One97 communication Ltd (PAYTM) Q4 FY23 Earnings Concall Transcript

One97 communication Ltd (NSE:PAYTM) Q4 FY23 Earnings Concall dated May. 05, 2023.

Corporate Participants:

Vijay Shekhar Sharma — Chairman, Managing Director, and Chief Executive Officer

Madhur Deora — Executive Director, President & Group Chief Financial Officer

Bhavesh Gupta — Chief Operating Officer

Analysts:

Ankur Rudra — J.P. Morgan — Analyst

Jigar Valia — OHM Group — Analyst

Suresh Ganapathy — Macquarie — Analyst

Bhavik Dave — Nippon — Analyst

Sachin Salgaonkar — Bank of America — Analyst

Saurabh Kumar — J.P. Morgan — Analyst

Nitin Aggarwal — Motilal Oswal — Analyst

Rahul Jain — Dolat Capital — Analyst

Piran Engineer — CLSA — Analyst

Himanshu — Axis Mutual Fund — Analyst

Akshay Jain — JM Financial Ltd. — Analyst

Vijit Jain — Citi — Analyst

Manish Shukla — Axis Capital Ltd. — Analyst

Presentation:

Operator

Thank you for joining, and welcome to Paytm’s earnings call to discuss our annual results for the full financial year which ended on March 31, 2023. From Paytm’s management, we have with us today Mr. Vijay Shekhar Sharma, Founder and CEO; Mr. Madhur Deora, President and Group CFO; Mr. Bhavesh Gupta, CEO of Lending and Head of Payments; and Mr. Anuj Mittal, Vice President, Investor Relations. A few standard announcements before we begin. This call is for existing shareholders of Paytm, potential investors, and research analysts. This call is not meant for the media. If any media representatives are now on this call, we request you to kindly drop off at this point.

The information to be presented and discussed here should not be recorded, reproduced, or distributed in any manner. Some statements made today may be forward-looking in nature. Actual events may differ materially from those anticipated in such forward-looking statements. Finally, this earnings call is scheduled for 60 minutes. It will have a presentation by the management followed by Q&A. For 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. Please ensure your name is visible as first name, full name, followed by your company name for us to be able to identify you. The presentation, a replay of this earnings call, and a transcript will be made available on our website subsequently.

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

Vijay Shekhar Sharma — Chairman, Managing Director, and Chief Executive Officer

Thank you. Thank you, Keshav [Phonetic] and dear shareholders, thank you so much for joining our call. I’m very happy that we have announced our second successive and continued quarter of EBITDA profitability before ESOP. Obviously, we have said it earlier, we are aiming for Paytm to become free cash positive in near future. And all this profitability and attention to revenue which drive — quality revenues which drive for quality profit has been possible because of our incredible team. Business teams, I’m especially indebted to their attention and then realignment, disciplined assignment of resources that we pursued in the last year, and their amazing efforts and deliveries that made us successful like this.

I also want to share that I’m very proud to see that our team have been continuously adding more leadership positions and we are continuously adding our new teammates there. And all this is because we believe that India is obviously an incredible, incredible opportunity. I will talk about further growth when it comes towards the later part of the presentation.

Before I start this presentation, I want to draw your attention to a tweet that we have done from Paytm handle and filing that we have done to BSE about our business KPIs of April 2023. Many of you may or may not have seen it, so please, see it. If you have any questions in regards to that, we’d be very happy to be part of the same also.

With this, I welcome you to this incredible landmark quarter that we had in the last quarter of last financial year, FY ’23. We got UPI incentive, all of that in the last quarter, so we accounted for that. In this presentation, we have tried to making it as much possible the details with — and without taking the last three quarters’ numbers. So, all the numbers that we are reporting as expected, they are including of the fourth quarter UPI incentive. And in the quarterly numbers, we’ve tried showing new mark-to-mark exactly how the quarter number would have been if the UPI incentive was not added in this quarter numbers. So, we are trying that. I’m sure you will be very careful and attentive towards the numbers that we’re showing. Like I said it, we’re repeating that because of the UPI incentive of whole year got achieved in last quarter, we are giving you reported number and mark-to-mark numbers. And these numbers Madhur and Bhavesh will specify when they talk about the payment and credit.

With this, as you know that we by a bristle missed a rounded off number here, and we did INR7,990 crores, which just 61% year-on-year growth. We’re very happy to report that we have internally kept the target that we will continue to grow on a particular number in top-line because of the opportunity in payment and credit. I won’t be using the word payment here because if you notice, our payment business, which is INR4,930 crores, and two years back, it used to be around INR2,000 crores. So, there is a tremendous amount of growth and we continue to see. Thanks to the new monetization methods like subscription revenue, like soundbox, etc. devices, etc., revenue, and we have now added commercial stores enabling commerce. So, we continue to see payment in a line item of ours revenue and merchant relationship continuously growing. And we are very happy to announce that we have been able to achieve more than 2.9% 9 times growth, meaning it is nearly 3 times that you would have seen in last two years. And this, like I say, again and again, it is all because the payment is maturing for the merchants. Merchants are making sure that there is a digital payment, mobile payment on their shops, which gives them opportunity to take our premium products also. So, it’s a model like senior model where merchants get 0% MDR, and which is the [Indecipherable] from government than through UPI payments, various UPI payments, and then we have subscription revenues and extra charges for other payment instruments. So, this is what is growing the payment business.

I also want to point out that I believe that UPI has started going towards monetization of MDRs. Different payment instruments will come on UPI. Till now, UPI used to be known as bank account-led payment. And now bank account-led payment is what you see if you saw the prepaid wallet instrument has an interchange in MDR, meaning the issuer, that is us, as Paytm, let’s say, our Paytm wallet is being used on somebody else’s QR, the merchant side QR will have to pay us. What we own is called interchange. What they charge the merchant is called MDR. And the delta between them is the revenue that the QR company keeps. So, here it is, that QR payments from bank account are free, which we believe will remain long-term free, and then other payment source, for example, like wallet is getting visibly — going to get benefit of universal interoperability and acceptability, and will also generate some revenue for us. So, the core thing that I’m trying to point out is that you can see that UPI payment instruments will have different, different payment MDRs or charges to the merchant, or they may not have merchant charges because somebody who is offering the statements of this to the merchant could absorb it. So, let me not say that merchant will be charged or not, let me say that issuers will get charged. That is a better way to look at it for you, guys.

I’m very happy that our payment team has done great market penetration. As you guys are aware, we are a merchant side business. We always called payment when you are paying a merchant. So, yes, our P2P business numbers are not that great as a market share. We are very aware of it. But at the same time, we’re very proud to say when it comes to the merchant, whether consumer making payment to the merchant or merchant choosing a payment solution, Paytm is the market leader here.

Now due to this, and one of the line item that we started growing in 2020, which was about credit, which is part of our financial services business, has done very, very good, as you can see and further details are coming in due course. I think the Government of India and regulator have very much clearly focused on expanding the disbursement of credit using digital means here. The idea here is that how can different, different small loan ticket size or various other loans or large ticket also be digitally enabled to be distributed. The keyword is digitally distributed. It is not just about the organization internally managing digital process, but it is about how they can be digitally enabled to distribute. So, whether you see conveniences of KYC, conveniences of document, and CIBIL scores, etc., and the processes, digital lending guideline, clarity, all those things out towards that. And we took a clear advantage and we pursued more clarities and you’re seeing that year-on-year, this number is growing. We continue to believe this will be a key number and key performance number for us to focus on.

And third line item, which is our commerce and cloud services, it has a little bit of — I mean, annually, it is showing growth, but quarterly, because as you understand that commerce is an activity which is festivity-driven and so on. So, there will be quarterly different swings. But at an overall level, our commerce and cloud business, which includes advertising, marketing, and because we distribute co-branded credit card, so we call it marketing. The keyword here is we don’t call credit because there is no credit relationship or disbursement relationship. We have purely co-branded credit card disbursement models. So, we account for it there, led by credit card distribution, co-branded credit card distribution, this is continuing to grow. So, commerce and disbursement of credit cards will be the key drivers and they are happening here. So, this year, we are, as you will see that we have last quarter numbers coming up soon to be shown to you. You’ve seen it. Very, very good. I’m very happy to say that we are focused on not only the revenues, but we are also focused on EBITDA et al. Obviously, we are talking here EBITDA before ESOP so that there is no adjusted misunderstanding here. It is because of the charges of ESOPs which we have clarified in different trends, time and reports out there. The nice thing that I want to tell you is that in two years when we have grown our revenues by 2.9 times, our margins have also improved by 57%. We are — we in last quarter even have shown how good this commerce been profitable actually. So, we are very, very hopeful that we would continue to improve and improve on EBITDA over the period and in contribution.

I’ll give it to Madhur, our CFO here, who is going to talk about quarterly, and then I’ll come back on the rest of the business and Bhavesh will talk about payment and credit. Thank you.

Madhur Deora — Executive Director, President & Group Chief Financial Officer

Thank you, Vijay. Good morning and welcome, everyone. So, it’s my pleasure to walk you through our quarterly earnings. So, led by our revenue growth that Vijay briefly talked about, a 100% increase in UPI incentives on an year-on-year basis. So, last year, we got about INR90 crores of UPI incentive. This year, we got INR182 crores of UPI incentives. Our performance has been extremely strong. And last quarter, we delivered EBITDA before ESOP of INR234 crores. Just to dig into that, our revenue for the quarter was INR2,334 crores. Our revenue growth is 51% year-on-year. So, it’s extremely strong revenue growth. Out of this INR2,334 crores, INR133 crores pertain to UPI incentive for previous quarters that we happened to receive in the last quarter. So, we have tried to normalize for that. So, if you exclude that INR133 crores in our growth, the number is INR2,200 crores, and our growth is 43%. Our contribution margin has gone up dramatically. This trend continues over the various quarters that you have been tracking us. Over the year — on a year-on-year basis, our margin improvement is 20%. We delivered INR1,283 crores of contribution margin. But once again, if we take out the INR133 crores for previous quarters, then that number is INR1,150 crores, or 52%. So, we have seen expansion in this number in this quarter again.

EBITDA before ESOP expense improved by INR602 crores on a year-on-year basis. A year ago, we were at INR368 crores negative EBITDA. This year, last quarter, we were at INR234 crores positive EBITDA. And we’ve had a margin improvement of 34%. But once again, if you make that adjustment of INR133 crores that I’ve talked about, we delivered INR101 crores of EBITDA before ESOP cost, and a margin of 5%. So, continued expansion in our EBITDA. And as Vijay said, other than some extraordinary circumstances, we expect to be EBITDA-positive going forward and into start generating free cash flow very, very shortly.

Going back to the core business model of payments and loan distribution and collection, where we are seeing expansion of our platform, our average monthly transacting users has grown 27% year-on-year. So, we’re doing about 9 crores average monthly transacting users last quarter. Our merchant subscriptions, which is primarily and including our payments devices business, has grown to 68 lakh merchants. So, this huge expansion of technology adoption by our merchants. And over the last few quarters, we have been relatively steadily adding about 10 lakhs a quarter, and we have mentioned that we expect that pace to continue or maybe even go up a little bit. On the back of our payments business, we leverage our ability, our brand, our distribution, our data insights, and our technology to distribute loans. And obviously, as you know, we help our partners collect those loans as well. Last quarter, as you know, we did INR12,500 crores of loan disbursals, and we’re seeing significant Y-on-Y and Q-on-Q growth here.

A little bit about our breakdown of revenues. Our payments revenue was nearly INR1,500 crores. It grew 41% year-on-year. But once again, adjusted for the INR133 crores that we talked about earlier, that number was 28%. Our financial services revenue grew to INR475 crores, driven by the increase in our lending business. Our commerce and cloud business on a year-on-year basis went up 23%, and we’ll talk about that some more.

On payments revenue, like I mentioned, 28% year-on-year growth. Our net payment margin has really been a continuing improvement story as we have focused on how do we monetize payments better and how do we keep our costs under control. So, our like-for-like payments revenue, like I said, is 28%. Our like-for-like net payment margin after taking out payment processing costs is INR554 crores last quarter. And if you add back the INR133 crores, then you get to the net payment margin number. So, while we think the INR554 crores is the relevant number, we have given you the INR687 crores as well, just so that you can tie it back to our financials.

This, as you know, is comprised of two main line items. One is net payment processing margin. In December, we said that this number is in 7 basis points to 9 basis points. And we do expect that over time go to 5 basis points to 7 basis points. But we’re happy to report that currently, we are at the high end of the original 7 basis points to 9 basis points number that we have indicated we are at currently. And we’re not seeing downward pressure. In fact, we’re seeing various opportunities to keep working on this and improving this. And of course, our merchants, the 68 lakh merchants pay us for the subscription revenue, which also continues to scale very quickly.

I’ll turn it over to Bhavesh to talk about the lending business.

Bhavesh Gupta — Chief Operating Officer

Yeah. Thank you, Madhur. Hi. Good morning, everyone. On the lending side of the business, we continue to see decent momentum in growth both in the consumer and merchant mode of distribution in the month of — in the Quarter 4. Important to note here is that we’re now getting more secular growth across these businesses. Merchant loan as a business seems to performing much better on a smaller base because last year was a COVID year. If you look at quarter-on-quarter, we have said in the past that we’ll continue to calibrate our growth as we see the entire scale of business become larger and better because our entire focus is not on volume of disbursement to look at portfolio, and I’m happy to inform you here that while we grew the year-over-year business back 253% and quarter-over-quarter again by almost 25% well, we’ve INR12,554 crores. Each of the individual lines of businesses also have been growing almost in the similar range-bound model, especially personal loans and merchant loan businesses which are extremely profitable both for us and for lending partners. And Postpaid as a business also is profitable and it provides with a big funnel to upsell both personal loans, merchant loans, and credit cards.

I want to draw your attention on the graph on the right side, the table. The focus that we have been demonstrating very clearly here is that we have a very large MTU base and the MTU base grew by 27% year-on-year basis. In spite of that, our focus has been to make sure that a very limited set of users and merchants are getting access to credit, meeting the appetite of our lending partners, and more importantly, we set for ourselves a very strong portfolio governance model wherein — while our lending partners could assume an elevated loss provisions. But in our case, we are having a more conservative view that we would not like any distribution of credit originates through Paytm platform to perform beyond our own credit expectation, which is far more conservative than lender’s expectation. And in that context, as you can see, that our penetration to MTU continues to be very, very low, indicating two things. A, the runway of opportunity for us is significantly larger than what we’ve exploited. And, B, we continue to grow and be very selective on both Postpaid merchant loans and personal loans on our system.

The portfolio in Quarter 4 performed better versus Q3. We have been very calibrated in making sure that the entry rates, which is basically a portfolio construct that we are focused on, personal loan entry rates dropped by almost 1%. We were operating more closer to 11.5% on a blended basis. Now we are in the range-bound between month-on-month to 10.5% to 12%. Those kind of pieces, more closer to about 11%-ish. Postpaid also we are seeing entry rates drop. They’re now closer again to 11%-ish. But we continue to believe that these will only become better because we have further tightened our models of underwriting with our partners because we are seeing very decent growth happening.

On overall basis, our expectation is that the portfolio quality will remain stable and maybe we will be in a position to have a much better portfolio quality being demonstrated in the subsequent quarters. We’ve already seen, especially, in Postpaid, that from the last quarter wherein our expected credit loss by our lending partners used to oscillate between 1% to 1.2%, it has dropped down to 0.75% to 1%. And we feel very comfortable and so does our partners that this particularly ECL for Postpaid, which is almost 50% of a chunk of our loan business, will continue to performance like this or even get better.

So, all in all, I’m happy to inform that we continue to demonstrate good growth in terms of distribution of credit, and at the same time, get much better portfolio performance than expected by lending partners. And as we look into the next year, our belief it is our focus will be a lot more on portfolio quality given elevated interest rates in the market than growth, and hence, be able to maintain profitability of this business much better in spite of the fact that we will calibrate our growth as we see, the overall interest rate scenario far more closely and the overall credit scenario far more closely into the next year.

Thank you, Madhur.

Madhur Deora — Executive Director, President & Group Chief Financial Officer

Thanks, Bhavesh. I’ll just talk about the commerce and cloud business. As you know, here we have two broad set of businesses. One is commerce where we sell travel, movies, and events tickets and deals, gift vouchers to our customers. Last year — sorry, I apologize, last quarter, we did INR2,185 crores of GMV in this business, which was up 22% year-on-year. This is despite the fact that as you maybe aware, the entertainment side of business, especially, movies, has not completely come back to pre-COVID levels and it’s still seasonal and goes sort of up and down depending on the quality of the content. We did see a slight decline on a quarter-on-quarter basis. This is because like we mentioned in the last quarter results, we do events business, some of them, on a sort of full-stack basis, which is to say, we have very high take rate on those, but we also have very high direct costs. That business is seasonal. It usually peaks in Q3 and it comes off a little bit in Q4, and Q1 and Q2 are more subdued. So, we have also indicated that our take rate, which over the last two quarters has been closer to 8%, should revert back to 5% to 6% as we sort of experience this seasonality.

On the cloud side of business, just to remind everyone, we offer advertising, marketing loyalty services, to various enterprises, and we also distribute co-branded credit cards. So, while our co-branded credit card businesses continue to scale very well, we have now 5.9 lakh activated credit cards with our partners as of March 2023. And this business continues to scale well both in terms of new card issuances as well as spends. So, we saw an increase in that. But we did did see a decrease in our marketing cloud business. Just to remind everyone, our marketing cloud businesses where we provide marketing and upsell services to telecom companies and enterprises, this is a business that Paytm, One97, has been in for over a decade. That business is not a very fast-growth business and it has been sort of under some amount of pressure. But I would just like to point out that this is — overall, now it is less than 3% of our revenue. So, it’s not particularly material in terms of overall growth rates and so on.

And finally, we are launching a co-branded RuPay credit card very soon. So, we wanted to take this opportunity to make everyone aware of that.

And with that, I would like to hand it back to Vijay to talk about the growth drivers and wrap.

Vijay Shekhar Sharma — Chairman, Managing Director, and Chief Executive Officer

Thank you. Thank you, Madhur. The RuPay credit card will be really interesting. As you guys understand, RuPay credit card will come on UPI there also, so we’ve been trying to work it out. And I want to point out what is on the right side to you. This is a dynamic QR device that we have refreshed as a portfolio. This is a device that is integrated with — you might have seen in various stores out there when you go to large enterprise stores. The billing — it is integrated as the billing POS. And when the merchant generates the bills, it’s automatically done in issuer’s QR. And obviously, being Paytm QR, it allows Postpaid, Wallet, and everything else to be accepted, and obviously other UPI apps can also pay. So, I’m very happy to tell you that as a part of device portfolio that is what we’ve done as refresh.

Secondly, we’ve done our soundbox which is a very legendary device. I mean, the amount of love that we get for soundbox from merchant consumer is incredible. We continue to enhance and invest on hardware. We want to remind you that we treat it as one of the key portfolio offering of our services. We launched 4G-enabled device. 4G-enabled device, meaning that it can run faster, better battery efficiency, and so on. So, we now have seven days of battery backup band, kind of industry-leading backup. And I’m very proud to tell you the thing that Bhavesh’s team did in the market is that even though there were many companies which thought that they will throw in the markets free device, but because of the cost, because of servicing, because of feature, it didn’t even see the day, and we actually continued to grow more and more in market. Incidentally, what we’re seeing is that when more players come, the product becomes more mature in the market and market understands it, and then superior products win. So, for us, we’re seeing that there are many people who are launching soundboxes and that is growing our opportunity in the market. And I put the word growing our opportunity because, ultimately, this product is a outcome of last four years of R&D and efforts, and now that it is made software and hardware completely by us, so it is something that people will take time to even understand.

Here it is in the technology. We also launched our new technology platform. And it is very important for me to tell you that this was a key milestone behind the scene. This is where the the engineers were invested. And I want to share that we are going to release some engineers from here, but we would assign them to the other business and technology. So, when — I remember in December, when I had done an — we have done an analyst call, we had suggested that we are sort of sorted out except for standard [Indecipherable] increase and engineering technology. The good part is that this technology platform will take us through 10 times more transactions at current scale. I mean, obviously, we are handling hundreds of billion dollars of merchant payments. And I’m calling it out this as the merchant driven because P2P technology is owned by Paytm Bank, it is not related to us. And it is P2M payment which is the merchant payment platform that I’m talking about. The beauty of this is, is that this is 100% indigenously developed technology, including risk operations and operational risk, etc., and that will actually take us next level because I don’t think the the kind of features that we have added people are seeing them today. Obviously, artificial intelligence, AGI, will play an important role here for us in this — especially, for protecting frauds, etc. I’m very happy to announce that our fraud rates and as they call it, fraud to sales rates, are not industry-leading, but startlingly incredibly better, whether we talk government or regulator, they are fairly happy seeing what we’ve done and how we have started using artificial intelligence in our business. So, this is our payment update on systems for merchants.

You all are seeing that we have launched UPI Lite. If you’ve not, please use Paytm app, and now more banks have started coming on UPI Lite, so, it is still scaling. UPI Lite enables payments of small amount without requiring a PIN and more or less — it is not offline, just in case, but it doesn’t require PIN. And the balance is maintained on the device side instead of to the bank. So, the bank-led failures are sorted out. It is even better. So, we’ve launched it and we have already 55 lakh customers on it. We’ve done transactions in crores. So, it is picking up very, very well. And on the consumer side, we have wallet interoperability. We’ve been waiting for this to come for long. What it does is that it allows us to get Paytm wallet accepted on all UPI QRs. Although we are the largest QR or largest provider of merchants, but still there is a tremendous large potential merchants whom we would want our Paytm instruments or wallet, etc., to go. And that is what we are expecting. It is not — it is commercially live or agreement-wise live, etc. But everybody has to launch. So, you would expect it to take at least, I would say, two quarters material important contributions to show up in our numbers, etc. And that also brings that now the wallet has grown, so you can understand that wallet, UPI, everything, now the Paytm instruments are as uniquely available and will have the advantage of being merchants available across every merchants that really allow us to invest, even expanding more in merchant acquiring and consumer growth. I want to call out consumer growth investment here, because of the extra profits that we’ve started to make while we will continue and we are — we said it in previous quarter and earnings also that while we continue to invest, we continue to commit to incredible market opportunity which requires us to expand and invest in consumer growth, we believe this will not be materially costing us in our profitability. So, in other words, our profitability and revenues continuously grows even when we will do these investments. It’s an important thing.

Finally, as you all are aware that our business of financial product distribution and it is led by credit. So, we are signing up large NBFCs and banks. And we have a couple of them which are very, very interesting in the queue. But as we are aware, it takes a lot of technology for the partner to become Paytm partner. In fact, I want to share one extra thing here that in last month, month of April, one of our lending partners went through significant IT outage. And because of that significant IT outage, they were not able to disburse loans to many of the customers whom they sort of had disbursed earlier loans or not top-up loan or potential loans. So, if you see our April numbers, especially, I think in the merchant case, they are seemingly flat out there, and it is because there is a lot of technology stress on our partner continues to remain. So, we are adding more number of banks and NBFCs. And in fact, some of announcements are queued up before next quarter, so you would see that. And I think whether you look at payments on merchant side, whether you look at payments on consumer side, whether you look at our credit disbursement, these are the core businesses. In addition to this, like I said, we are enabling AGI, and I don’t want to call it AI only, I want to call it AGI, general intelligence here. The reason I’m calling it out is because that is incredible technology that I believe will change how we use the server side components, for example, like you’re talking to a serve which is configuring and you have a workflow, and then instead of this, you can talk to it. So, give you an example here, many of us are old internet users. So, imagine internet being navigated like Yahoo! directly and search on Yahoo! directly, versus search like Google, that you can search what the destination has. Now that lead is what I’m talking AGI is for the business. And we’re committed and we are investing and have started investments already. So, you will see that there is large amount of product which are AI-first or AI-enabled coming from our family. And the best part, like I said, is that we don’t need to — a lot of extra dollars because our platform that we got expanded here is giving us the opportunity to expand on that side.

With this, I want to say thank you, and we look forward to get as many questions and understandings that you seek. And thank you for championing and I see very, very details narrations about our business which are getting clearer and clearer, so thank you so much for that. Look forward to the questions.

Questions and Answers:

Operator

Thank you, Vijay. We will now proceed to Q&A. [Operator Instructions] With that, the first question of the session will be from Ankur Rudra from J.P. Morgan. Ankur, your line is unmuted.

Ankur Rudra — J.P. Morgan — Analyst

Hi, sir. Hi, thank you for taking my questions. So, first question is on the payments business. We’ve seen one of your peers scaling quite rapidly in recent times with a similar product. I think you referenced that. Is there any pressure on subscription charges for the soundbox portfolio or the net payment margins from this?

Vijay Shekhar Sharma — Chairman, Managing Director, and Chief Executive Officer

No. Actually [Technical Issues] opportunity. It is an increasing opportunity because more number of merchants take our soundbox there. It’s a product maturity and product pricing has been actually — I mean, the market moved to the product pricing that we were giving. So, Ankur, let me say this, it was priced zero and it over the period same price [Indecipherable]

Ankur Rudra — J.P. Morgan — Analyst

Okay. Thank you. Second question on financial services. I did notice that the effective take rates on the loans for the quarter has become a bit muted versus what we saw in the previous periods. Is this due to any change in collection incentives or changes in take rates from your partners?

Bhavesh Gupta — Chief Operating Officer

Yeah. So, Ankur, let me clarify this piece. You are aware that our — in our business model, our lenders keep some elevated provisions, right, because they don’t know at the scale at which we operate, what actually will be the loss rate. So, we are also fine that they can keep elevated provisions. What happens over a period of time here is, as they see the portfolio perform, especially in a product with the short-term credit like Postpaid, that the portfolio performance is much, much better than what they were keeping elevated provisions. We try to work with them to bring the provisions more closer to the actual provisions. Now that is what has actually happened in Q4, that especially a product like Postpaid, given the steady and improving quality of the loan book, we’ve seen that lenders are becoming more comfortable with portfolio quality. And hence, they have reduced the excess provisions that they were keeping on this portfolio, thereby reducing our opportunity to bill them more and collect over a period of time. So, the EBITDA doesn’t change. The gross revenue that we use to bill them because they were keeping higher provisions, that has gone away, to in the the product like Postpaid. That’s the reason you’re seeing a marginal drop in take rate. But our overall EBITDA has remained same or actually become better.

Ankur Rudra — J.P. Morgan — Analyst

Okay. And this is connected to the change we see on a quarterly basis on your ECL, your bounce rate, etc.?

Bhavesh Gupta — Chief Operating Officer

Yeah. And that is what I pointed out in my previous conversation that we were having the lenders keeps an ECL of — expected ECL, if I may use the word, of 1.2% in Postpaid, which has dropped to 0.75%, right? So, our intention is that they — the lender should be far more comfortable and not be keeping a lot more elevated provisions. So, in Postpaid, because it’s a 30-day product, they have now become extremely comfortable, and hence their need to keep extra provisions to look at any kind of deviation quarter-on-quarter has reduced significantly, right? So, that is the reason why the entire revenue, cross-revenue kind of is billed less, whereas the net rate — net revenue continues to be higher for us.

Ankur Rudra — J.P. Morgan — Analyst

Okay. Understood. Just a last question on the tech upgrade, Vijay, you referenced. Is there any kind of capitalization for the tech platform upgrade that we should expect in the accounts?

Madhur Deora — Executive Director, President & Group Chief Financial Officer

There’s an extremely small amount of people cost that we have capitalized. I think it’s about INR3 crores or INR4 crores a month for the period in which — for about a 12-month period in which we have done the buildout of the new technology system. So, yes, there is an extremely small amount of capitalization that we — that our auditors had asked us to do.

Ankur Rudra — J.P. Morgan — Analyst

And this would be over a period of roughly how long would the capitalization be?

Madhur Deora — Executive Director, President & Group Chief Financial Officer

So, it’s historical, and it’s for about — it was done for 12 months, roughly 12 months.

Ankur Rudra — J.P. Morgan — Analyst

Okay. Thanks.

Madhur Deora — Executive Director, President & Group Chief Financial Officer

So, just to be clear, the tech system that Vijay talked about, I’m assuming you’re talking about the first bullet point on the growth driver, right?

Ankur Rudra — J.P. Morgan — Analyst

Yeah, that’s right.

Madhur Deora — Executive Director, President & Group Chief Financial Officer

Which is the — which is our, what we internally call, the 2.0 system. That is now completed. We had done a press release on this. I think it was back in February, maybe it was early March. So, that entire project took about 12 months. And over that 12-month period, we did about INR3 crores a month and we’re not doing that anymore because the project is finished.

Ankur Rudra — J.P. Morgan — Analyst

Okay. Understood. Thank you and best of luck.

Madhur Deora — Executive Director, President & Group Chief Financial Officer

Thank you, Ankur.

Operator

The next question is from Jigar Valia from OHM Group. Jigar, your line is in unmuted.

Jigar Valia — OHM Group — Analyst

Hi.

Operator

Sorry. Jigar, we lost you for a second.

Jigar Valia — OHM Group — Analyst

Yeah. Sorry. Yeah. Thanks for the opportunity. Congratulations on the great performance. A follow-up question with regards to the take rate, the net take rate. So, if you can help understand that now there is less need for the buffers or provisions that the lenders need to keep. And accordingly, we can kind of also invoice them a little lower. So, we can map the gross take rate and which we can see the pattern. But if you can help understand the net take rate and it would get adjusted under which line item on the expense side, if you can help with that? Thanks.

Bhavesh Gupta — Chief Operating Officer

No, so there is no expense side adjustment to this entire thing. What ends up happening here is that as we’ve just named a business model earlier that there is a distribution revenue which largely remains unaffected by any change of portfolio, and then there is a collections revenue. Now if you’re keeping a much higher provision for collections, the portfolio may not perform as well as we believe it will perform. We will bill over a period of time. Now, in — what is happening in a product like Paytm Postpaid, because it’s a short-term product, the portfolio performance is very well-established. So, we bill less and hence we get less. So, only on the gross-to-gross basis, it will optically appear that our take rate has gone down. But if you look at the contribution profit or the EBITDA, that remains same or marginally actually better.

Madhur Deora — Executive Director, President & Group Chief Financial Officer

May I just add, if I understood your question correctly. So, the — so what Bhavesh described as bill less, is in the payment processing cost line.

Jigar Valia — OHM Group — Analyst

In the payment processing cost line? So, got it. Yeah, that was what [Speech Overlap]

Madhur Deora — Executive Director, President & Group Chief Financial Officer

So, for example, if this trend was to continue, and we were to further make changes, then the payment processing costs would go down marginally. And the revenue side of it would go down marginally.

Jigar Valia — OHM Group — Analyst

Got it. And this should lead to a contribution margin to be higher than 50%, which used to be earlier, because of this accounting, probably shooting slightly upwards of 15% and stay there?

Madhur Deora — Executive Director, President & Group Chief Financial Officer

Yes, it does because you make the same amount of money on a slightly lower revenue base, it’s shooting the contribution margin upwards. And there aer also some sort of tax and other efficiencies that we get out of this.

Jigar Valia — OHM Group — Analyst

Got it. And on a net — on the gross take rate, should — if it is right now, say, come close to 3.5% type of calculated levels, would that — on a blended basis that would be more steady-state sustainable number rather than 4% plus?

Bhavesh Gupta — Chief Operating Officer

Yeah. So, Jigar, yes to that two-part question. But what we’ve seen that this will oscillate depending upon how — which business contribution we’re doing more versus less. So, there are quarters like in Quarter 4, Postpaid was marginally higher than 50%, and personal merchant loan was like 45%. So, if the personal loan and merchant loan contribution is a bit more, the 3.5% could become 3.75%. But, yeah, the better way to do it is that it will oscillate between 3.5% to 3.75%.

Jigar Valia — OHM Group — Analyst

Perfect. That helps. And last question from my side is [Speech Overlap]

Madhur Deora — Executive Director, President & Group Chief Financial Officer

Jigar, I apologize. Bhavesh, let me just to add to that. The payments MDR that we get from merchants on Paytm Postpaid, that is recorded in payments revenue, because all MDR regardless of which instrument, that is reported there. So, while you’re absolutely right in tracking this line and dividing it by the disbursal value to get to a trend line, I just did want to point out that what we report as financial services revenue is not all revenues related to all products, loan distribution products. The MDR from Postpaid does come in the payments revenue.

Jigar Valia — OHM Group — Analyst

Understood. Thanks for that clarification. Just a last question from my side. Is it possible to — on a pro forma basis, give the UPI incentive for Q1, Q2, Q3, because having just for Q4, again, it makes it non-comparable. You’ve tried to be as elaborate as possible, I understand, but maybe on a pro forma basis?

Madhur Deora — Executive Director, President & Group Chief Financial Officer

So, Jigar, maybe with the disclosure that we have, I can help you, that we have said that out of the INR182 crores that we got for the full year, INR133 crores was for the previous quarters, which means that INR49 crores was for Q4. So, if you were to back out that INR49 crores from our reported number, which is INR101 crores, then you get to INR52 crores of EBITDA excluding UPI incentive for Q4. So, if you exclude even the Q4 UPI incentive from Q4, then the number that you get is INR52 crores. So…

Jigar Valia — OHM Group — Analyst

Yeah. I — yeah, got it. Excluding the UPI, it is comparable. I cannot map the UPI incentive for Q1, Q2, Q3 separately. That’s it?

Madhur Deora — Executive Director, President & Group Chief Financial Officer

Yeah. So, the INR133 crores, you can broadly assume that it was growing at 5% to 10% quarter-on-quarter, right? So, the last quarter number, I don’t have the exact last quarter number, but I think it was closer to INR45 crores or INR50 crores.

Jigar Valia — OHM Group — Analyst

Understood. it helps. Thank you very much.

Madhur Deora — Executive Director, President & Group Chief Financial Officer

So, it’s relatively evenly split with of course some Q-on-Q growth amongst those three quarters.

Jigar Valia — OHM Group — Analyst

It helps. Thank you very much. Thank you.

Operator

Next in queue is Suresh Ganapathy from Macquarie. Suresh, your line is unmuted.

Suresh Ganapathy — Macquarie — Analyst

Yeah. Am I audible?

Operator

Yeah.

Suresh Ganapathy — Macquarie — Analyst

Yeah. Okay. So, just to understand this better on this take rate thing. So, what you are seeing from an accounting standpoint is, yes, when your provisions in the Paytm Postpaid business is better, better than expectation and the loss rates are lower, your revenue line item shows a lower take rate, but at the same time, the payment processing cost also comes down. So, net-net, on an overall basis, it remains more or less the same, it doesn’t affect the overall EBITDA. Is that interpretation right from an accounting standpoint?

Madhur Deora — Executive Director, President & Group Chief Financial Officer

Yeah. Suresh, it would be the same, perhaps slightly better. The profitability [Speech Overlap] same or slightly better.

Suresh Ganapathy — Macquarie — Analyst

Okay. So, part of — so, just to again repeat, part of it gets adjusted in a lower downward revision in the financial services distribution line item, and part of it will get adjusted in the downward revision in the payment processing costs? The payments cost, the payment processing charges, right? That will also come down?

Madhur Deora — Executive Director, President & Group Chief Financial Officer

I wouldn’t think of it as splitting it into two parts. And maybe Bhavesh, you can add. I wouldn’t think of splitting it in two parts. What we are saying is that the cost impact was seen on the payment processing cost line item.

Suresh Ganapathy — Macquarie — Analyst

Yeah.

Madhur Deora — Executive Director, President & Group Chief Financial Officer

And the revenue impact of nearly the same, perhaps slightly lower, is seen on the revenues, the financial services revenues line. Okay. So, the overall EBITDA doesn’t change much? Okay. Fine. The second question is, can you let us know totally how many partners you have on the lending side, banks and NBFCs? And if you can give the proportion, it would be great, in value terms?

Bhavesh Gupta — Chief Operating Officer

Yeah. So, Suresh, we have seven partners today, two banks and five NBFCs. Unfortunately, we do not have the, I would say, approval from our partners to declared individual disbursement values, etc. So — but I can give you this part, that large part of our business — our business is fairly well-spread. It’s not concentrated to one or two partners. While some partners are very comfortable doing Postpaid and PLs, some are more comfortable in merchant loan, but if they are comfortable doing a business, they will do that business materially with us and not a very small portion. And having said that, we also are now in the midst of adding more partners and we will be announcing some of the new large NBFCs and banks in due course of time starting from June.

Suresh Ganapathy — Macquarie — Analyst

Okay. So, is it not possible to share the — share of the largest partner also?

Bhavesh Gupta — Chief Operating Officer

No. So, we don’t have the, what can I say, agreement with our partners to share either their portfolio in specifics, some of the time we’re asked, can you share a particular lender portfolio, etc., or the disbursement value, because some of these are listed entities as you understand. So, if they were to declare individually in their announcements to investor, we’ll be more than happy to share. But we currently do not have the approvals from these people.

Suresh Ganapathy — Macquarie — Analyst

Got it. Because the simple math says that the share of, on an average basis, is 15% per partner, right? So, I’m pretty sure that it is not going to be 15% uniformly across seven, so there is a possibility that a partner will be greater than 20%, if I were to simply do the math. So, just wanted to understand that [Speech Overlap]

Bhavesh Gupta — Chief Operating Officer

Yeah. Suresh, you’re right. I understand that not every partner does all our businesses. So, let’s say Partner A will do only Postpaid and PL, because that’s generally the combination, but there — we have partners who only do PL, and they do a lot of PL. So, if I’m doing less than INR1,400 crores, they could be doing 50% of the PL volume with us and there could be another two partners doing 25%-25% each. Similarly merchant loan, there are partners who will do 50% of merchant loan with us and then there will be another three partners who would do 15%, 20%, 20%, etc. So, depending upon their risk appetite and where they’re strategically they want to calibrate their ROAs, etc., they pivot on the business. So, it is not kind of uniform. What you’re saying is right, but it’s not very concentrated also. That’s the comfort I can give you very clearly.

Vijay Shekhar Sharma — Chairman, Managing Director, and Chief Executive Officer

Yeah. Important thing that I want to add to what Bhavesh is saying, Suresh, here is that our internal PPI is that as soon as you start crossing two-digit of their disbursement, we start to make it that we need to add or divert transactions or request soft loan disbursement to some other people. So, our continued aim is to remain single-digit distribution of their overall book.

Suresh Ganapathy — Macquarie — Analyst

Okay. And then this 2 and 5 that you’re talking about, HDFC Bank is not included, right, because they are just a credit card partner?

Bhavesh Gupta — Chief Operating Officer

No, they’re included, because credit card while we book that in our cloud revenue, it is a business which is driven in — with our lending partnerships, and we also are currently in conversation with not just HDFC but other banks, to do more credit card distribution and loan distribution. So, we kind of not differentiate between the port businesses when it comes down to banks.

Suresh Ganapathy — Macquarie — Analyst

Yeah. But then, Bhavesh, then this is 1 and 5 and not 2 and 5, because HDFC Bank doesn’t give a single rupee of that INR5,000 crores of loans that you have disbursed this quarter, right? I mean, this month, rather?

Bhavesh Gupta — Chief Operating Officer

Yeah.

Suresh Ganapathy — Macquarie — Analyst

So, in that — so, it’s effectively six partners giving you that INR5,000 crores that month and not seven partners, because HDFC Bank doesn’t have any lending relationship with you guys?

Bhavesh Gupta — Chief Operating Officer

That’s one way to look at it. But we have, with each partner, including the bank, we have agreements to do multiple products, but it is a sequence of events that we go with. Currently, we’re going cards, but obviously, in the future, not just with HDFC, but with other banks also we intend to do loan businesses with them. It’s just how technologically we want to sequence and scale up with each partner.

Suresh Ganapathy — Macquarie — Analyst

Okay.

Bhavesh Gupta — Chief Operating Officer

[Speech Overlap] that if you were to do mathematical assessment, mathematically, we can divide it by five or six it’s partners that we currently are doing the INR4,400 crores of business.

Suresh Ganapathy — Macquarie — Analyst

Yeah. So, that comes at almost 20% per partner, right, on an average, if you have to do the simple math. So, that’s the only concern there. Okay. No problem. It’s fine. It’s pretty clear. Thank you so much.

Bhavesh Gupta — Chief Operating Officer

The only clarification also, Suresh, here is that as you understand it equally well, while on gross disbursement, this is — it may appear that we are doing, let’s say, INR1,000 crores or INR800 crores per partner, but because 50% of the business is split in Postpaid, and it just runs up in 30 days, from a purely EUM-origination perspective, the number is 5% to 6%. So, it is not a contribution at all.

Suresh Ganapathy — Macquarie — Analyst

Yes, that’s clear. That’s fine. Okay. Thank you so much.

Bhavesh Gupta — Chief Operating Officer

Thank you, Suresh.

Suresh Ganapathy — Macquarie — Analyst

Bye-bye.

Operator

Next in queue is Bhavik Dave from Nippon. Bhavik, your line is unmuted.

Bhavik Dave — Nippon — Analyst

Yeah. Hi. Am I audible?

Operator

Yeah.

Bhavik Dave — Nippon — Analyst

Yeah. Congratulations on a good quarter. Just three questions. One is on the operating expenses and the, especially, the indirect expenses that we have. The INR1,000 crores number, we have kept it like flat for like four quarters now. Just wanted to understand how should we think about it? Can this be controlled and grow in a reasonable way versus the revenue? Just wanted to understand, as a percentage of revenue, it’s come off from 60% to 45%. How do you think about this line? That’s question number one.

Madhur Deora — Executive Director, President & Group Chief Financial Officer

So, Bhavik, a couple of points on that. So, one is on employee cost. We do have appraisal impact in Q1 of every year. That’s something that will be there and which should be factored in. The second is, like Vijay mentioned, given how well our monetization and things are working, both on payments, on lending, as well as in commerce and cloud, and the way our contribution margin and EBITDA is growing, we do see opportunities to continue to invest in merchant acquiring sales team, as well as on marketing side. But we’re not going to grow this — we’re going to grow this in line with revenue, or not, obviously, not as fast as revenue, but we’re going to grow this to support revenue and to make sure that monetization is coming out of that as opposed to significantly ahead of that. So, as we grow as a platform, we will make investments in sales, marketing, and obviously, technology. And plus the appraisal impact. But we’re very conscious that we want to get to higher EBITDA profitability and cash flow profitability. So — and we believe we can do both of these things in line with each other.

Bhavik Dave — Nippon — Analyst

Great. That’s useful. Just one understanding clarification. In terms of promotional and cashback incentives, and I see that number quarter-on-quarter has come off. Is it like purely seasonal or is there something more to lean into it, because MTU and devices and all other things are growing, and customer acquisition is quite healthy, but this promotional incentive number obviously, we can’t compare it with last year or two quarters back because we had the payment processing bit that was declassified. But from a quarter-on-quarter basis, it’s just purely basis the seasonality, right? That’s the way to think about it?

Madhur Deora — Executive Director, President & Group Chief Financial Officer

Actually, a little bit of seasonality in there, because in Q3, when we have festive-related sales, we do support some of our online partners and those sorts of things. So, there’s a little bit of seasonality in there. But I think it is also fair to say that we’re very sharp about the promotional cashbacks as a company. And so, we do think that unless something dramatically changes on the monetization side, taking the number of something like 2.5 bps to 3 bps is probably the right — sort of right level for our scale.

Bhavik Dave — Nippon — Analyst

Understood. And sorry, I just [Indecipherable] The other expenses part, like that number remains reasonably elevated. What exactly would be the one or two large elements of that INR190 crores odd that we had this quarter?

Madhur Deora — Executive Director, President & Group Chief Financial Officer

Yeah. I’d assume you’re referring to other direct expenses?

Bhavik Dave — Nippon — Analyst

Yes, correct.

Madhur Deora — Executive Director, President & Group Chief Financial Officer

So, part of it is because of the events business like I mentioned earlier, that in the events business, there are certain events that we do where we have very high take rate, but we also have very high direct expenses. So, all those events are profitable. But — so in the last quarter and this quarter, you would have seen an elevation in that. Seasonal — if this revenue from events goes down in Q1 and Q2, then you’d also see a reduction in other direct expenses. So, that’s one part of it. The second part of it is some of the collection costs related to the lending business also goes there. So, while we’d be more efficient in collections overall, but because we have the scale-up of the amount of disbursals and amount of collections that we do, some of the costs related to that also go into other direct expenses.

Bhavik Dave — Nippon — Analyst

And the event-driven revenue line items will come into almost there, right? You’ve not seen any major increase there this time around. So, I was just wondering the cost maybe is a little treated up higher than what you would have anticipated. And sorry, one last point on this same, on the expense front, is the sales employees force that we have is like now normalizing in the 28,000, 29,000 odd number of people. The productivity remains broadly, I’d like, 12, 12 devices from one kind of number for each individual. Do you think that this number will remain in the 28,000, 30,000 range, or will increase materially from here? Like is — are we having the right line number of people to add that one million odd devices every quarter? Is that the fair way to think about it that they are reasonably productive and this is how it will go about or it can be improved from here?

Madhur Deora — Executive Director, President & Group Chief Financial Officer

I’ll let Bhavesh answer that.

Vijay Shekhar Sharma — Chairman, Managing Director, and Chief Executive Officer

[Speech Overlap] Bhavesh, I must say, meticulous math. So, over to Bhavesh.

Bhavesh Gupta — Chief Operating Officer

So, Bhavik, the productivity obviously is an area that we continue to work on. And it’s — our business is more of a function of technology, how much technology we can give to our front-end sales that their time to onboard a new merchant is faster, right? And that’s a very large area of focus that we’re able to bring in. And I can tell you some metrics that it used to the X number of minutes and that was dropped by 20% and every quarter we intend to bring it down. That’s the product that we keep building on. But what we’ve seen here is that both our expansion in geography, that demand for a product like soundbox in Tier 3 and Tier 4 is also very large. So, we will not only drive more productivity as we’ve been driving, but we’ll also are now expanding, and hence our belief here is that these 1 million boxes that we were able to grow last year secularly, this number can be moved a bit more. And if it is an opportunity, and we believe that there is, we’ll expand our sales even further.

Bhavik Dave — Nippon — Analyst

Perfect. And last question, sorry, the data point on subscription revenues, what will be that number this quarter, we were in that INR170 crores, INR180 crores range, INR180 crores odd range, where will be this quarter?

Madhur Deora — Executive Director, President & Group Chief Financial Officer

So, it continues to inch up with — not inch-up, it continues to grow with the number of devices deployed. So, it has gone up about 14%, 20% quarter-on-quarter.

Bhavik Dave — Nippon — Analyst

Great. That’s very helpful. Thank you so much, Madhur. Thank you.

Madhur Deora — Executive Director, President & Group Chief Financial Officer

Thank you, Bhavik.

Operator

The next question we’ll take is from Sachin Salgaonkar from Bank of America. Sachin, your line is unmuted.

Sachin Salgaonkar — Bank of America — Analyst

Hi. Thank you for the opportunity. I have three questions. Firstly, Madhur, would like to understand what is the kind of a steady-state contribution margin and steady-state adjusted EBITDA margin one could look, because clearly, you guys are seeing a strong improvement in contribution margin, even at this quarter, you even adjusted for the accounting change you’re seeing a bit of a margin improvement. So, I just wanted to understand that.

Madhur Deora — Executive Director, President & Group Chief Financial Officer

So, I think on the contribution margin, Sachin, we have come a long way from where we were even two years ago to now. And we believe that payment profitability and the mix of lending — we don’t believe, that’s — the payment profitability and the mix of lending has contributed to that. So, we think that on contribution margin, this is probably roughly the right level with some room for improvement with — in both on payment side as well as from lending, just because of the mix effect of lending growing significantly faster than payments or commerce and cloud. So, we think we’ll see some upward trends there, but it won’t be as sharp at all as we have seen in the last year or two.

On adjusted EBITDA, it’s hard to sort of talk about a steady-state because now we have sort of reached this level where we have a certain amount of revenue, call it $1 billion for last year, INR8,000 crores for last year, and about INR9,000 crores for the last quarter run rate. We have 50% contribution margin. And we have a certain fixed-cost base. So, then it just comes down to operating leverage in the business, which we think is very, very significant going forward, because almost everything that we have built this technology line and there is significant amount of efficiency that you can get out of that. So, I think that operating leverage story will continue for many, many, many years, which is also to say that adjusted EBITDA should continue to move upwards for many, many years as long as we’re seeing operating leverage.

Sachin Salgaonkar — Bank of America — Analyst

Okay. So, Madhur, to look at it the other way, in next couple of years, there’s room for this margin to — adjusted EBITDA margin to move to around 10% plus?

Madhur Deora — Executive Director, President & Group Chief Financial Officer

I don’t want to give a specific number here, but yes, there is room for adjusted EBITDA margin to keep moving up as we get more and more operating leverage. What I know is that our projections for this year, I assume, significantly higher revenue growth than indirect expenses growth, right? So, when you sort of put that in the model with, even if you was steady-state contribution margin, even if we don’t assume any improvements in that, it translates into meaningful EBITDA expansion.

Vijay Shekhar Sharma — Chairman, Managing Director, and Chief Executive Officer

So, I’ll take the next level, Sachin, here that the word that I used in the beginning of the call, AGI, which is towards artitficial general Intelligence, which means that a lot of work that humans do for us from onboarding to the customer care to the fraud detection, to the — every decision that we make, there is a large operations team also we have. And I’m going to say, not only those will get efficiently done using the AGI that we are adding mass machines, it will also make us scale to another level of solutions. And now, I also see trends where other companies which have not been able to scale a technology like this, they are starting to falling behind us. In other words, the — we will become scalable with not linear costs, and the market will grow and competition will probably reduce to fewer players. That is why Madhur is saying that there is a space for improvement.

Sachin Salgaonkar — Bank of America — Analyst

Got it. Pretty clear, Vijay. Second question, when we look at your depreciation and amortization, clearly, we’ve seen a sharp increase on a Y-o-Y basis. And I understand it’s mainly on the back of soundbox. And to earlier, Bhavik’s question, I guess you guys gave a bit more clarity in terms of the outlook of the soundbox. So, is it fair to assume that this number will continue to increase, or are we coming at a point where this might peak at some point maybe this year and then it would stabilize?

Madhur Deora — Executive Director, President & Group Chief Financial Officer

We do depreciate devices for financial accounting purpose quite aggressively. So, two years in the case of soundbox and three years in the case of devices, which we also think is significantly more aggressive than the useful life that we can get out of these devices. And as a result, we have seen this big increase and depreciation with the scale at which devices have grown. We do have extremely ambitious plans to continue to expand devices in the country over the next two or three years. We think that there is clear runway to be able to do that. So, I think depreciation number itself you should expect for that to sort of continue to grow. Last year, it grew 100% year-on-year. So, clearly, it wouldn’t grow at that level, but you should expect that capex translating into depreciation will be a factor in our net income.

Sachin Salgaonkar — Bank of America — Analyst

Got it. And last question, I wanted to know your thoughts on the recent commenced RBI on credit on UPI. How could we look — what could be the impact of that on the overall Paytm business?

Bhavesh Gupta — Chief Operating Officer

See, Sachin, it’s a very welcome move in totality. The fact that India has significant opportunity for small-term credit. Any disbursement which can be made more frictionless and seamless, which is what the intention of Reserve Bank of India is, to allow overdraft accounts to be used to link on a UPI rail and hence, users can go out and scan QR and kind of consume the credit, is a fantastically welcome move. What is yet to be clear is the commercial architecture around it, what is currently known on the previous product which is overdraft on UPI rails. The MDR was similar to credit card. That adoption has been much lower. But I’m assuming, looking at credit card on UPI, if we look at that commercial in which you have less than INR2,000 as free, etc., if that commercial understanding was also on credit on UPI, then we could see some adoption happening in this area. And as an acquirer, we will only benefit with more funding sources getting added to the UPI QR payments. So, we welcome this move.

Sachin Salgaonkar — Bank of America — Analyst

And Bhavesh, do you see competition increasing in the back of it?

Bhavesh Gupta — Chief Operating Officer

Competition in terms of credit?

Sachin Salgaonkar — Bank of America — Analyst

Yeah, more banks and now anyone could sort of give a credit on UPI, right, so on that back of that?

Bhavesh Gupta — Chief Operating Officer

Yeah. So, we don’t give credit on UPI because our partners and NBFCs who are yet not allowed to give credit on UPI, I’m assuming it will come over a period of time. But I guess as I said, that the, there is — we don’t see the competition is going to the increase or decrease. There is room for very, very large number of players in this space. We’ve been trying to achieve this objective through proprietary engagement with our partners for Postpaid. If tomorrow, there is more acceptance of credit on UPI, it is only going to make the product more meaningful, even Postpaid for us. So, I think it’ll only expand the market, it’s not going to bring more competition.

Sachin Salgaonkar — Bank of America — Analyst

Got it. Thank you. All the best.

Bhavesh Gupta — Chief Operating Officer

Thank you.

Operator

Thank you, Sachin. Given the current queue of questions, we’re going to extend the call by 20 more minutes, and take as many questions as we can in that time. The next question is from Mr. Saurabh Kumar from J.P. Morgan.

Saurabh Kumar — J.P. Morgan — Analyst

Hi. Just two questions. So, one is just on this contribution margin, so if we exclude the UPI incentive this quarter, then your margin has not gone up quarter-on-quarter despite the mix improvement. Is that a fair understanding?

Madhur Deora — Executive Director, President & Group Chief Financial Officer

Yeah. I think it’s fair that contribution margin has been flattish Q-on-Q.

Saurabh Kumar — J.P. Morgan — Analyst

Okay. The second is this — of your devices, the activation rate, what should we assume as the activation rate?

Bhavesh Gupta — Chief Operating Officer

So, we have given this number. Soundbox oscillates between 80% to 85%, and that’s been a consistent number. That number hasn’t reduced in spite of the scaling that business.

Saurabh Kumar — J.P. Morgan — Analyst

Okay. So, what I’m trying to calculate is basically the remaining 80% are giving you INR100 rentals?

Bhavesh Gupta — Chief Operating Officer

If you — no. So, there are two ways to look at it. When we look at rental active, that number is above 90%, closer to 90%, 92%, because there are merchants who are happy to give you rental but they may not be active every month in QR payments. But if you’re talking activation as the we track it, we don’t track only rental activation, we track the transaction activation. That number is closer to 84%.

Saurabh Kumar — J.P. Morgan — Analyst

Okay. One last question…

Bhavesh Gupta — Chief Operating Officer

[Speech Overlap] need to take it 90%.

Saurabh Kumar — J.P. Morgan — Analyst

Okay. I’ll take this offline. Last question is basically this payment services to consumers, so this would include the 1% MDR of BNPL, right?

Madhur Deora — Executive Director, President & Group Chief Financial Officer

No. The Paytm Postpaid MDR depends on which merchant you’re getting it from, right? So, if you’re using Postpaid on the Paytm app, then it would come in payment services to consumer. If you’re using it at one of our third party online merchant partners, or if you’re using it at an offline shop, and that shop is paying us an MDR, then that would come in payment services to merchants.

Saurabh Kumar — J.P. Morgan — Analyst

Okay. Got it. So, the — I mean, this lower growth that we see in payments…

Vijay Shekhar Sharma — Chairman, Managing Director, and Chief Executive Officer

Consumer side sort of is when, let’s say, you are making a credit card-based payment to someone, let’s say, rent payment, and obviously, the using party wants INR100 of INR100, then we’ll say that, okay, you pay this out. So, when consumer pays, that is called [Technical Issues]

Madhur Deora — Executive Director, President & Group Chief Financial Officer

Sorry, just to clarify, that any transaction that is happening on the Paytm app — so we’ve explained that in the pyramid in our investor presentation, you can see, Saurabh. So, if a merchant is collecting the payment on the Paytm app, then — and they’re paying us an MDR for it, so it could be mobile top-up, it could be electricity bills, and large sort of payments, large sort of categories of payments, then that is payment services to consumers, because the offering is the consumer app. Whereas if we are doing the transaction at a merchant shop, or the merchant app, then we consider it as payment services to merchant. So, the MDR also works on the same basis, which is that if it’s for a transaction that happened when a merchant was collecting a payment on the Paytm app and they’re paying us an MDR, or the consumer is paying the fee, like Vijay said, then that would be payment services to consumers. And both of [Speech Overlap]

Vijay Shekhar Sharma — Chairman, Managing Director, and Chief Executive Officer

Yeah. And both are actually the merchant is paying, consumer is paying. That is why if you notice in the presentation, this time, we have called it payment services, because too consumer or too merchant was a little confusing, because if, let’s say, you are a merchant and let’s say you’re Airtel and you’re selling top-up on Paytm consumer app, you effectively are paying the fees, like Airtel is paying the fees. But on Paytm app, we used to call it consumer payments. So, in the business presentation if you notice, we called it payment services this time, because we believe that consumer or merchants split do not necessarily help understanding the nuance that we at the time of IPO had split, although the table below, disclosures carry this bit.

Saurabh Kumar — J.P. Morgan — Analyst

Okay. So, I was just trying to figure out the core growth with ex-the soundbox and this MDR. So, that number seems to be more like 20% odd. Is that a fair number? I mean, this has kind of stayed static for last four quarters [Speech Overlap]

Madhur Deora — Executive Director, President & Group Chief Financial Officer

Sorry, which number are you looking at, Saurabh?

Saurabh Kumar — J.P. Morgan — Analyst

No, so I’m just trying to back-calculate from your payment revenues of INR1,400 crores, if this is whatever you have said the MDRs that you get on the merchant fees, and — sorry, the Postpaid MDR and the soundbox rental, then your core payment revenues have kind of remained at that INR1,000 crores ballpark every quarter, for the last four quarters.

Madhur Deora — Executive Director, President & Group Chief Financial Officer

I can’t quite follow that math you’re talking about.

Saurabh Kumar — J.P. Morgan — Analyst

I’ll take this offline.

Madhur Deora — Executive Director, President & Group Chief Financial Officer

Yeah. Thank you.

Operator

Thank you, Saurabh. Next in queue is Nitin Aggarwal from Motilal.

Nitin Aggarwal — Motilal Oswal — Analyst

Hi. Am I audible?

Operator

Yeah, Nitin.

Nitin Aggarwal — Motilal Oswal — Analyst

Yeah. Hi. Congrats on good numbers. So, first question is like on the device penetration, we have now achieved 20% penetration rate. And so, what is the acceptance rate for a device when you approach a merchant? And do you have an order book for this which gives you a sense on how fast you should go on to invest here? And when this penetration can move like in few years from here?

Bhavesh Gupta — Chief Operating Officer

So, Nitin, the pipeline is fairly simple. We’ve got about 30 million, 3 crore merchants who are paper QR merchants, and as you know, give or take, 60 lakh soundbox merchants. The difference, as you can imagine, are potential merchants who can take soundbox. And at any given point in time, we do not see all 3 crore merchants active, but a large majority of them are active. We have seen that any merchant who does more than 25, 30 payments on the QR on a monthly basis, finds having an IoT device like soundbox meaningful for their business performance and relationship. So, that funnel today, as we said today in this month, will be about 60 lakhs, 70 lakh more merchants who our team, or would be eligible to take the product like soundbox. So, there is no demand issue that we see in our system of the product called soundbox. What is more important to us here is that we do find more innovation as an ask in the marketplace, because there are various different kinds of merchants, merchants who want smaller soundbox, larger soundbox, to a soundbox which can have very, very low latency. That’s the reason we launched the 4G soundbox, etc. And that is where our entire focus is. But purely from a funnel perspective, we have 50 lakhs, 60 lakhs merchants who are currently eligible who can — could do that many number of transactions which makes soundbox a correct product for them.

Nitin Aggarwal — Motilal Oswal — Analyst

Okay. And secondly, is there any seasonality in the GMV, the growth rate, if I look at sequentially this quarter, looks relatively modest?

Madhur Deora — Executive Director, President & Group Chief Financial Officer

Yes. There’s seasonality. I mean, there is not a massive amount of seasonality, but there is seasonality in the business, particularly if you’re talking about GMV, particularly in relation to a festive season. And so, during Diwali and Big Diwali, we do see pre-Diwali, we see online merchants running obviously large events and festivals, shopping festivals. And as you get closer to Diwali, there is a sort of spike in business in the offline side of things. So, there is seasonality and to — not to further complicate the matter because Diwali also moves, that seasonality maybe seen entirely in Q3, or in some years, it is seen partially in Q2 and partially in Q3. So, that is the seasonality impact that we see in the business. There is other seasonality related to weather and so on, which is not significant.

Nitin Aggarwal — Motilal Oswal — Analyst

Okay. And lastly for calculation of Postpaid penetration, should we not take number of loans originated every quarter to quarterly average MTU because the current methodology seems to be understating the penetrating rate?

Bhavesh Gupta — Chief Operating Officer

No. So, Niting, the we say this piece is that we’ve got quite close to about 80 lakh odd users who have taken Postpaid, but of the 80 lakh users, we see about 1 million users who are not eligible to take their credit line because of various delinquencies that have the demonstrated in the system. So, basically, we see about 45 lakh odd users who are using Postpaid every month. But if you blend it out for a quarter, it will be 40 lakhs and MTU that we are looking at is about INR9 crores, etc. So, that’s the way we calculate it. But our macro point rather than getting into it is 4.5, or let’s say, 7.5, the headroom for growth is very, very large, right? Even if we were to do the math on gross-to-gross basis, the headroom would be very large.

Nitin Aggarwal — Motilal Oswal — Analyst

Right. Okay, sure. Thanks so much. And wish you all the best.

Madhur Deora — Executive Director, President & Group Chief Financial Officer

Thanks, Nitin.

Operator

Next in queue is Rahul Jain from Dolat Capital. Rahul, your line is unmuted.

Madhur Deora — Executive Director, President & Group Chief Financial Officer

May I request. We do have a few other folks who want to ask a question. Yeah, so…

Rahul Jain — Dolat Capital — Analyst

Yeah. Hi. Can you hear me?

Madhur Deora — Executive Director, President & Group Chief Financial Officer

Yeah, we can. Rahul, given we have quite a few folks still in Q&A [Speech Overlap]

Vijay Shekhar Sharma — Chairman, Managing Director, and Chief Executive Officer

Actually, why don’t you add to the main room so that we can just say when this all initial part is sorted out, because I’m sure they will not speak but would be allowed to speak so that they can quickly come back. Yeah, Rahul, go ahead.

Rahul Jain — Dolat Capital — Analyst

Sure.

Madhur Deora — Executive Director, President & Group Chief Financial Officer

[Speech Overlap] restrict maybe yourselves to two questions. Thank you.

Rahul Jain — Dolat Capital — Analyst

So, I have two question, I’ll ask it one-go to save the time. So, firstly, on the Postpaid, we have seen that the value of usage has increased multifold over four, five quarters. So, is it simply because of higher limit that we have given to them, or is it because of increased touchpoints, or we are observing incremental preference of consumer using the credit option instead of debit on their bank account? And what are the incremental innovation we could do to leverage on this trend if it is shaping up? This is question one.

And secondly, if you could add most flavor to Bhavesh’s comment on the realignment of growth in the loan distribution business over — it’s more toward profitability. I think that is what he said. And also if, from the point of view of how the immediate TAM or growth potential changes with onboarding of new partners on the lending side? Any thoughts here would help. Thank you.

Bhavesh Gupta — Chief Operating Officer

Sure, Rahul. Rahul, the growth of Postpaid is a function of three aspects. One is how many places Postpaid is accepted. If you go one year back, this number would have been about 30 lakh, 40 lakh merchants, and today, we’ve got 1.9 crore merchants. So, the fact that we’ve been consistently working with our merchant and merchants to make them aware of Postpaid as a product both online and offline, the more acceptability of the product, the more usage of the product becomes a natural outcome of the entire thing. So, that has led to growth.

The other piece here is that as the portfolio has matured and the lenders have got comfortable with the way the portfolio has performed, they have gone and upgraded the limits to people who had lower limits. And hence, the overall limit, average limit per user has gone up by 30%, 40%, resulting in the overall GMV also being increased. And number three, the piece here is that we’ve also seen the adoption of the user, which — who are adopting it maybe only for one use case or two use case, now adopting for multiple use cases because the visibility on the product, and generally, now that you are sitting with almost 70 lakh, 80 lakh users, there is a network effect, if I may use the word, which has started to it out. So, we will continue to see this growth happen. It may not be as much as we’ve seen in the last year because coming out on a small base. But, yeah, we don’t see — we have not taken — if I may use the word, our partners have not taken any additional risk to go ahead and give more limits, etc. It’s just the overall network has become far more meaningfully positive for the users.

To your other question about my comment, so we’ve been maintaining this right from Quarter 1 and Quarter 2 when for the first interest rate cycle started to move up. Our belief has always been that the strength of Paytm model is not just be able to give the best quality portfolio to our partners in our platform, but also be able to give them the portfolio which is palatable to the risk appetite in a moving macro environment. Now, given the macro in the last maybe 12 months, you’ve seen repo move at 2.5%, there is always an issue of unsecured credit in a higher interest scenario on a lag basis. And we’re very, very mindful and continue to work with our partners at how we should look at the change in macro and calibrate growth so that we do not have any slippages in the portfolio. In fact, we have demonstrated that we want to make a portfolio better. In that backdrop, our belief here is that we would like to be a lot more watchful in Quarter 1 and Quarter 2 when we will see elevated interest rates may not be more repo rate increase than you’ve seen thus far, but definitely elevated interest rates, and how does the portfolio that we originated in the last two quarters perform in the Quarter 1 and Quarter 2 of this year. And if we see that the performance of portfolio is as par or better than what the lenders are anticipated, we will see far higher growth in H2 versus what we intend to do in H1. So, it is not that we are going to go into very low growth. But if we were growing at 25% quarter-on-quarter, we would like to calibrate to maybe 15%, 20%, and make sure that the portfolio obligation is far, far more demonstrated through our distribution platform once just the GMV disbursement.

To your third question, about the TAM. I think the TAM expands marginally because the kind of partners we bring on the platform are all very, very large NBFCs. As you know that our intention is to bring in banks and large NBFCs. Typically, these are AA, AAA NBFCs. And we don’t see much material difference in the risk appetite. What we definitely see here is that the intention of Partner A versus Partner B in expanding in certain geographies tends to be a bit higher. So, we get maybe a couple of percentages point higher upside in terms of the opportunity that we were not able to leverage without existing partners. That’s the only upside. But more important to us here is it provides us a nice runway over the next six to nine months as the book matures with new partners on their comfort in growing with us, which typically is the area that we continue to focus in this year.

Rahul Jain — Dolat Capital — Analyst

I appreciate it. Thank you.

Bhavesh Gupta — Chief Operating Officer

Thanks, Rahul.

Operator

Thanks, Rahul. Next in queue Piran Engineer from CLSA. Piran, your line is unmuted now.

Piran Engineer — CLSA — Analyst

Yeah. Hi. Thanks. So, most of my questions have been answered, but just to follow up on the soundbox thing. So, Bhavesh, you were saying that the potential size or the overall pool would be about 13 million, 14 million merchants, and the sort of cutoff limit is 25 to 30 transactions per month on your QR code. Is that fair?

Bhavesh Gupta — Chief Operating Officer

Yeah. So, not on my QR code. Yeah, we have data, so we generally believe that if you are not a soundbox merchant and you are a QR merchant, typically, you will have two QRs. And if you’re doing, let’s say 25, 30 transactions with me, you might be doing similar or marginally lower transactions with somebody else. But broadly [Speech Overlap]

Piran Engineer — CLSA — Analyst

Fair enough. But that’s like big one transaction a day. Why will a customer need a soundbox when he’s like doing one transaction a day? [Speech Overlap] will The exact idea of soundbox was to provide convenience when you’ve got multiple customers at your shop, everyone’s paying you at the same time. And that just gives you the ease of handling overall transactions. One transaction per day [Foreign Speech] why will I pay?

Bhavesh Gupta — Chief Operating Officer

The — it ends up being two transactions in a day. But that is a — that is not a point. We have seen, that doesn’t mean that everybody who takes a soundbox is taking it only on one transaction. We have seen at that point in time becomes a pitch point, we’ll start engaging. And these merchants, when I’m talking about 50 lakh, 60 lakh merchants available who do more than 25, 30 transactions a month with us, they become eligible. We are able to convert about 1 million of these merchants in a quarter. Not all the 60 lakh merchants in a quarter. So, this is an eligible list, and obviously, there’s a funnel that the people who are doing 100 transactions or 150 transactions a quarter find it meaningful.

The other piece here is, it is also very well demonstrated frauds [Indecipherable] right? So, if you look at a guy who’s selling, let’s say, ice creams, they also have a soundbox. It is not about the number of transactions. It is one in a day or two in a day. They do get unfortunately hit by frauds with spoof apps, etc. is in that we’ve seen, if people are able to show them wrong messages on a static screen, on a spoof app, kind of not pay them and they have no way to understand whether the money is coming into their bank account or not. So, by paying INR100 rupee of rental, they’re able to protect themselves also from frauds, not just that they have a more convenient way to reconcile. So, it’s more of a market dynamic, and hence, it makes us believe that when we look at the funnel, we have a large funnel which keeps getting converted into every month. And if I was to say for the month of April, we have seen that demonstration again happen, that we were able to deploy the same number or marginally higher number than what we did in March.

Piran Engineer — CLSA — Analyst

Fair enough. And I understand the run rate is going strong. I’m just thinking about the TAM. But that’s okay. And secondly, again, just on the TAM on the lending business, now we have 80 lakh, 90 lakh BMPL guys, But just in terms of say PL and merchant loans, in terms of number of customers, what could be the TAM three years down the line? And also in the lending business, how often do commercials between you and the lenders get revised, be it for cost of funds going up and down, or be it for ECL being better or worse than expected? Like does it get revised? Does it [Indecipherable] How does that work?

Bhavesh Gupta — Chief Operating Officer

Yeah. So, Piran, we don’t — we have a six-month revision of commercials that we do with our partners. Thus far, because the repo has gone up significantly, so that has been transmission of both repo and some commercial changes we do. But yes, simple answer is that we contractually review commercials every six months. And that is what we have seen. It can be for the better. very rarely it’s for the worse. Obviously, during the repo increase, we have to calibrate interest rate both what the lenders charge the users. And obviously, the RO expectation they have.

To the TAM question that you had, the PL TAM is linked to what we’ve seen thus far that — to the BNPL growth. 60%-ish or 55% of our disbursements that our partners do is happening to existing BNPL customers. And that funnel is only becoming robust on a month-to-month basis as the book is maturing. So, if you were to be sitting on, let’s say, 40 lakhs or 50 lakhs active users of BNPL in a quarter, we do find that almost 1 million or 1.5 million users of that funnel are eligible for PL. And then the 50,000, 60,000 of them keep taking PL through the funnel. So, the more and more we are able to grow our Paytm Postpaid business, the downstream impact is on PL, which continuously keeps growing and that has been demonstrated. So, there is less focus on straight-through PL coming into the lender’s book. There is more focused on it, getting upgraded through either a merchant loan or a BNPL loan, or an existing personal loan, PL. So, I don’t think we have at all a problem on the TAM of PL. It is extremely small as a number today and it is linked to the entire post-payments [Indecipherable]

On the merchant loan side, the TAM is linked to the devices. We have so far, if my stands right, we have so far given about 600,000, 500,000 to 600,000 merchants over the last 2.5 years merchant credit. We have 60 lakhs odd merchants who have devices. And I think I’ve spoken about this math in the past, that it typically takes six months for a device merchant will be done eligible for credit in the location that we are in. So, if you look at this number, this — typically, the base of merchants who can be eligible is about 40 lakhs-ish, 45 lakhs-ish, of which 5 lakhs have already got the credit. So, remaining base is 30 lakhs, of which half of them are whitelisted by our partners to take credit. And we are able to disburse 70,000, 80,000 merchants, maybe more closer to 90,000 merchants every month. So, again, it is linked to the devices story. More devices we are able to deploy, more merchants get eligible for credit. And that TAM is obviously very, very high for us.

Piran Engineer — CLSA — Analyst

Okay. Got it. Thank you and all the best.

Bhavesh Gupta — Chief Operating Officer

Thanks, Piran.

Operator

Thanks, Piran. Next in queue is Vijit Jain from Citi. Vijit, you can ask a question, please.

Vijay Shekhar Sharma — Chairman, Managing Director, and Chief Executive Officer

Keshav, we can add another person because Vijit seems to be having — he came in the room, please.

Madhur Deora — Executive Director, President & Group Chief Financial Officer

We can always come back to Vijit later if he would.

Operator

Next in queue Himanshu [Phonetic] from Axis. Himanshu, your line is unmuted.

Himanshu — Axis Mutual Fund — Analyst

Yeah. Hi, sir. Thanks for the opportunity. Just most of the questions has been answered. Just two small quick questions. One is when you talked about this, the growth drivers of the launch of the new tech platform, what is the cost of upgradation to this and how much you have accounted in the quarter? Secondly, how much and how we are going to see this in the coming quarters as well, how it is going to spread these costs in the coming quarters as well? Second part to this question is, is it — just need a clarity, is this cost is part of your indirect expenses?

Madhur Deora — Executive Director, President & Group Chief Financial Officer

Sure. So, Himanshu, if I can just clarify. The cost of building the new platform was in people cost. And that cost we’re not incurring anymore. Obviously, those people are now deployed to other projects like Vijay mentioned. And the cost of operating the platform going forward is significantly less than the cost of our existing platform at scale. So, there are two differences that we get, which is that over the last year, we were running effectively two platforms, because we were — not all of the transactions are migrated from the old platform to the new platform. So, there’s some efficiency improvements that we get as a result of now running on a single platform. And that impact you will see in software cloud expenses. And like I said, the running cost of the new platform will be lower than the running cost of the biggest platform.

Himanshu — Axis Mutual Fund — Analyst

Sure. Thanks for the clarification. My another question is this wallet interoperability guidelines, just trying to understand how this is going to increase the use case for the revenue on the payment side, payment business? And since you mentioned that whatever come, it is at least two quarters away. So, if you can just give us the — how — what is the scope and the opportunity here?

Bhavesh Gupta — Chief Operating Officer

Well, what it means is that Paytm full KYC wallet customers will be able to make payment at the above places and the QR provider will make payment to us. Now, what is the market, if you assume that Paytm is accepted at X percentage of the market, the pro rata X substantially, etc. could be the market opportunity. But to be honest about it, we don’t put this kind of mathematics because the increased acceptance, increases the customers to accept, etc. So, we have not done this math, Himanshu. And we are two quarters away, so we are not doing this math, or we are not looking to see. We will see it as it comes.

Himanshu — Axis Mutual Fund — Analyst

Sure, sir. Thanks.

Operator

Thank you. Next in queue is Mr. Akshay Jain from JM Financial.

Akshay Jain — JM Financial Ltd. — Analyst

Hi, sir. Thank you for the opportunity. I have a question regarding the recent news reports that RBI has cautioned the banks to go slow on the unsecured lending side. So, what are your thoughts on the same? And any potential impact on Paytm? Or, further, have you received any communication from RBI or your lending partners regarding this thing? That’s my only question.

Bhavesh Gupta — Chief Operating Officer

Yes. We’ve also had read the report. I’m sure that from time to time, the regulator will guide the industry, especially, banks and non-banks, to be mindful of the changing macro. And that’s the reason we have preempted it always that the moment the interest rate environment, inflation environment, the macro changes, there has to be far more conservatism built into our business models and we should be focused on portfolio versus growth. So, having said that, we have not got any confirmation or any kind of guidance from our partners that they are worried about the kind of portfolio we’re originating. We continue to originate the portfolio as per the risk appetite. But as I said in my previous conversation, we are mindful far more proactively of the changing macro and the overall growth of unsecured and the overall portfolio. And hence, we continue to calibrate the growth versus the portfolio mix that we would like to give our partners too. But we have no guidance from our partners. Our partners feel very comfortable with the portfolio [Indecipherable]

Akshay Jain — JM Financial Ltd. — Analyst

Okay, sir. Thank you.

Madhur Deora — Executive Director, President & Group Chief Financial Officer

Thank you, Akshay.

Operator

Thank you, Akshay. Next in queue, we’re trying again, Mr. Vijit Jain from Citi.

Bhavesh Gupta — Chief Operating Officer

Vijit, unmute it.

Madhur Deora — Executive Director, President & Group Chief Financial Officer

Let’s go to Manish, if you don’t mind.

Operator

Sure.

Vijit Jain — Citi — Analyst

Hello. Can you hear me?

Operator

Yeah, Vijit, we can now. Thanks.

Vijit Jain — Citi — Analyst

Yeah. Sorry about that. Yeah. My question is, you’ve launched the RuPay credit card with HDFC Bank which is also in the presentation. Now RuPay credit cards are allowed on UPI, right? So, is that the key pitch here, because Master and Visa are really not allowed on UPI? And how does this play with Postpaid which is also credit on UPI?

Vijay Shekhar Sharma — Chairman, Managing Director, and Chief Executive Officer

Vijit, it is not launched and neither it is launched with HDFC. So, it is not there, number one. Number two, our pitch is that RuPay wants to promote and we want to promote RuPay, so it is the pitch. As far as the usage is concerned, the number of users we’ll reach out to will decide what incremental changes we want.

Vijit Jain — Citi — Analyst

Okay. Good. So, I saw — I think I saw that on the presentation itself. I just…

Vijay Shekhar Sharma — Chairman, Managing Director, and Chief Executive Officer

We said it’s coming soon. We have not launched it.

Vijit Jain — Citi — Analyst

I see.

Madhur Deora — Executive Director, President & Group Chief Financial Officer

So, Vijit, we’re about to — we’ll launch soon. It is a RuPay credit card. We have not said which bank partner. And of course, RuPay credit cards will be used in every manner that a RuPay credit card can be used, including RuPay credit on UPI.

Vijit Jain — Citi — Analyst

Got it. And my second question is just on the payment net margin expansion Q-o-Q. Now even excluding UPI incentive payments, you have about 60 bps, 70 bps improvement. And obviously, the BNPL disbursals this quarter are also up 30% Q-o-Q. So, net-net, is that one of the key drivers of that expansion there?

Vijay Shekhar Sharma — Chairman, Managing Director, and Chief Executive Officer

Well, it is one of the drivers, but other drivers also. Yeah. Over to Madhur.

Madhur Deora — Executive Director, President & Group Chief Financial Officer

Yeah. So, on BNPL, obviously, we have MDR revenue. We also have costs. There is some amount of increase in subscription revenue, which I think Bhavik had asked about earlier. And there is improvement Q-on-Q on what we call payment processing margin just a result of our efficiency both on the revenue side as well as on the cost side.

Vijit Jain — Citi — Analyst

Got it.

Madhur Deora — Executive Director, President & Group Chief Financial Officer

But again, Vijit, I would be slightly careful about looking at these numbers just granularly on a quarter-on-quarter basis. On a year-on-year basis, we have — and long-term basis, we have already given the guidance because there are a number of factors that go in quarter-on-quarter including usage of different instruments by customers and so on.

Vijit Jain — Citi — Analyst

Got it, sir. My last question, Madhur, Postpaid disbursement volume per quarter is about 12 million, right? Any broad indication of how many P2M transactions are happening using Postpaid as payment instruments?

Madhur Deora — Executive Director, President & Group Chief Financial Officer

Bhavesh?

Bhavesh Gupta — Chief Operating Officer

So, we actually don’t track it because it’s not a metric that is very relevant. We look at use cases. But I think in the last time when we’ve seen, this was about six or seven transactions a difficult Postpaid user does in a month.

Vijit Jain — Citi — Analyst

Okay. Got it. Thanks.

Operator

Thanks, Vijit. And now for the last question of the session, we’ll take it from Mr. Manish Shukla from Axis.

Manish Shukla — Axis Capital Ltd. — Analyst

Thank you. So, what would be the timelines for achieving free cash flow breakeven for you?

Madhur Deora — Executive Director, President & Group Chief Financial Officer

I think, Manish, if you — we have not given a specific quarter, but we have said that we are very close to achieving cash flow profitability. And just to be clear, the way we define cash flow profitability is EBITDA plus 10% income less capex. There is also in parallel improvements in working capital that we are doing. So, if you noticed over the last one year, due to improvements in working capital, And if you adjust for the money that we spent on buyback, we over the last year have actually added to our cash if you look at the March 31, ’22 number and the March 31, ’23 number. So, we have also, in parallel, improved working capital. But when we are talking about free cash flow, we’re saying EBITDA plus 10% income less capex, and we are very close to being able to do that. We only need some improvement in EBITDA going forward, not very significant improvements in EBITDA, to be able to get to free cash flow breakeven.

Manish Shukla — Axis Capital Ltd. — Analyst

So, once you get there, what would be the end use of the cash on books?

Madhur Deora — Executive Director, President & Group Chief Financial Officer

We will discuss that with our board and we will communicate sort of what is — what that is. At the moment, we do feel like we have a lot more cash than we have immediate use for. One of the things that we have done in the past is discussed with our board and returned some of that in the form of buyback. So, that would be one option on the table and there would be other options with respect to any investment areas that we feel very strongly about. So, we will at the appropriate time, once we’re starting to add to the cash flow, discuss all of that with the board and communicate that back to this — the market.

Manish Shukla — Axis Capital Ltd. — Analyst

Sure. Thank you. Those are all my questions.

Madhur Deora — Executive Director, President & Group Chief Financial Officer

Thank you, Manish.

Operator

Thank you, Manish. With that, we came to an end of the Q&A session. A reminder that recording of this call and transcript will be put on the company website subsequently. Thank you all for joining our earnings call.

Vijay Shekhar Sharma — Chairman, Managing Director, and Chief Executive Officer

Thank you, everyone. Thank you. Have a you beautiful weekend.

Madhur Deora — Executive Director, President & Group Chief Financial Officer

Thank you for very detailed questions. And we really appreciate your time and attention.

Bhavesh Gupta — Chief Operating Officer

Yeah. Thank you. Look forward.