the personal loan. Are we seeing no recovery and hence the mix has not changed at all or are we still seeing recovery or perhaps the recovery is some point away in the personal loan?
No, not significant recovery. It is linear.
And last question is, again, now that you have turned positive on the EBITDA margin, any guidance or any medium term steady state adjusted EBITDA margin we should look at? And of course, the related question is contribution margin is significantly improved now at 60%. Is this a sustainable level ideally we could look at going ahead and perhaps a bit more room to improve from this super high level?
I think one by one on contribution margin, we are at 60%, as you noted. Last year, in the same quarter, we were at 50%, so significant improvement there. We have set high 50s, so we want to just leave some room for quarter on quarter aberrations. But we do think this is the right ballpark for us going forward. With respect to EBITDA, so we're not doing adjusted EBITDA anymore. We're not doing EBITDA before ESOP costs. So of course, this is straight up EBITDA reported GAAP EBITDA. We do think that what we had said earlier about 15% to 20% EBITDA Margin over the next two, three years is still the number to drive towards. And that seems more achievable today than even a few quarters ago, because the contribution margin is very good, and we are seeing that keeping a tight leash on indirect expenses overall does still allow us to grow very well. But as I just said, we may do a little bit more of investments, but this will be more than offset by growth in contribution margin.
Just before the, you know technical questions, there was this BSE release right now. So Madhur, you're not getting reappointed on the board, or you're seeking not to get reappointed. Anything to read into that, or have you been at the board just for a short time or since inception?
Well, I've been on the board for about two and a half, three years, and there was never the intention that this should be a permanent thing. We wanted one executive director on the board, so I did a term, and now our General Counsel is being nominated for this. On a personal level, I've been very much looking forward over the last two or three years to drive some business priorities for the company, but quite frankly, simply didn't have the bandwidth with everything else that was going on. So I'm really, really looking forward to going back and driving certain big business initiatives. So that's going to be the roadmap, and we just need to free up bandwidth for that. I would rather do that than sort of board-level governance.
The QoQ decline, which it's almost halved, that's pretty much attributable only to the change in DLG stance. There are no other products or services that have caused this decline.
Oh, sorry. Just because, I apologize. So the other costs have actually gone up a little bit as they do sort of quarter on quarter as you're growing the business. So the DLG impact is even sharper, but you shouldn't assume that because that line has halved that the DLG has halved. Yeah. The DLG has gone down very, very significantly.
Just lastly, in terms of the POS business, I see you've given some, you know, qualitative commentary at the start. Are we rethinking how we do our POS business just as a distributor while the bank owns the POS machine? You mentioned this for the enterprise level merchants. And just broadly, out of your 1.3 crore devices, how much would be POS?
The important thing is that we do not do that business where the bank owns the customer, and we are just putting hardware on behalf of the bank and calling it... We own the machine, we own the customer. We are in that business. And that is what we have tried to qualitatively talk about because it is important to know that there are two business models where, one, like you said, bank owns the customer or bank owns the POS versus our model where we effectively own the customer and the machine and we route the payment processing to a bank. And that is the business that we are in. That's why we call it full stack. We are not saying that the bank owns the device or owns the customer and we are being called POS providers. No, that's not the business we have.
My first question is with regards to the shareholder letter mentioned that the payment services business operated at breakeven. One housekeeping question, what all revenue line items are you including there? Largely from a longer-term perspective, how do you see profitability in this particular payment services business going ahead?
So, the payment business includes subscriptions and any interchange MDR, all those kinds of incentives, etc. that we call it out. It does not include any financial services revenue whatsoever. And obviously, the marketing services revenue is separate. So, it is payment-related billing that we would have done to the merchant. I do believe payment is a profitable business. Like you're seeing, without UPI, MDR, we are talking profits. And I do believe the payment channel is profitable and has operating leverage. We continue to push operating leverage by creating more solutions and value-adds on top of as basic as processing, if you will. And that's where the differentiation in the payment business comes. I continue to believe that payment standalone will be a bottom-line driver and a large bottom-line driver once these MDRs also show up. In effect, today we are calling breakeven and tomorrow we are going to call large profit from payment.
First is on your BNPL product. Is a resumption of BNPL contingent on you getting your wallet product back or are there other dependencies before you can get BNPL started?
No, it is not. Both are independent. It was rather the small credit issue that exists in the market, less than Rs 50,000 credit due to that, and that is the only single KPI that materially matters to the lenders. There is no other KPI related to wallet. We don't tag it on the wallet either anyway.
The last question is, I think, circling back on the credit card acceptance. So, irrespective of whether you call it POS, EDC, or smarter soundbox, would our number of devices accepting credit cards have increased in the last one year, especially after the restrictions on PPPL? And also has the economics changed versus what it was with the PPPL arrangement?
Yes. Actually, you pointed out the correct thing. The net payment margin is going to grow because of credit card, EMI, and let's say, loyalty point or any other high-margin processing payment instrument. We came from the behind on EMI, and we nearly took the top spot of processing EMI volumes in India. Then credit card-wise, number of devices, yes, exactly. That is the reason that we continue to drive these acquiring instruments. Surprisingly, all of our card-acquiring machines are card-acquiring. Along with that, our QRs are card-acquiring because of RuPay credit cards going on QR. So, it started to earn sizable revenue because RuPay credit card on UPI actually is MDR-bearing, even today.
Now that do you see the POS market share having stabilized between the few players, and does this now open up headroom for looking at price hikes on these products?
I like it. I personally want to tell you internally we did increase the price and it worked out and sort of it's a funny thing. I mean, funny because internally when my team pitched it, because they said that we can try it, I was like, are you sure you will not see churn in the merchant? Then we found out that there is a reverse elasticity. By paying large, because our products are far superior than competition in the market, everybody else is a Chinese copy; our hardware, software, stack, et cetera, work out incredibly better. And that gives our product a premium level in the market. So, sometimes if you were charging Rs 100, we are charging Rs 129 now. And we are able to do it because the customer loves it.
So just wanted to ask in terms of this efficiency improvement journey, would you say that some of the low hanging fruits have been taken? And it is probably more difficult in terms of, say, expansion of EBITDA margin. Would that be a fair statement or do you think some of the easy wins are still there on the table to take?
So I would say I just break up the question into two parts. So one is on the cost efficiency side. I would say like if you will, as you described the low hanging fruit, a lot of that we have done. So if you look at our indirect expenses, it's down very meaningfully from its peaks, about 30-35 percent lower. Having said that, every time we pay more attention to it, there are things that we find where we can be more efficient. So it's not about doing less. It is just about just getting more efficient so that we can do more. So there might be a few more areas and there most likely are a few more areas. But I think the EBITDA margin expansion is going to come from the fact that this quarter, for example, we grew 31 percent on a like for like basis, 28 percent headline number. We do think in future quarters that number should be at least that much, if not higher. And we are a 60 percent contribution margin business.
We give this unique user data on the financial services side. It seems slightly volatile. Is there a way to read the seasonality on this? Or you think there could be bigger stable pieces which could be identified in a different account?
So I think you're referring to a number of customers who availed financial services. I think the historical trend is not seasonality as much as the fact that while we have seen growth in merchant loans we have also seen a slight decrease in personal loans. We also were doing very well in Paytm money on the equity broking side. But as you know, market volumes are down because of certain industry regulatory events that took place in the second half of last year. So I think the commentary on that is that our revenue has doubled despite this number remaining slightly flat.
What could be the top one or two or three priorities for the company right now? Is it basically the execution or is it basically the reviving the lost revenue streams? Or is it more about new offerings that we intend to venture into?
I think we've sort of called that out in terms of focus area. So merchant payments are disproportionately the focus. It's the core of the company. So merchant payments and across the span. So I know Paytm probably gets more headlines for smaller merchants and financial inclusion. But what we did want to call out this quarter also is that we cover the entire span, including enterprise merchants, both online and offline. So merchant payments are the core. And there's a huge amount of growth possibilities there, a huge amount of innovation is possible. And we are going to drive that. Vijay has mentioned wallet and BNPL earlier. And that is something which is not like a one month or two month thing. But that is something that we are actively working on. On the financial services side, as all of you probably appreciate by now, merchant lending has been fantastic with our partners and really been a star. And we run that business very conservatively. But it just has enormous tailwinds, which we benefit from now that we have got the business model right. And then on the personal loan and credit card side, we just kind of wait for the recovery. It's not that we are going to push; try to be ahead of the recovery. We'll just wait for the recovery. And we have a very good product and we think that should work well. And I think internally, we're just super focused on AI, which is something that we have called out in this meeting. Every customer product and every internal process should be AI first.
My first question, just on the financial services side, you know, wanted to understand first, is the number of customers that you provided, is that a unique number?
It's a unique number.
On the personal loan's distribution side right now, good to see that there was a decent, you know, 2 million month quarter-on-quarter improvement in the MTUs on the customer side. From a personal loan distribution recovery, you know, how dependent from here on is that going to be on whether MTUs go back to, you know, somewhere around the previous levels?
I rather believe that it will grow only on the existing base, because it is better to have a vintage customer whose value that you accrue or have understanding on the platform, getting incremental customers and cross-selling them. And that too, UPI customers are very low value customers, etc. We've seen it in the past. So, we're talking about our current MTU being way more than enough for the number.
I had a question with respect to the non-UPI GMV that has been obviously coming off in terms of contribution to overall GMV. Now, if the RuPay credit card business is picking up, there's some activity on the EMI business. Should we expect that to grow faster?
Faster is the wrong word because of the very reason that there is still a finite number of people who have RuPay Credit Card and that number is not very large, because the common people are using more and more UPI. So it will grow. Very good. But faster between the two still will not be the case.
Just one more question on the EMI financing business. Can you just talk about the product? How do you differentiate as compared to competition? What would be your market share, key brands that you work with?
So, EMI is a product where the trick is that merchant and consumer needs many more parties for subvention. So one of the biggest differentiation in our product versus many others who were in the market when we entered, is that we have at least five parties that can subvention the cost of financing. And subvention means that in the moment of truth, the loan could be paid by, let's say, brand, number two, retailer, number three, the consumer, number four, any other entity like platform like us can subvention further or even the bank. So we are talking about how every party can pay the subvention cost as a first and foremost change that we were able to bring in the market. Second is that because we work with so many banks, we are able to give that small shop in a small town an opportunity to give card offers. And third is because we work with brands with advertising also involved for them. So we were able to incentivize brands that you can advertise on our platform, give us the incentive for our customer or our machines or our customer spends for our merchants that they are driving your product sales.
One is when I see revenue from marketing services, on a sequential basis, they are down, but your MTUs are up. How should I think about this? Given that you talked about engagement, retention, etc., right?
Sorry, sorry to interrupt. Just to be clear, first of all, quarter on quarter, you always see some shifts. In this line of business, there is some seasonality. I'm not saying this quarter was specifically because of that. But I also refer to the comments I made earlier, which is that on app experience, over the last two quarters, we have made payments far more prominent and non-payments upsell for a large set of customers far less prominent because payments retention on the consumer side is something that we're driving as a priority. And that's starting to show in MTUs. So, the monetization of customers, especially new or light or medium engaged customers, is going to come later.
And maybe just when I again sequentially when I see the merchant subscriptions and the new devices which are being deployed, the number is lower versus what we did last quarter despite higher cost of sales in terms of the sales network etc on a sequential basis again.
I see where the question is coming from. Again quarter and quarter will have some aberrations but we also, for example, did more device pickups than we had done in the previous quarter because that says it's a dramatic amount of capex. So the opex is significantly lower than the capex of the new device. And just to clarify that's a double whammy on the number that you're looking at because there's employees going and picking up a device. So a) I'm paying the cost for it and b) I'm actually getting a negative device count.
Is there a way to not or to optimize this refurbishment cost or redeployment cost. You talked about so many AI platforms etc. Is there something in the pipeline which can significantly give you far better efficiency?
Actually, if you notice we specially shown the capex chart so that we are telling capex as rental or capex as payment revenue. That's an important line item that we definitely continuously want to say. And there I know, I mean we are becoming far more conservative in identifying it as a how many number of years we are going to see it active. So if you know we charge the soundbox in two years and the EDC in three years. Now we wrote off a lot of these devices which were more than 12 months old and we didn't see transactions. So the answer is that we are becoming far more conservative on accounting and additionally here we are thinking of creating even a longer term because longer term meaning far more features are incrementally coming.
Look if you had done DLG based disbursements the contribution margins would have reduced but the absolute contribution margin wouldn't have changed a lot. That's a fair understanding?
If we had done DLG, if let's say a largest partner had done all DLG versus not, then our revenue would be slightly higher but our direct cost would be meaningfully higher. So I'll again point to the direct cost last quarter as a kind of ballpark number. And the reason for that is if you go back to what we had said in the September quarter then when you give DLG you get all the DLG cost up front but then you have higher trail revenue. So when you flip it around and you're not giving DLG, then you don't have the cost that quarter but for the disbursement that you did in this quarter you have slightly less revenue over the next five six quarters.