The major fintech company Paytm has decided to pause its small personal loans business, including the Postpaid portfolio, due to a decline in asset quality across the industry. The company will not resume this business until the credit cycle has played out. Instead, Paytm will focus on prime and super prime category customers for its lending business.
Paytm’s Postpaid portfolio was originally a buy-now-pay-later product that was transitioned to personal loans in December 2023. In its financial disclosures for the quarter ending on March 31, 2024, Paytm reported a 36% year-on-year decline in revenue from its financial service arm, as well as a 50% sequential decline from the previous quarter.
Although the distribution of personal loans only declined by 1% year-on-year, the company has decided to indefinitely defer the resumption of this vertical. Paytm stated that it will not resume the business until the credit cycle has played out. The company’s losses widened significantly on a year-on-year basis, and its revenue from operations also decreased.
Paytm attributed the wider losses to the poor performance of its loan distribution services. All three of its loan verticals saw a decline in the quarter. Postpaid loans distribution shrank due to regulatory hurdles, merchant loans declined, and other loans also saw a decrease.
In December 2023, Paytm announced that it would focus on high-ticket personal and commercial loans and “go slow” on sub-INR 50,000 loans. The company stated that the small personal loans business involves both loan distribution and collections, while other loans only involve distribution. Paytm emphasized that the distribution-only loans have continued to scale well, and it has added more lending partners, including pilots with banks. The company will have a higher focus on these loans going forward.
Paytm will now concentrate on prime and super prime category customers for its lending business. These borrowers are more price-sensitive, which is expected to result in lower take rates for Paytm. The company also announced that it had resumed its merchant loans business in March after temporarily pausing it in February due to regulatory changes. Paytm has seen good demand for this vertical and plans to expand by offering larger ticket business loans through a distribution-only model where the lender is responsible for collections.
On the merchant front, Paytm noted that the active point of sale device base has decreased despite a marginal increase in the merchant base. This decline is attributed to higher attrition in February and March when Paytm had to transition its merchants from its payments bank to other bank partners.
