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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Thank you for joining, and a warm welcome to Paytm's earnings call to discuss its financial results for the quarter and fiscal year ended March 31, 2022. From Paytm's management team, we are today joined by Mr Vijay Shekhar Sharma, Founder and CEO; Mr. Madhur Deora, President and Group CFO; Mr. Bhavesh Gupta, CEO Lending and Head of Offline Payments; and Mr. Anuj Mittal, Vice President, Investor Relations.
Before we begin a few announcements for all attendees. This earnings call is meant for the 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, we request you to kindly drop off the call at this point. 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 will unmute your line and take questions in the respective sequence of raised hands within the scheduled time. Please ensure your name is visible as first name, last name, followed by your company name in brackets for us to be able to identify you. The presentation and 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.
Thank you, everyone, for joining. It's an incredible moment for all of us that we have such a great quarter. I think India is clearly demonstrating a trend towards moving mobile payment. From Tier 1, Tier 2 revolution, it's reaching Tier 2, Tier 3. We are seeing more number of consumers, more number of merchants in smaller Tier 2, Tier 3 towns taking mobile payment as primary way of accepting money. I believe that UPI, which is India's one of the most important technology platforms, is going to grow even further in next few years. And I believe that Paytm has an advantage of taking leverage of UPI in driving more number of customers and more number of merchants on its platform.
The good thing is that more number of customers are coming on Paytm and more number of merchants are coming on Paytm, and we are able to drive a monetization strategy on payment also. Important to note that we started to experiment with levying, adding some customer surcharges on some products. And we have seen tremendous uptake of that great monetization on consumer side by adding platform charges. And we've seen on the merchant side that merchants have started to accept payment seriously and small merchants are ready to invest and are investing in our cloud and device-less -- device-led strategy of paying for monthly subscriptions.
So basically, UPI finally have started to amortize for us as a company in terms of how we expected and how we see it being scaled further in next further few quarters. You will see that consumer payment side of revenue will grow. You will see that merchant side device-led strategy, where merchants are paying for cloud and device subscription and rental, is growing and is showing in this quarter's number also. It's important to note that in payment, which is our primary bet, we believe that we will be able to earn all its costs and achieve a better contribution stand-alone for payment also.
Our bet is payments. Our bet is leveraging payments, disbursement and distribution of credit. I'm sure you must have noticed our phenomenal quarter numbers. I believe that payment is giving way to those customers and small businesses and merchants who did not have access, but deserved credit, meaning people who could have had higher CIBIL score or could have got a better credit pricing from a formal financial institution. These are the kind of people who are getting access to large financial institutions who are our lenders and our lenders are getting -- marquee lenders are getting access to these new customer bases.
I believe that credit, which is very, very infancy, has started showing that it is a long-term, sustainable and going to become pretty large business for us. Our bet is payment. Our bet is distributing credit, leveraging payments, data and access that we have. I believe that our team, which is motivated by the opportunity, which is completely inspired to see the inclusion and access to the formal financial services to the people who deserve, has done incredibly good in last quarter, and this is just the beginning. You can see it from the results, and you will see it that in subsequent quarters and years we would amplify our monetization, contribution and profitability.
Like I publicly disclosed in a letter we remain committed, and I'm even more convinced that we will be delivering operating profitability, that is EBITDA before ESOP cost, by September next year's quarter. It is truly a privilege to make you explain our business and share our numbers.
I would give it to Madhur for giving you a detailed presentation, and we look forward to have an engaging conversation post that. Thank you.
Thank you, Vijay. I wanted to extend my welcome to everyone. Thank you for joining us, and thank you for following our performance closely. In Q4 FY '22 presentation, once again, we want to reiterate our mission is to bring 0.5 billion Indians to the mainstream economy through technology-led financial services. Strong growth in revenue and profitability this quarter. Our revenue from operation for this quarter was INR 1,541 crores, slightly more than $200 million. This was 89% year-on-year revenue growth, similar to last quarter.
Our contribution profit was $539 million (sic) [ INR 539 crores ], 35% of revenue, just above $70 million. And this contribution margin, like in previous quarters, has been growing very fast. It's a huge step change from what we did last year and is up 210% year-on-year. Our EBITDA before ESOP cost came out at INR 368 crores, about $49 million, 24% of revenue. This was an improvement of INR 52 crores compared to the year before and about INR 23 crores compared to the quarter before. In the year ending March '22, for the full year, we did 77% growth in revenue. We did about 300% growth in contribution margin, and we improved our EBITDA by INR 137 crores.
We have seen consistent growth in payments key operating metrics. Our monthly -- average monthly transacting users is growing 40% year-on-year. We have also disclosed the April numbers separately and currently stand at about 71 million. And this is roughly equally driven by the growth in new user acquisition as well as consistently higher retention of transacting users, so an improvement in our cohorts. Our GMV has grown over 100% year-on-year, and now it's sitting at INR 2.6 lakh crores. And GMV from MDR-bearing instruments grew 52% year-on-year. So we're seeing overall platform growth. And within the platform, we're also seeing growth of GMV-bearing instruments -- sorry, MDR-bearing instruments.
Our device deployed, which is a strategy that Vijay was talking about earlier, that merchants are, we believe, getting very well served by our devices. That is up to now 2.9 million devices, and we are adding roughly 800,000 to 900,000 devices a quarter now. Our device merchants -- this is very important for us. It is strategically important. Our device merchants account for more than 75% of merchant lending disbursals in the last quarter.
This is our payments services. Our payments services revenue grew 80% year-on-year. This was driven by 2 major factors: growth in MDR-bearing instrument GMV as well as payment devices growth. As you know, we break up our payments services revenue in 2 parts, payments services to consumers, which grew 69% to INR 469 crores. Two major factors. There's growth in usage of Paytm app. Like I mentioned earlier, the MTU has grown 40% year-on-year as well as growth of bill payments use cases. We're seeing rapid scale-up of adoption of bill payments use cases.
Payments services to merchant is up 90% year-on-year to INR 572 crores. Again, growth in MDR-bearing instruments, both in the online space and the offline space. We are seeing the growth in payment devices, like I mentioned earlier. There is a little bit of seasonality impact on the Q-on-Q trend, purely because, in the last quarter, we had the impact of -- positive impact of festive season, but 80% payment revenue growth year-on-year. Our financial services revenue was driven by healthy growth in loans disbursement. Our financial services revenue grew 340% year-on-year and is now doing INR 168 crores or $22 million. Financial services includes loans, equity trading and insurance. The major part of this is from lending, as all of you know.
And I'll turn over to Bhavesh to maybe walk us through the next few slides.
Yeah. Thank you, Madhur. Good afternoon, everybody. Madhur, if you could move to the next slide, please. Yes. Thank you. So our total value of loans disbursed, as you could see, last quarter was about INR 3,500 crores plus. We do believe that this trajectory that we have seen is coming on a back of March '21, when we were a bit nascent in our business. So definitely, the growth looks very robust at 400%. But quarter-on-quarter also, as you can see, we're growing almost at about 50%, and we continue to see this trend very healthy across business and products.
Our number of loans is something that we are indexed ourselves on because our entire focus of the management team of the credit business is to see that we're getting more and more merchants and consumers in the mainstream ecosystem of getting credit. So 1.4 million loans in March '21 has grown to 6.5 million (sic) [ 6.4 million ] loans. And you must have seen our April announcements in which we see this trajectory moving forward at about 2.6 million loans for the month. So purely from a trendline basis also this is continuing to be a business that we are seeing very good momentum and still at a very, very small penetration to overall MTU, the standard 72 million.
Just going into a bit of detail. Paytm postpaid, which is our BNPL, has had 2 important shifts over the last quarter. The quarter 3 we had called out that we were at close to about 3.5 million merchants were accepting Paytm postpaid. I'm glad to inform that now the acceptance of Paytm postpaid has moved to more than 9 million merchants. This makes the acceptance of our consumption credit instrument in the country the highest ever because the credit card acceptance is still fairly low. And hence, Paytm postpaid acceptance across 9 million plus and growing makes it a very significant move in making Paytm postpaid a marquee product for Paytm.
Overall, on the disbursement side, we saw a 400% plus growth, INR 2,183 crores was what we ended up disbursing. This trend again continues. As you can see, quarter-on-quarter, we have seen a very healthy growth, almost at a rate of 100%. And we again see that as we move into April and beyond, we are seeing this will continue. Large part of 6.5 million loans that Madhur just spoke about earlier have come through Paytm postpaid. So 6.4 million loans are in the funnel of Paytm postpaid. And we're also seeing now are that ticket sizes start to grow because the book is mature with our partners. And we do find that on a month-to-month basis, the ticket sizes started to marginally go up. And we do believe this trend will continue. And next quarter, hopefully, we will see a much better ticket size as the book is maturing.
The good piece here is that our personal loan business, last year same time was just in our infancy and the first quarter of launch, has shown a massive growth from a very small base of INR 68 crores now touching almost INR 800 crores. And in the month of April, it has further grown very, very nicely in capacity. The important part of the Paytm personal loan business here is it is spent on the Paytm postpaid customers, and I'm happy to inform that almost 50% plus of our PL business is coming from existing Paytm postpaid customers who are actually upgrading themselves and taking a personal loan. And personal loan continues to be a product in which we have a very decent ticket size, almost touching INR 100,000. And we also have a very good take rate because this is a product in which we are not only making the service revenue and distribution revenue, but also we have a decent portfolio upside.
The third business for us is merchant loans. Merchant loans have been a bit wobbly, thanks to COVID, wherein we've had some stop/start arrangement in merchant loans. We've had the quarter 4 as the only quarter, I would say, barring some part of January, in which we again had a small scare of COVID wave 3. But if you look at the quarter 4, this is a sign of how this merchant loans business will perform for us. I'm again happy to inform that we're seeing almost 200% growth in the merchant loan business. This is a mature business. We've been doing this business for more than 2 years. So the book has been revolved by almost 2x. This INR 565 crores is largely coming to us from our devices merchants. 78% of our business that we're originating is from our devices merchants.
And as devices business is gaining momentum and strength, we do believe that this particular trajectory of growth will only become better. And if April numbers is to go by, this is a business, which hopefully, in quarter 1 of next fiscal, should start looking even better than what we've seen in quarter 4. The -- another important aspect of the business has been that we're already seeing a great adoption of the product with our merchants. More than 50% of our value of loans that we're disbursing is coming as a second loan that the merchant is taking on our platform.
Now it does 2 things for us. It demonstrates stickiness of the merchant on the Paytm payment platform. So we do continue to get subscription revenue because these merchants are devices merchants. And b, the merchant appreciates the product and is coming back to us and making sure that we're getting the second loan and maybe hopefully the third loan business. Quick sense on the portfolio. I do understand that we all understand this part that Paytm does not take any kind of credit risk. Our model is very simple, that we are distributors and marketeers of loans. We do servicing of loans, and we also have our collections outsourcing agreement with our lending partners for most of our businesses through which we have an upside that we get if the portfolio was to perform better than what our lenders are expecting.
Quarter 3, we declared this metric. I'm happy to inform that quarter 4 metric continues to be as robust. We're not seeing any deterioration of any kind of metric that lenders are actually looking at this portfolio for. These are indicative metrics because we manage collections. So we understand the bouncing that is happening. We also understand the bucket evolution that are happening. The expected credit loss, the number that we're quoting here, is a number that, cumulatively, we understand from our partners is what they are providing for.
I can only say this here in utmost confidence. So far, what we've seen over the last -- on a static pool basis that the net credit loss is much lower than the expected credit loss being called out here by our partners. But we continue to maintain a very conservative approach in making sure that our partners are clearly aligned toward the risk practices that they would like the portfolio to be generated for, and hence, always maintain the ECL number as far as the benchmark is concerned, while our incentives are linked to the portfolio performance of net credit losses. Madhur, back to you.
Thank you, Bhavesh. A quick word on our commerce and cloud business. This grew 61% year-on-year for revenues, roughly INR 320 crores in the last quarter. The cloud business grew 88% to INR 217 crores. We saw strong growth across all of our business lines, particularly advertising, credit card and cloud services. Our commerce business grew 24% year-on-year, slightly slower than the rest of our businesses. The main reason for that was the impact of Omicron for 3 or 4 weeks. Obviously, travel and entertainment get hit the most. There's a bunch of outside data, for example, the amount of domestic air travel and so on, which sort of validates the fact that travel and entertainment sectors were impacted in the last quarter. Despite that, we grew 24% year-on-year. Our Q-on-Q impact was on account of festive season in the previous quarter.
These are our financial numbers, which all of you have available in our earnings release. I just wanted to call out a few things. Our payment processing charges grew only 52% year-on-year, whereas our payments revenue, as you saw earlier, grew about 80% year-on-year. So that is a significant jaw that we are seeing contributing to leverage and profitability. The 3 main reasons, we continue to optimize on transaction routing to lower-cost payment gateways. We are seeing great improvements in our transaction rates with our partner banks. So we are in active discussion and negotiations with them. And we're also seeing an increase in share of low-cost instruments and mix, including for wallet loading.
So UPI benefits us. When UPI customers use -- when customers use UPI for wallet loading, that is financially beneficial for us. On contribution profit, we're seeing a strong growth in contribution driven by margin improvements in payments, largely because of what I mentioned earlier about payments processing charges not growing as fast as revenues. And we're also seeing a huge increase in share of high-margin offerings such as lending and cloud. Quick bridge from contribution margin to EBITDA. Like I mentioned earlier, our EBITDA improved by 12% year-on-year. Our marketing cost has declined 21% on a quarter-on-quarter basis despite investments in sponsorship because we had a lot of cricket matches last quarter and growth in user base.
Our Q1 has also got a lot of cricket, including IPL and international matches. So we expect the marketing costs to remain high in this quarter. Employee costs we made significant investments in FY '22 in our sales team for merchant acquisition and in our technology teams, which is why our employee costs went up 64% year-on-year. On a full year basis, it went up 51% year-on-year. I will talk a little bit more about the trends there. We do believe that our current head count is sufficient to support our growth plans for next year. So that's an important phase of our company, where we added a large number of employees in the last year, but we don't expect our head count to go up from here. And as a result of this, like I mentioned, our EBITDA bit improved by 12% year-on-year. As a percentage of revenue, it improved to 24% from 51%. So obviously, we're seeing a step change in EBITDA margin as well.
Finally, just to wrap up. We are on track to achieve operating profitability by September 2023 quarter, like Vijay mentioned, as defined by EBITDA before ESOP cost. I want to just summarize some trends in our business. We are seeing consistently growing and engaged customer and merchant base, like Vijay mentioned. Customer monetization is getting momentum. We are seeing that growing engagement on our platform, regardless of which payment instrument is through, gives us monetization opportunities across payment, lending and commerce.
Similarly, on the merchant side, merchants will start their journey from free products such as QR code, are increasing the adopting device subscriptions and lending, which are obviously monetizable products for us and very high contribution margin. We're also seeing attractive upsell opportunity via lending. We disclosed earlier this week that we have now hit the run rate of INR 20,000 crores of annualized lending disbursals through our platform. On our revenue growth and operating leverage trends, like I mentioned, we've seen 89% growth year-on-year. We expect the strong momentum in revenue growth to continue.
We're seeing clear trends in contribution margin improvement, 21% same period last year to now 35%, and we are saying now that we expect to see continued improvements in contribution margins. On indirect expenses, I want to call out those 2 investments that I mentioned on the previous page, marketing expenses to drive MTU growth at 40% year-on-year, and employee cost to drive device deployments to somewhere between 800,000 to 1 million devices per quarter and investments in technology. And we are saying now that we expect moderation in indirect cost growth moving forward, and we expect the trajectory of EBITDA improvement will steepen starting next quarter.
I finally wanted to give 2 quick updates. One is sort of clarification matter. You will see in our income statement below net profit in other comprehensive income that we have seen a gain of $125 million. That is because of revaluation of our stock acquisition right in PayPay. That is not impacting our net income positively, but it is impacting our other comprehensive income positively. We believe that our stake in PayPay is very valuable. Secondly, a couple of weeks ago, we had done a press release that we are going to go down the general insurance route through an organic route. Our Board last night has approved that we will invest INR 950 crores over the next 10 years in our general insurance venture. So those are 2 material updates which I wanted to share towards the end of this call.
And with that, I'll hand it back to the moderator.
[Operator Instructions] With that, the first question of the session will be from Mr. Sachin Salgaonkar from Bank of America.
I have a few questions. First question, Madhur, if it is possible for you to give a breakup between UPI and non-UPI GMV? And to Vijay's point in the opening remarks, when -- were he mentioned that you guys are experimenting with some levying surcharges and some of the other things. So a rough take rate on both of them would be helpful.
Yes. So Sachin, on UPI versus non-UPI split, we have not disclosed that. We have told folks that it is UPI slightly more than 50%, but that is not a number that we are disclosing. On levying of convenience fee, this has been sort of an ongoing activity. For example, we started with levying charges on credit card to wallet add money and which is expanding the scope of that wherever we think the customers are happy to pay for the convenience that we offer. I think the best thing to get a sense of that is to just look at the difference between our non-UPI GMV growth and our revenue. Vast majority of that comes from increase in take rates.
Got it. Second question, clearly, a great work in terms of reducing the payment processing charges. So the question out here is how much room for further optimization and how low could this go as a percentage of GMV?
We expect to -- as a percentage of revenue and as a percentage of GMV for this to continue to improve for the same 3 factors that I mentioned. Those trends are ongoing trends. Transaction routing continues to keep getting better. Our transaction rates continue to get better, and transaction mix continues to improve in our favor. So we believe that all 3 trends should continue to contribute. And our payments revenue should grow faster than our payment processing charges.
So would this be the primary line, which shows perhaps the biggest delta going ahead from a cost perspective?
When you think about payment contribution margin, that is correct. Obviously, there are other reasons why contribution margin is growing very fast, which is the mix of our financial services business, primarily lending, going up as a percent of revenue, and that is a higher-margin business for us. And secondly, we are seeing, generally speaking, improvements in our commerce and cloud business as well as improvements in margins also in our commerce and cloud business.
And also -- I also would add, Sachin, that when I was talking about UPI, and you asked earlier question that more number of merchants are ready to pay cloud device rental subscription, which -- because that is coming in, the margin looks increasing and that means that our revenues are not dependent on MDR. More and more payment revenues are moving towards large number of customers, merchants paying for subscriptions.
Got it. Third question perhaps is to Bhavesh on this entire rising interest rate, what we are seeing right now. And completely understand you guys are more as a distributor, but the general consumer who ends up getting the loan is, at some level, a risky base, given that traditional channels are not lending. So what kind of an impact generally you see on this base and to your numbers going ahead in this rising interest rate environment?
So Sachin, 2 clarifications I just want to make. One piece here is, we are not only focused to new-to-credit or people who are typically at the bottom of the pyramid. Important part here is that our 100% of PL business is to all the people who have taken a loan, and our average bureau scores continue to be in the range, which is called prime range by the banks and nonbanks. Postpaid and merchant is where 75% of our customers are already credit tested, and they also continue to be in the range called prime range by the bank, which is generally arguably a number of about 700, 725. So a very small percentage of our portfolio is new to credit, which gets significantly augmented by the Paytm payments data, which actually helps the banks and nonbanks to underwrite them and they continue to perform reasonably well.
To your specific question on rising interest rates, very honestly, the unsecured credit market is -- has more resilience to increase of interest rates because there's margins and spreads for banks and margin and spreads for distributors like us are fairly decent. So far with a 40 basis point increase in rates, we haven't seen none of our lending partners come back and increase rates to our consumers and merchants. I do believe if the rates were to further go up by, let's say, 100 basis point, we could see maybe 25 basis to 50 basis point increase of rates to the end consumers and merchants. But given the ticket size that we operate in, it does not have any impact on our commercials or has any impact on the demand by the consumers.
That's very clear. And my last question, perhaps Madhur, if you guys could give a little bit more color on the ban on RBI on Payments Bank for acquiring new customers. The time frame for resolution, and what kind of an impact could we see in near term because you guys are not allowed to acquire new customers out there.
I'll let Bhavesh answer that question.
Sure. So Sachin, the Paytm Payment Bank, as you know, is an associate of One97 Communications. So we -- as investors, of Paytm Payment Bank, we have a fair understanding of what the bank is currently engaged with the Reserve Bank of India. 2 updates in that regard. Number one piece here is that the process that the regulator had laid out for the bank is working in a time-bound manner. So we do believe that the broader lag-time limit the bank has been given, which is between 3 to 5 months, the process hopefully should get over. But we obviously are dependent upon the audit and everything else that the bank is expected to deliver, and the bank is fully prepared to deliver it and has been able to do a wonderful job in the last 30 days of demonstrating its intent and also the outcome as and when the entire RBI audit is completed.
To the second question that you have said about the impact. So there is no impact to existing customers of the bank. The existing customer of the bank continued to manage their wallets or bank account, debit card, net banking as they were doing earlier. As you know, that Paytm Payment Bank has a very, very large consumer base and hence, their ability to really churn that consumer base and merchant base for more activation is an objective, which was always a primary objective of the bank, and they continue to do that job far more effectively and efficiently now.
UPI continues to be something which the bank is allowed to do. So we continue to onboard new customers on Paytm app, for customers who want to come and add UPI handle to the payment and hence, the customer acquisition is happening. Purely new wallets and purely new CASA accounts is something which is currently not allowed. To that extent, the impact has been extremely marginal. And you could see that in our April announcements in MTU that our MTUs have continued to grow.
The next question is from Mr. Bhavik Dave from Nippon.
Am I audible?
Yes.
Yes. Just a couple of questions. One is if you can clarify what is the kind of government reimbursements that you would have got. Like we spoke about it last time as well, but this time around is there any monies that came during the last quarter has got amortized this quarter as well in the revenue line item? And what is the quantum that we got for FY '22 for the UPI reimbursements?
So Bhavik, the reimbursement was received during last financial year and for each of the quarters. And there is a small amount that did come in Q4. We haven't quite disclosed that amounts and we're refraining from doing that, but it was not a material movement to our sort of revenue trends.
Sure. Second question is to Bhavesh sir. Just to understand this postpaid product better. We have like 4 million-odd customers here. So I just want to understand out of the INR 2,000 crores that we disbursed, I understand this is a product where a customer might or might not pay on time and revolve over like 2, 3 months. Just want to understand out of the people who take this credit, how many revolve and extend the credit for like a longer duration versus just paid at the end of the month? If you could color...
Less than 5%, Bhavik.
Sorry?
Less than 5%.
Revolve, is it?
Yes. So there is not -- so we do not have an option of revolve. Revolve is a credit card feature. The consumers, basis the risk profile, are given an option by the lenders that they can convert their outstanding into an EMI. So that would give us -- not 100% of borrowers who opt for postpaid have an option to convert. Once who have an option to convert a very small percentage convert that product. I repeat again for the benefit of everyone. Paytm postpaid is positioned as consumption credit product. And hence if you see the ticket size of INR 3,500, now moving towards INR 4,000, is 85% of the spends are towards consumption spends, grocery, fuel, medicines, et cetera, et cetera. And hence, the consumers are more willing to pay at the end of the 30-day period versus revolving or converting to EMI. So we see that number be less than 5%.
Sure. And just another point on this is when we see the disbursement growth, right, like quarter-on-quarter has been extremely good, like you mentioned, 50%, 60% kind of growth. But when you look at the revenue momentum, right, that's only 30%, 35% kind of growth that is visible there. So any reasons why this slowdown on quarter-on-quarter basis when it comes to disbursement versus revenue growth on the lending business?
Yes. So a, that entire revenue is not attributable to lending, but at the same time a disproportionate portion of the revenue is attributable to lending. The mix is an important factor. As we have said in the past, postpaid has a marginally lesser revenue or take rate than PL and merchant loans. Any quarter where we see a marginal change in the mix, we will find a very small reduction in the revenue as a percentage overall and, hence, it would appear to be small. Quarter 4, we did see postpaid, as a percentage of our total disbursement, increase much beyond 50% of total disbursement and hence that's a small impact. And b, the portfolio incentive is also deferred. So the more business we're doing more we are deferring our portfolio incentive, and hence, we will see some backloading of incentives to that extent.
Understood. And just on the payments business, right? Like I remember during IPO, we mentioned that out of the 50 million, 55 million then customers used to, around 30%, 40% or around 50% of the customers were Magic customers, right? Like we have 3 use cases, 5, 6 transactions per week. What would be that commensurate number now with 70-odd million MTUs that we have? And at that time, we mentioned that almost 30% of the customers used to be new to credit, 30% with thick files and 30 with thin files. How has that mix -- how is that mix now? And what is the kind of penetration that we've already done within the 70 million, if you could just talk about that?
Yes. So Bhavik, 72 million MTU, we have now delivered 4 million. So that number stands at approximately 5% of the MTU. We are seeing and that on a month-to-month incremental basis we are able to add close to about 400,000 new postpaid users. So this number is looking at a very secular trajectory. We haven't seen that number change materially at a downward trend. We've only seen an upward trend to that number. So we continue to deepen our relationship with our existing MTU customers. From our lenders perspective, they continue to have more than half of our MTU base white listed for postpaid. So that funnel is very, very strong for us.
I think we have seen a small reduction. Instead of 30, 30, 30, we've seen about 1/4 of our customers are new to credit, and the remaining customers continue to be credit tested, et cetera. So we are just seeing as the portfolio is maturing and as the product is now getting accepted at 9 million shops, there are more and more good quality customers, not just good quality purely from a credit profile perspective, but customers who are more evolved, who have credit cards with them, but they love the product and the ease and convenience of the product. And hence we're seeing a lot more people who are owning credit cards coming and opting for Paytm postpaid, and -- which is a very good sign for this business.
Sure. And last question is, sir, on the credit card itself. I remember we mentioning that, that is a part of cloud. When does it normalize? Or what -- how do we think about this business, right? Was that revenue that we originate cards for like HDFC Bank or SBI Cards or Citi sets out in the cloud business, if I'm not wrong? When -- do we plan to normalize it towards the lending business? Or could it continue to -- will it continue to be in that cloud business segment revenue plan item?
Maybe I could take that. That business is run by our lending team. So it does -- it is -- get operated by Bhavesh and his team. It is purely a sort of auditor discussion point that it sits in cloud. We will have discussions with the auditor later this quarter to see if they have a preference for that being in cloud or not. We do understand that from a -- just an investor valuation perspective, it might be better to have that in lending. But obviously it's subject to a conversation with the auditors.
And any quantum like what would be like the normalized like pure cloud-based revenue versus when we strip out that credit card business? How would the cloud income look like? Any color -- any number that you could state?
If we do break it out, Bhavik, we'll show historical numbers as well. I'll just hold back on that because that's not a number, which we have disclosed so far.
[Operator Instructions] Next question would be from Mr. Manish Adukia from Goldman Sachs.
My first question is on the payments business and the monetization there. So again, on the reported basis, the take rates were stable quarter-on-quarter. But if I say strip out UPI, based on my estimate, the take rates, even excluding devices, seems to have seen a pretty sharp jump, and this was again on the back of a jump that we saw last quarter. So can you just help us understand again as to what's driving that take rate on non-UPI higher again? And how should we think about the sustainability of that? That would be my first question.
Yes. Maybe I'll start with that and Bhavesh can add as well. I think the 2 major reasons. One is mix effect of various instruments that we process on our platform. And the second is our growth in -- one of the key things that's happening in Paytm is that we are capturing a huge -- a larger and larger amount of non-UPI payments in the offline world through our devices strategy. So out of the 3 million-plus devices that we have deployed, a fair number of them are card machines and -- which basically we did not do as a business 2 or 3 years ago. And as a result, the overall share of all card transactions that happen in India in the offline world that goes through Paytm has gone up very meaningfully. I don't know, Bhavesh, if you wanted to add something to that?
Yes. So Manish, 2 more trends that I can share with you. One piece here is that our penetration is continuously increasing in the mid-market and enterprise segment, which is basically on the EDC side. And the more and more we're able to penetrate in that area, not just we are tracking a lot more credit card and debit card penetration on which we make a decent net take rate, but we're also doing a lot more EMI aggregation now than we would, let's say, doing a quarter back. And you would see this trend continue because not just Paytm has their own EMI product and Paytm postpaid product, but we also aggregate for other issuers of credit card specifically and being bill players on our devices. This trend is very profitable. The take rates are generally much higher than the net take rate that you get on a credit card business, and that's been a delta that we could see in the system.
The second big trend that we're seeing here is that the consumers coming and making payments using credit cards and other credit-bearing instruments on our platform are increasing and they're happy to give us much higher margins. And we're also able to charge the merchants a bit more higher margins on the overall integration and convenience that we're able to provide to consumers and merchants. And that's really seeing a very good uptick for us and demonstration of a great product that Paytm has built on its app.
Just 1 other thing to add. I know you asked about how should we think about these trends. I think the right way to look at it is the growth of payments revenue versus the growth of non-UPI on our platform. That gets you sort of to a closer end to our picture of how we're doing. And we have said before, and this trend continues, that we expect that to be broadly stable and if we do a really good job then maybe marginally increase.
So Madhur, just if I can confirm. Based on your and Bhavesh's response, whatever we've seen in the last 2 quarters in terms of uptick in the take rate, you're saying it's more structural rather than a 1 quarter phenomenon. There's no reason to believe that, in the near term, it will come down again sharply. Is that a good understanding?
Just to clarify. I think we don't exactly look at the business of -- on the basis of payments revenue divided by GMV. We look at it on the basis of how is our payments revenue tracking relative to the growth of non-UPI GMV. So on that basis, we believe that there's no structural decline, which is to say that the fact that there is a low or 0 cost instrument in the market doesn't mean that we cannot monetize the other instruments. In fact, we do monetize them. Customers are continuing to use them more and more and more, and we monetize them and they're quite profitable.
Sure. And my second question is on just the profitability guidance, which you again reiterated for September 2023. Of course, the macro environment has become increasingly difficult in the last few months. So as we think about from here to the next, let's say, 5 or 6 quarters, let's say, reach profitability, what are, let's say, the 1 or 2 key things that investors and analysts should monitor as we think about your part to profitability? Or what are, let's say, the key drivers in your view that we should be thinking about for Paytm to reach profitability in the next few quarters?
I think like I was touched upon on the last page of my presentation, increasing contribution margin that is being driven by improvement in margins in the payment business and the mix effect, particularly with respect to lending becoming a larger percentage of our revenue. So that's one. And the second is the growth of our indirect expenses would slow down, right? This has continue to grow, but they would slow down. And we have also said towards the end of the presentation that we expect the improvement in EBITDA on a sequential basis to steepen.
The next question is from Mr. Saurabh Kumar from JPM.
Yes. So I just had 2 questions. One is on this indirect expenses, Madhur. So I mean you've guided that the employee cost will not go up materially. So for the full year, should we expect a number which is something similar to Q4 annualized? And what will be your guidance for the indirect expenses growth? And if you could just break up between these 4 items you have, and how should we think about each of those line items? That's first. And the second is, again, on the guidance. So the September '23 guidance would assume that by that point the contribution profit should be in the 40%, 45% odd ballpark? Will that be a fair assumption?
Yes. So on your first question, just to clarify. We have said employee head count should not go up. We -- obviously, we give annual appraisals to the employees who do really well and so on. So there might be some uptake on employee costs. But I think it's important given the amount of head count that we added last year, particularly in those 2 areas, technology and offline sales that we did last year, we wanted to clarify that we feel like we're fully capacitized in those areas. So it was more a head count comment.
In terms of growth, we do expect it to moderate across the board, indirect expenses. So our indirect expenses last year in marketing and indirect expenses grew about 60% year-on-year. Our technology and other expenses grew between 30% and 40% year-on-year. So we expect all of those line items to moderate. One of the key drivers -- to get to your second part of the question, one of the key drivers for us to get to profitability is the improvement in contribution margin, which I was referring to in the conversation with Manish as well. I don't want to call out specific numbers, but yes, it will be one of the key drivers, and we are confident of improving contribution margin.
And Madhur, like when you say moderate, what should we think about what is moderate? Like, is 30% moderate? Is 40% moderate?
I think if you work backwards from the EBITDA numbers -- sorry, EBITDA breakeven point that we have made then you sort of get to what those indirect expenses look like 6 quarters from now.
The next question is from Mr. Piran Engineer from CLSA.
Am I audible?
Yes.
Just a couple of questions. Firstly, in our revenues from services to merchants, could you give us a broad mix of the subscription-related revenues and the payments-related revenues? And I'm asking this because we've seen the number of devices we deploy go up 50% Q-o-Q, but our merchant revenues are still down Q-o-Q.
Yes. So we charge anywhere between $2 and $2.50, about INR 125 to INR 150 on a blended basis -- sorry, we charge INR 125 for our Soundbox, and then it sort of goes up from there for various types of devices. On an average, it's about INR 150 to INR 175 a device, depending on the mix maybe INR 200 a device. So that's the trend. You are right.
No, no. Sorry, Madhur, to cut you short. Out of our INR 575 crore revenue, what percentage of that would be subscription-related?
Yes. So we haven't given that breakup. But what I was trying to help you with is that, yes, devices subscription revenue did go up last quarter. The Q-on-Q is purely because of huge amount of demand that we see in the festive season, right? So if you are trying to adjust for seasonality, yes, there is a seasonal impact in payment services to merchants, which is pretty significant, both in offline and online. On a year-on-year basis, that number is up 80%. I know I'm not sort of directly giving you the exact number that you want -- that you're seeking, but that might be a way to think about how to model this.
Okay. Okay. That's fine. So -- but then that leads me to my next question. Our total GMV is flat or slightly up 3%, 4% and payment -- sorry, merchant-related transaction volumes are down. So does this basically mean that bill payments by consumers on the app is up meaningfully Q-o-Q because what balances the total GMV number otherwise?
Yes, that's right. We -- our consumer engagement on our app transactions, GMV revenue did see a very sizable improvement in Q4.
Okay. And the consumer engagement is essentially bill payments, right? Or could there be some other sort of engagement?
Yes. Vast majority of it is bill payments. The customers also add money to Paytm wallet on our app. Obviously, they also do money transfers on our app. But if you're trying to compare GMV and revenues, yes, there was significant GMV growth in our consumer app, and there was significant revenue growth in our consumer app as well.
Got it. And my next question is on UPI Lite. How do you sort of think about the future of wallets when you have UPI Lite?
Vijay or Bhavesh?
Yes. The UPI Lite is a client side storage of money for avoiding the failures of UPI. If you would have noticed, there were -- in IPL days UPI system was officially kept on hold that you cannot do balance check, et cetera. So this is a method that UPI is taking at the offloading traffic. As far as use case of wallet is concerned, wallet is used by customers who transfer money from their bank account to a wallet instrument, so that, that can work. I mean, as a product user, I can say that wallet serves a lot many more different, different requirements. For example, like the same wallet balance is used in NCMC card, FASTag, offline payments, online payments and so on and so forth. While UPI Lite will be trying to solve the throughput requirement that bank's CBS system solve. So there are 2 different products.
No. But sir, if the threshold for UPI Lite goes up from, say, INR 200 to say INR 500 or INR 1,000, and your wallet average ticket size is also around INR 400, INR 500, so then essentially, the use cases of wallet can be also solved with UPI Lite, right? Online payments, offline payments, et cetera? Do you not see this as a threat at all?
At least not yet. We don't see it as a practical usage and the product workflow wise.
The next question is from Mr. Karan Danthi from Jetha Global.
I had 2 questions. One is, you mentioned sort of these deferrals that will come through. Could you perhaps add some more color there as to the value of those deferrals, the timing of those referrals because it feels like it could be quite meaningful and help us perhaps even get to profitability earlier if we get that upside? So I just want to understand if that's also baked into your September '23 timing?
And then a second question I had was related to collections. I just want to understand what is your collections related OpEx? And how does that scale from here? And can we scale it in a more moderate fashion even as the lending book keeps growing at this rate? I know we do digital collections to the extent possible. But I'm curious as to what certain levels in terms of the size of your lending book, whether that has to change?
Karan, I will take the first part. Our September quarter breakeven is explicitly and completely based on operating revenues. Any extraordinary charges like ESOPs or any extraordinary gains, if there are not at all either part of the plan or even calculated or factored in. It's completely, absolutely operating revenues and operating cost basis. And that's what you should factor as well. Let's -- I think it's Bhavesh.
Karan, if I understood your question correctly, the first part, which is when you was taking deferrals, you're talking about the collection portfolio incentives. Is that right?
Yes.
Yes. So the way we see this piece is that, that the way it works is that the lenders expect the portfolio to perform in a particular manner. And basis their own accounting guidelines of expected credit loss they're provisioning that this book is going to, let's say, as an example, going to give them a loss of 5% or 6%. And in our estimates, when we are doing and helping them to collect as an outsource partner, we are already seeing, on a static pool basis, a book that we originated, let's say, 12 months back, because our average tenure, as you see for merchant loans and personal loans, which are a very large chunk of deferral incentives built into the entire economics, we are seeing already that, that amount is ranging between 1% to 1.5% of the loan that we disbursed.
So we do believe that this number, as we keep growing, should continue to be accretive to our business. Will it become very, very large? The answer is no. Our model of lending is not built on deferral incentives. Our model of lending is built on upfront distribution servicing revenue. If you're able to make a deferral incentive of 1%, 1.5%, that's an upside that we don't plan for, but we hope we can get that upside to have any kind of downside, if at all, in the future, which it can negate. But so far, we've seen that number in that range bound, and we do believe that number should continue in that range bound and [ much above ]. To your other question on collections. So we have our own collections infrastructure, which is a company called CreditMate, is a 100% subsidiary of Paytm. We do 3 parts of collections. We do pre-EMI delinquency management, which is using the entire Paytm app infrastructure to reach out to consumers and merchants, far more effectively, smartly to make them and nudge them to make a payment in time. That's the reason if you could see that our bounce rates that our lenders observed on the portfolio originated on customers continue to be in the range where the prime borrowers behave. B, we have, again, the second part, which is a digital engagement model, which are zero cost to us because all led by technology, both in terms of digital engagement on the app and bot engagement which is done through either the app or through our progressive and predictive dialing infrastructure that we have.
A very, very small percentage of our consumers and merchants have a physical leg of collection for which we have more than 100 people on rolls of Paytm, which number isn't being growing. So that number, let's say, 2 quarters back would have grown by about 25 people. So we don't see that cost materially change. In totality, collection cost is very, very low. I can't quote a number because that's a commercial conversation. We do price our business in that manner, but is significantly low than what generally the lender expect in the market from traditional collection companies. So that number is not going to materially alter our commercials in the future.
Got it. Just 1 follow-up to the first question, which is, can you then monetize portfolio upside by increasing take rates for your lending partners, if that portfolio continues to perform? And is that an annual conversation?
It is actually not an annual. It's a 6-monthly conversation, and we do engage at 2 levels to make sure that our consumers and merchants getting the best pricing because, typically, lenders tend to be risk pricing it bit on the north side. So our intention is that consumers and merchants should get the right price. And obviously, in that bargain, we also renegotiate take rates for ourselves. And that could reflect into our books in P&L, hopefully, from quarter 3, quarter 4 onwards as the portfolio matures for most of our lenders. The answer to that question is yes.
Next question is from Mr. Nilang Mehta from HSBC Asset Management.
My question is regarding merchant loans. So I just wanted to get a sense that what percentage of these are digitally sourced? Or do you have a physical sourcing for merchant loans as well?
No. So Nilang, we have zero physical engagement for any of our loans. We have zero call center for any of our loans. Only for merchant loans in particular, where we have an offline payments team who engages the merchant for devices and QR codes. If that merchant needs any assistance in navigating through -- on the Internet, they do seek the help of the field sales executive or the account manager who will be mapped to that merchant to help them navigate the loan on the app of the merchants. But there is no field force we have or call center we have for any of our businesses.
Okay. And the kind of credit limits you give to merchants is a function of velocity of transactions which you see through the payment device?
Yes. So it is a combination of velocity that we see. So it has 4 elements at a high level, the kind of consumers who come and make a payment to the merchant, the consistency of those consumers coming and making a payment to the merchant, the kind of instruments our customers are using to make a payment to the merchant business is a one vector. The second vector that we have it is looking at the kind of value of payments and the number of payments the merchant is getting, and obviously, the frequency of the payments, is it every day, every second, third day, fourth day. Basis these 2 information plus a lot more intelligence that we have about the merchant, the merchant base allocated a limit, which is eventually approved or declined by the lending partners. And that's the reason like a merchant could pay anywhere -- as low as INR 25,000 and as high as INR 500,000.
And just 1 last question, if I may. Regarding your merchant base, if you could give some color on what is the concentration of transactions? And see, what is the retention rate of the merchants you acquire every quarter? So out of the 2.9 million, like what is the dropout rate, if you could give some color on that?
See, it depends upon the kind of merchant that you are because there is -- at the bottom of the pyramid, we have the QR merchant wherein we do find that the activation, if you look at an M6 activation, that will be somewhere in the range of 30% to 50% because these are merchants who have 0 inertia in changing the QR code. They don't pay anything for it. The moment you come to devices merchant, which is what we index our entire focus on, because QR code is to bring the guy into digital ecosystem, upgrade them to an IoT product, which is a Soundbox or EDC. There we see the M6 activation and retention of more than 85% of both the merchant. Soundbox actually we see much higher, but on EDC devices we see it more than 85%.
Next question is from Mr. Shubhranshu Mishra from UBS.
Madhur and Vijay, many congratulations on the reappointment. My first question is on the -- there's a note #8, which says that Vijay has got around 21 million ESOPs towards certain milestones. So if it's possible, if we can discuss those particular milestones here. What are they and what -- or to the respective time lines? Second is, when are we likely to see a profit at the bottom line and not the EBITDA ex-ESOPs? Is it FY '24, FY '25, if we can discuss that, is second? The third question is on what happens if Vijay and Madhur both are out of the business for any reason? How does this organization go forward? These are my 3 questions.
Maybe I'll attempt all 3 and Vijay and Bhavesh can add. On the first one, we have said in the April letter, Shubhranshu, that none of these ESOPs would vest to Vijay until the stock price goes above the IPO market cap. So that's the guidance we have given. So there's a tranche at that level and then there are tranches at higher levels. So that is -- basically, that is the crux of the milestone. On your -- sorry, can you just repeat your second question? I didn't get that.
When do we see a profit in which -- absolute profit?
I got that, yes. So our view on how our financial performance should be measured is that we should look at EBITDA before ESOP cost because that is the closest to cash operating EBITDA. And the number of shares outstanding that investors should use is 695 million. What we're -- what some analysts and investors do is they don't take the 695 million. They actually take a lower share count and then they start looking at EBITDA -- reported EBITDA. We don't think that's the right way of looking at that because the ESOP charge is a noncash charge and is better adjusted in the share count because that is effectively the dilution that investors are taking.
Having said all of that, 1 additional thing that I can add is that the ESOP charge will remain high for 10 quarters. So we are now in the third quarter since October 1 last year. So since October 1, when the ESOP charge went up, it remained -- expected to remain high for 10 quarters and then start coming down after that. That's the way sort of ESOP accounting works. And on the third question, and for Vijay to add as well, 1 of the conscious things that we're doing is making sure that there's a very, very deep management team at Paytm. We are a very ambitious company, and we see a huge amount of opportunity in India. And below Vijay, me, Bhavesh, we have really built extremely good talent at the next level and the level below that. And that is the culture -- that is the culture of empowerment. It is trying to build the best talent that we can in the organization, who also believe in the mission that we do.
Next question from Mr. Kunal Shah from ICICI.
[Technical Difficulty]
Kunal, we apologize. Your line is not very clear. I apologize. It's not working. Maybe we can go the next person and come back to Kunal?
Perhaps I'll take it offline, yes.
Sorry about that.
[Operator Instructions] With that, we'll go back in the queue to Mr. Saurabh Kumar from JPM.
Just 1 follow-up. On the POS device, is it possible to quantify the rental contribution? And what will be the activation rate post 6 months currently for your Soundbox devices?
Yes. So Saurabh, I just repeat the answer just gave earlier. So we are seeing M6 activation of more than 85% for our Soundbox devices, more than that. EDC is ranging between 80% to 85% on activation handsets.
Okay. So basically, the INR 150 into this 85% should basically get us to the central number?
Mathematically. But it's not to say that the remaining people who are inactive, they remain inactive and they don't pay rent. This I'm talking about transaction active. Rent activation typically ends up being a bit more.
Okay.
And rent is itself a function of not just rent but also cloud subscription fees that they keep paying. We keep doing cross-sell and upsell. So...
Next question is from Nilang Mehta from HSBC.
[Technical Difficulty]
Nilang, sorry, your line is not very good. Maybe we go to the next question. We'll try to come back to Nilang.
Next question we'll take is the repeat question from Mr. Karan Danthi from Jetha.
Yes. Sorry. I don't have any more questions. My questions were answered sufficiently. Thank you.
Next we will take Sumeet Kariwala from Morgan Stanley.
I had a quick question on wallets getting interoperable. Is there any decision on the interchange MDR? It was supposed to get operational from April. So just trying to get an update on that, please.
So Sumeet, this is -- you're right. This was supposed to get operational from 1st of April. I think there is some delay in either network to get alignment on tech specs, et cetera. So we do believe that it should get operationalized soon, and we're pursuing the network and other participants to make it operational. The commercial alignment broadly has been achieved, but the operational alignment is something -- some are a lot -- some more work needs to be done. So we are hopeful that maybe in the next couple of months it should be operational.
And Bhavesh, is this the right time to get some details on the commercial alignment, in the sense interchange or you're saying even that is not done?
No. Obviously, it's yet not in public domain, but it is in line with our expectations that we wanted it to be. I can say only that much.
Got it. And Bhavesh, just 1 more question very quick. Would you be able to share as to how many loans or individuals in the Paytm postpaid and personal loans would be related to fintechs or startups and so on? Like what percentage of loans or individuals would be from fintech or startup sectors, gig economy, et cetera?
Sumeet, I'm sorry. We don't track it in that way.
No, no. We don't do anything to the gig economy. We have absolutely no connection whatsoever with any merchant partners sub gig economy people. So we don't give loan to any rider, et cetera, that we would have partnered, let's say, with some food delivery service or some local delivery services. These are the customers who are active long-term usage of Paytm app when it comes to consumers and our usage of Paytm merchants. We don't rely on somebody else's data on access to the customer. So Sumeet, this is not even applicable for us.
Sumeet, it would be an easy question to answer if we were using channel partners or doing any sort of other fintech or food tech or other partnerships. We don't do that. And hence, if somebody is a gig worker, that is not a data point that we track. What we track is their engagement on Paytm platform.
No, I'm just thinking that some of these users could be using Paytm quite often. And therefore in that perspective it could be...
Actually, no, because these people, as you heard from Bhavesh, that these are high CIBIL score customers, and this is convenience-centric loan. And it is not led by these kind of factors that you're noticing. And actually, as a Paytm user, you are welcome to be a daily user or welcome to be a, let's say, somebody else, but we don't judge on that either. That said, it's a significant number of other usage variable, if you will. Sumeet, it's led by usage.
Next question we'll take is from Mr. Sachin Salgaonkar from Bank of America.
So just 1 last follow-up question from my side. Given your stock price where it is and given the cash on your balance sheet and your time line in terms of being close to EBITDA breakeven by September '23, any thought process for management and Board to contemplate on looking at something like a buyback or anything to help? We saw some of the U.S. companies doing that.
Buyback or not, at least I'm going to buy that I publicly made an announcement also at some point of time, not because that I think there is a plan of a buyback, but it's a plan of that -- I believe that it's a great value for even [ benefits ]. Madhur, you can talk about the rest.
Yes. So Sachin, it had come up in a couple of conversations with investors and so on, and we have decided that for the first 6 months absolutely not. We're not going to discuss it and discuss it with the Board and so on. We may, as we move forward, evaluate the environment and let the Board take a decision on that. But for the first 6 months, we were head down focused on making sure that we meet investor expectations with respect to revenue, contribution margin, profitability. You're right with the observation, which is given our September 2023 time line, at the time we hit operating EBITDA breakeven, we would have substantial amount of cash on our balance sheet, a very large percentage of the IPO cash. So we do have some options, but we can -- we will, at the appropriate time, discuss that with the Board.
I think the first 6 months are largely done, right?
Exactly. So the first 6 months are just done like 3 days ago, and we will, over the next few months, go to the Board with various options and make a decision based on all factors.
Okay. So there is a possibility in the next 6 months, depending upon how you guys and the Board thinks we might see something?
Yes. It would depend on a number of factors, and the Board would have to take the final decision, but I don't have anything to sort of announce or guide towards right now.
And now for the last question of the session, Mr. Rahul Jain from Dolat Capital.
Congrats on strong numbers. Just 1 question. Of course, it may sound a bit repetitive. On the payment processing charges, we've been mentioning some of the reason why it's been kind of coming off because of transaction routing efficiency and scale up. But is there a flow that we cannot kind of reach? I know there's -- payment has a lot of other revenue streams. So we cannot directly correlate. But is there a kind of a flow that we can define based on the kind of mix we have right now?
You mean a take rate, flow meaning a particular take rate?
I think the question was payment processing charges as a percentage of, let's say, GMV or as a percentage of revenue -- payment revenue. So Rahul, what I'd say is that it is fast evolving, and we see lots and lots of opportunities with respect to -- and this is on the cost side 1 of our key focus areas. It's obviously our largest cost at roughly 50% of our total revenue. So you can imagine this gets a huge amount of attention internally. And there are lots of opportunities here. And every time we sort of execute against a few opportunities, more opportunities open up. It's hard to right now say where this would land a year or 2 years from now as a percentage of GMV. But we definitely, both as a percentage of GMV and as a percentage of revenues, continue to see opportunities here.
Sir, is it ideal way to look at these charges related to payment revenues? Or it will be more relevant for the entire GMV as a percentage?
As a percentage...
That's a good question, Rahul. I would say that you should take it as a payment revenue because GMV is a mix of various factors, including 0 MDR, UPI. But then government incentive comes. And then there is subscription revenues or different services that we are giving. And then there are different take rate basis, products like debit card or for particular network are 0, but other networks are large credit carders. So it's simple payment revenue. Should we bother about GMV as a number? In my opinion, it's -- the best way to look at payment revenue is that how your customer base, merchant base is growing and how your payment revenue is growing and what payment growth will be. If you'll start to look at as a percentage of GMV, it starts to add this variable that particular payment instrument growth is shadowing other payment instruments growth. And then there is a growth from other payment instruments. So I would rather keep it as a payment revenue instead of revenue divided by GMV.
Right, right. And maybe a slightly forward-looking, but if you could give any idea. Like given the run rate that we have right now, probably for next INR 1,000 crore incremental revenue we may have this extra INR 400 kind-of-a-crore of extra profits, which means that INR 2,500 crore give or take kind of a quarterly run rate we will have this adjusted EBITDA breakeven. So what could be the journey beyond that? Will that mean that there could be a significant profit pool beyond that because our business does not have a lot of marginal cost attached to a transaction? Or will we be more spending on our objective of reaching this 500 million consumer from an activation point of view versus we are today at much lower number than that? So there, at that point, the cost could be of very different nature given the goal push we'll chasing then?
Rahul, very, very good question. And especially, this is the kind of conversation I do with my team. And I want to share the excitement and the thrill is that we not only will be profitable, but we'll be significantly free cash generating profitable subsequently. We don't have a desperate ambition of, in shorter term, getting 500 million people on our active number level. We would remain moderate about it. We already have signed up, if you notice, as a signed up user and then people who created an account, people who were once active. We just went through all these kind of different metrics, and we found out at the time of IPO, the best thing is monthly active. So the number that you are seeing is mostly active.
Surprisingly, if I was to quote 500 million customers, we already would have signed up them as a customer already before you have an IPO process. What we say when we bring mainstream of economy, we try saying that having a bank account, credit opportunity, wealth and insurance that any partner is like to distribute and give them access. So there is a significant dependency of a partner's plan to distribute based on technology and access that we provide. It's an important thing, Rahul, as you've said, that it is to be understood that we will be as effective as our technology will allow our partner to reach out to the customer base, understand the customer base and offer 1 or 2 of those financial services.
Our business remains payments, which is a spread and then our business remains at on credit and then subsequent 2, 3 years forward we look at other financial services. So payment and credit, like you said, not only will be profitable at an EBITDA level. Let's say, the sequencing that we look at it is would be EBITDA before ESOP, overall EBITDA, PAT, free cash and then sizable free cash. That's the journey, Rahul that we're looking at. We are clear about it that the company's moat should be free cash it generates and the impact that it creates with the free cash incentives.
Rahul, maybe I'll just add 1 more thing, which is that at the time we hit breakeven, I do expect that both -- like in areas like lending, commerce and cloud and so on, we would have still barely scratched the surface. And these are large profit pools, large opportunities and very profitable for us.
All right. And lastly, if I can squeeze in one. You said something about the organic insurance business thing. If you could elaborate a little more then on what you've said there?
Yes. So we reevaluated our insurance plans, and we think at this point it makes more sense for us to apply for an organic venture. We would have 74% stake upfront, 26%, as you know, in India has to be owned by an Indian person. The venture basis, our business plan requires INR 950 crores of capital over 10 years. Obviously, this would go through a process with IRDA of them approving the business plan and so on. And we believe that investing and creating long-term value by investing INR 950 crores over the next 10 years is a very capital-efficient way for us to build this business.
I'm going to extend, Rahul, 1 more factor here that we look at it as 3- to 5-year forward business for us. We don't look at it in a short mid-run -- midterm, number one. Number two, any of these clients that we are talking and few minutes back I was answering for any of -- any other capital gain or other thing that could be added into the bottom line, we look at the operating breakeven, meaning cash that we generate from the business and cash we spend in the business remains committed and aggressively convinced -- further convinced that it will be achieved definitely by the time period. So this is more for planning 3, 5 years forward. And as you understand, these various approval and processes take time in years.
And Rahul, sorry, 1 final point to be -- this is a final point. Our focus does not change. Our focus is very much what Vijay described at the beginning of the call, which is payments and credit.
Right. And just 1 bit more clarification. Since we would be investing this money, of course, a big part of it would be capitalized. But whatever OpEx we would be generating over, let's say, next 6, 7 quarter, will that have any bearing on the guidance that we have given on the EBITDA side? Or this is outside of that?
That's what Vijay, I think, was saying. Obviously, if we have 74% of this entity, this would be consolidated. And Paytm, at a consolidated basis, of course, is with -- the plan to hit EBITDA breakeven in 6 quarters absolutely does not change.
With that, we come to an end to this earnings call. The presentation discussed by the management today, a recording of this call and the transcript will be available on our website shortly. Thank you all for joining.
And thank you, everyone, for joining. It was really good interacting with you. I see some hands up here. I want to request them to send an e-mail to ir@paytm.com, and we will literally take every question as an opportunity to get back to you. And thank you for your support and interest in our business. It is humbling. And thank you from everyone from Paytm side. Thank you so much and good day.
Thank you, everyone.
Thank you.