One 97 Communications Ltd (PAYTM) FY FY22 Earnings Concall Transcript

One 97 Communications Ltd (NSE:PAYTM) FY FY22 Earnings Concall dated Aug. 11, 2022

Corporate Participants:

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

Bhavesh Gupta — Chief Executive Officer Lending and Head of Offline Payments

Analysts:

Manish Adukia — Goldman Sachs — Analyst

Vijit Jain — Citi — Analyst

Rahul Bhangadia — Lucky Investment Managers — Analyst

Rahul Jain — Dolat Capital — Analyst

Praveen Mani — Kaizen — Analyst

Unidentified Participant — — Analyst

Manish Shukla — Axis Capital — Analyst

Unidentified Speaker —

Presentation:

Unidentified Speaker —

Thank you for joining, and welcome to the Q&A session with Paytm’s management on recommendations of the RBI Working Group on Digital Lending. From Paytm’s management team, we are joined by Mr. Vijay Shekhar Sharma, Founder and CEO; Mr. Madhur Deora, President and Group CFO; Mr. Bhavesh Gupta, CEO, Lending and Head of Offline Payments; and Mr. Anuj Mittal, Vice President, Investor Relations.

The information to be discussed on this call should not be recorded or reproduced by any of the attendees. Some statements on the call may be forward-looking in their nature. Actual events may materially differ from those anticipated in such statements. This call is scheduled for 30 minutes. It will have a short introduction from the management followed by Q&A. [Operator Instructions]

With this, I would request Mr. Bhavesh Gupta for opening remarks.

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

Hello, everyone. With me is Bhavesh, so…

Bhavesh Gupta — Chief Executive Officer Lending and Head of Offline Payments

Yes, hi. Good evening, everyone.

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

Yeah. Hi, this is Vijay Shekhar Sharma. And I’m very happy to announce our relation and acknowledgment of RBI’s newly updated lending guidelines. First of all, these lending guidelines are very much in line with what we have been executing our business as, not just this our business model, but expected direction is also how we have been doing our business, many things which we recommended to RBI as that they could include in a single directive, have also been included, especially around collections.

One of the very significant thing I personally see is that RBI has allowed regulated entities that is, lenders who share data with non-regulated entities like ourselves in this scenario or collections, which is important. The guideline is coming towards a complete workflow of customer acquisition to obviously lender book creation and then over the period the lender’s book collections. And the RBI guideline defects the no FLDG should be executed the way RBI doesn’t like it.

In other words, if you are unregulated or not licensed to give credit, you are not supposed to give any credit underwriting or guarantee. And I’m very happy to say that nearly everything that we do today is how it is, except for one line item that the disbursement of loans should happen direct from lender’s bank account to the consumer, which is a little bit of technology work for us, because inevitably we are not issuing loans to the consumers, it is just workflow and operational method. We get to change that work flow, help our lenders open bank accounts at places and then issue loans and give them an API to call and submit the loan amount to the customer.

The good thing of this lending guideline we believe is that RBI has started acknowledging just like at one point in time they acknowledged that banks are perfect good lenders, NBFCs are needed. Now RBI is saying, banks and NBFCs are perfect book owners. These lending platforms are needed, so that loans can be disbursed to the needy and in the ability and capabilities of digital lending service providers.

With this, I’ll give it to Bhavesh for his early remarks and then we look forward to take Q&A.

Bhavesh Gupta — Chief Executive Officer Lending and Head of Offline Payments

Thanks, Vijay. Good evening, everyone. I think Vijay has well summarized but I can call out four or five observations and our assessment initially of the digital lending guidelines. I would say 2.0, because already in June of 2020 there was a set of guidelines which came in. At a broad level, it is very clear and evident that the guidelines and envisage the roll of digital lending apps and loan service providers like ourselves in facilitating credit to the needy to the masters [phonetic] in consolidation with banks and NBFCs. So I think that is something that we’ve been promoting very actively and we continue to do so.

The other thing that we are clearly figuring out that customer transparency, protection of customer rights, doing transparently the entire engagement, money moving only to lender et cetera, et cetera has been clearly called out. We have been pursuing and following that very cleanly. There is absolutely no money, which is paid by the customer in any kind to us. Every money is paid to the lenders and the lenders have a commercial model, as you know that they pay us for distribution and collection. So that continues.

There is also a clear obligation called out on transparency on data, customer consent architecture, purging of information, what lenders can share as information, what lender can share as information for origination and collections. I’m again glad to inform that we’ve been pursuing that. Since the beginning we have the declaration very clearly called out and hence we have absolutely no concern of any kind. And we welcome this move because it allows a level playing field.

The fourth and the more important piece is about movement of money. This is something which is complicated from an operations perspective, because there are various use cases. And here is important to understand that from a Paytm perspective, we are also a payment aggregator, and as a payment aggregator there are lot of things that we do for not only our lending partners, but just as a business that our payment aggregator — we do EMI aggregation as a business. And because we do EMI aggregation of business, the EMI aggregation means that, let’s say, you were doing a credit card EMI aggregation, the credit card issuer pays the nodal account off the payment aggregator and then resettle to the merchant.

So I think there is some bit of work that will need to be done with regards to understanding this entire payment flow obligation that have been called out. And not only us, even the regulatory entities that we’ve been speaking them over the last one day have clearly called out that they are going to have some conversations to get more clarity.

But from our perspective, even if it’s the way it is being called out, it has to be architected, absolutely no problem, because the interface of moving through a nodal account et cetera is for more convenience when — than anything else. And if the money has to move and the way it has been envisaged or money has to be collected they it has been envisaged directly, yeah, as Vijay said it could need a few maybe days of operational changes, but it is definitely implementable et cetera, et cetera.

In conclusion, I think there is also a call out of an [Indecipherable] in the guideline, which is the future proposals that the regulator intends to engage. I just want to call out that the FLDG model that we’ve said multiple times has been called out as something that we wanted to [Indecipherable] in the past may be comfortable now. But irrespective of that, [Indecipherable] doesn’t impact. And anything else also which should be brought out [Indecipherable] which is the future implementation of things to be done.

[Indecipherable] That part is easily understood by us as an adherence even today. So as and when even these second guidelines were to come into play, which is Annexure II, we are fully compliant and we’ll be fully compliant.

So net to net, I think we welcome the move again. And I’m sure there are multiple questions around certain nuances and we’ll be happy to answer those questions, if there may be.

Unidentified Speaker —

Thank you, Bhavesh. We’ll now proceed to Q&A. [Operator Instructions]

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

Yeah. I want to add two more things on this here that I believe fundamentally that RBI is of the opinion that FLDG is not actually that bad as that it should be removed. They are trying to figure out that if there is a guideline where let’s say you give your guarantee in a deposit way or you give it 100% guarantee of the guaranteed amount and they could build a framework what is the guarantee amount of so and so forth, they are happy to take that as a concept.

The question is that this is exactly how regulated NBFCs work out, so why not they regulated NBFC framework to continue to do it? This is what they have been discussing and contemplating that what is the best way to treat FLDG. As of now, the idea is that FLDG is not permitted for non-regulated entities. So I’d add like that.

Bhavesh Gupta — Chief Executive Officer Lending and Head of Offline Payments

Yeah. Thank you, Vijay. Keshav, back to you, please.

Questions and Answers:

Unidentified Speaker —

Thanks. Thanks, Bhavesh. With that, we will take the first question of the session from Mr. Manish Adukia from Goldman Sachs.

Manish Adukia — Goldman Sachs — Analyst

Yeah. Thank you, Keshav. And hi, good evening team. Thank you for hosting this call. I just had a few quick clarification on what Bhavesh and Vijay you both mentioned. First on the data sharing beat, can you just confirm Bhavesh that today whatever data is being shared by you with the lender and by the lender with you, all of that — there is not going to be any meaningful change if at all based on the new guidelines? That’s question number one.

Question number two is also on monetization and your revenue model for all the three products, BNPL, personal loan and merchant loan based on whatever RBI has said in terms of just the fee et cetera that’s payable by the consumer to the lender and then to you and you clarified on that. Can you just confirm that the existing revenue model again no change there?

And just third a follow-up on the any near-term disruption that you foresee as a result of this thing around money flowing directly between the lender and the borrower. You said in some operational aspect you’ll probably have to figure out. So are you expecting any near-term disruption as a result of that? So those were my three questions.

Bhavesh Gupta — Chief Executive Officer Lending and Head of Offline Payments

So, Manish, let me answer all the three questions. I think the first question on data sharing, I just want to clarify, Paytm does not share any data with lending partners. The data belongs to Paytm. We don’t share any data with the lending partners, so there is no question of the regulations calling out something in particular.

There is some data which gets shared by the lending partner for servicing of loan and collections of loan. I think the guidelines as we read are explicitly clear that for the obligation if the LEA — if the RE is giving to the loan service provider the obligation to collect or service, data can be shared with the loan service provider, which is Paytm. And hence there is no data that we need more or less, so what is being shared is fully compliant is our understanding at this point in time.

And I must say to you that we also have a practice for many, many months and few quarters, at least for the last maybe about four or five quarters that we have a data purging policy. While that explicitly has not been called out, but we practice data purging policy that the data that is given which is not needed is anyways purged mutually under the policy that we have with the lending partners.

Manish Adukia — Goldman Sachs — Analyst

Go ahead. Thank you.

Unidentified Speaker —

Customers give consent to share their own data to the lender and this is exactly how it has been called out also. So in other words, we not only are doing what RBI’s data guideline is suggesting, we actually foresee and proactively have included India’s government’s data framework guideline that was issued in a draft format at one point in time.

So we are very happy to tell you that not just RBI has consented in a way that what we do is fine, we are also trying to say that we have taken the next level of it with the draft guideline the data sharing or data privacy laws that we have all setting up.

Bhavesh Gupta — Chief Executive Officer Lending and Head of Offline Payments

To your other question, Manish, commercially, there is no change. As I said earlier in my call, we were always showing IRR, processing fee, convenience fee or whatever the case may be which is the customer supposed to pay for taking a loan or a service. All such charges, et cetera were already being shown which RBI calls it Keyfact statement. And these charges were being paid to the lender, and lender, after deducting whatever they had to deduct, they were paying back to us in commercial. So nothing changes from a commercial standpoint or customer declaration point.

The third piece is, do we see any near-term disruption because of the money flow? The answer is, no. The reason, especially for this piece it is not that we cannot have the money flow the way it is being envisaged. It is just that there are two areas that the lenders need clarity, not us, because there is a payment aggregator involvement in between that the payment aggregator obligately does payment processing when you pay to merchant, just like you pay UPI, wallet, credit card payment you are paying Paytm Postpaid payment to the merchant. That Paytm Postpaid payment to the merchant is paid through the payment gateway and the payment gateway obligatory has a nodal in which the money gets settled and that gets settled further to the merchant.

Now this is the current payment aggregation guidelines which exist. How will they play out in this scenario, is a clarification needs to be taken. Once a clarification is provided it will continue the way it is continuing. If the verification is, it needs to be changed, we can change it. We can straightaway settle it without the nodal. So it is a very small change. But yeah, it may take maybe some time for the change to happen, for which the lenders will appropriately engage the regulator. The case will be as they have said. But at this point in time we don’t see any disruption of any kind.

Manish Adukia — Goldman Sachs — Analyst

Thank you so much for answering my questions. I’ll come back in the queue.

Bhavesh Gupta — Chief Executive Officer Lending and Head of Offline Payments

Thank you, Manish.

Unidentified Speaker —

Thank you. The next question we’ll take from is Mr. Vijit Jain from Citi.

Vijit Jain — Citi — Analyst

Thank you, Anuj [phonetic]. My question is, so if you do need to change these rules and remove that nodal account from the equation, do you need to then set up new accounts for these customers, do the KYC and all of those kinds of things? And if yes, is that not an involved process?

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

Wait a minute. Okay, Bhavesh. Let me give a few early color and then [Indecipherable]. So here what is happening Vijit is that lender is giving money to the merchant, not to the customer, okay? As far as if he is giving the money to customer that’s a PL and there is a KYC where the lender and onboarding by the lender any which way is happened. So the money directly goes from lender to the customers. That is what we are saying.

In postpaid’s case, this money goes to a payment aggregator like you are a payment aggregator, you take a payment gateway or card machines, the money is settled in the nodal account, which in turn settles to the merchant any which way. So fundamentally in case of postpaid, which is a payment settlement, A plus B equal to complete process which is exactly how it is expected when the payment processing happens.

And in personal loan case, where the customer is receiving money from lender, right now the money was coming through the half of ours, but directly the lender will settle to the customer. Onboarding and KYC is actually always done by customer — lender itself. So there is no extra work whatsoever required. It is just that the money today we would get this money in different time of the day from lenders instead of that the money has to go directly to the customer, it’s just that it is sort of coming in pool account book to settle to the customer, it will be settled to the customer. So lenders will have the payout system machine that we have at Paytm’s point. Again, the same software that we use or the account method that we use, we will give it to the lender, lender will give it to the consumer. So there is absolutely no onboarding or any delta changes if you foresee the workflow.

Vijit Jain — Citi — Analyst

Got it. Got it. Thanks. Thanks, Vijay. Those — that were all my questions. Thank you. I’ll get back into the queue.

Unidentified Speaker —

Thank you. The next question we’ll take is from Mr. Rahul Bhangadia from Lucky Investment Managers. Rahul, your line is muted.

Rahul Bhangadia — Lucky Investment Managers — Analyst

Am I audible?

Bhavesh Gupta — Chief Executive Officer Lending and Head of Offline Payments

Yeah.

Rahul Bhangadia — Lucky Investment Managers — Analyst

Yeah. Thank you for taking my question. Just a follow-up to the previous question where you said that you don’t share — Paytm doesn’t share any data with the lenders. How does that fit in with the requirement of giving off all the information to the credit information — to the credit bureaus? And is the system already in place in terms of you kind of updating the credit bureaus or how does this exactly work in today’s case?

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

Yeah. So Rahul, the mood point here is the lender is the NBFC or the bank. NBFC or the bank is obligated to update the CICs which they do for 100 [phonetic] personal loans that are originated to Paytm platform, right? When we say we don’t give any data, meaning there is a customer data or a merchant data that Paytm may has, that data remains with Paytm. We don’t — we may do whatever we want to do with that data at Paytm level to pre-qualify to pre-justify, which customer merchant should be given the loan offer et cetera, et cetera or not, but no data moves from Paytm to the bank.

But the lender anywhere for every loan that they intend to disburse or disbursed, obligatorily report of the CIC. And as that continues earlier, it continues now. None of the loans [Indecipherable] originated from lenders were not reported to CIC. 100% loans are reported to CIC.

Rahul Bhangadia — Lucky Investment Managers — Analyst

So essentially what we are saying here is that the — because you don’t provide any — you take the quantifying decisions at your end and that is not passed on to the lender. The lender essentially is what doing a black box kind of lending here? And what will you update the CIC?

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

No, no, no. So let me clarify. There is — there are millions of customers who are on Paytm platform. The lender is clear to communicate to us which kind of customers demographically that they’re looking for that this city, the age band, this transaction behavior pattern et cetera that they’re looking for to provide a credit. Basis that we’ve [Indecipherable] that customer on our platform and say okay, lender A likes these kind of customers, so where this customer has to apply. We will pass on the application through digital APIs to the lender and the lender will run the decision engine at their end to approve or disapprove credits. And if they approve credit, It will be shown on our platform the lender has approved your loan and the customer does the necessary KYC documentation with the lender and get the disbursement in their account. That is the process. And for such loans, a lender reports to CIC.

Rahul Bhangadia — Lucky Investment Managers — Analyst

Okay. So now the only thing as you explained changes is the direct involvement from the bank — lender to the customer rather than involving the intermediary to hop in between.

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

Yeah. So that also I just want to clarify. That’s a let’s say for a personal loan or a merchant loan, the lender anyway directly funds the customer in their bank account. Paytm has no role. It goes from lender account to the customer’s account directly. Only in Paytm Postpaid, which is a product in which the customer is using that money to buy a good or a service, the money goes to the merchant. And because the money goes to a merchant it is a merchant settlement flow like we do for a payment gateway business.

So this is exactly what happens in two-wheeler financing or durable financing. When you go to Chroma or a shop and buy a television on a loan from a NBFC, the money doesn’t go to the customer, it goes to the merchant, right? Similarly, when you do Paytm Postpaid the money goes to the merchant. So that clarification has to be seen that in this case the entire durable financing or customer — or the service financing world the money goes to the merchant. Not just in digital lending, in all the lending. So that clarification has to be taken, and I’m sure the clarification will come through by the REs that yes, you can fund the merchant and this is the process of funding the merchant. That is what we’re saying.

Rahul Bhangadia — Lucky Investment Managers — Analyst

Great. Thank you for answering. Thank you.

Unidentified Speaker —

Thank you. The next question we’ll take from is from Mr. Viral Shah at Credit Suisse. Viral, your line is unmuted.

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

I think we’ll — we could take the next.

Unidentified Speaker —

Yeah, we’ll get back to Viral in the line.

The next question will be from Mr. Rahul Jain from Dolat Capital. Rahul, your line is unmuted now.

Rahul Jain — Dolat Capital — Analyst

Yeah. Hi. Thanks for the opportunity. Two questions. Just one clarification. Since now the loan amount would get settled directly to borrower, does that mean our GMV in such transaction would now get limited to their incentive or commission that we receive as revenue versus the entire loan amount? That is one.

Second, is it safe to assume that except for some workflow changes that you said, there is no direct gain or disadvantage from the guidelines. So what are the indirect advantage assuming that some of the other lender, digital lender may not be as good with the current situation? So what is the indirect advantage to us?

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

Rahul, we — very honestly, we do not know what other digital lenders do in their area. And honestly, myself and my teammates haven’t spent that much of time because we are very focused on building our business. So I actually do not know what could be the disadvantage Paytm has over others. I just hope that everybody else aligns to the guideline because it’s good for the industry that multiple digital lenders are out there in the market and expanding the opportunity. So as Paytm alone cannot consume the 100% opportunity. So that will be my view.

What we feel nice about there is that while there were a lot of speculation that the guidelines could be very onerous et cetera. The guidelines are extremely progressive and forward-looking and are fully aligned to the principles under which we were building our credit business and hence we feel nice about it that we can continue to build our business in a similar manner that we were building earlier with obviously some small tilts and changes which as appropriate there maybe.

To your first point, it is — from a GMV perspective it doesn’t change anything. It’s the disbursement that we are originating through our platform for the lenders. The money goes from lender to customer account, the merchant account or goes through us, it does not necessarily change the definition of the GMV et cetera, because my disbursement amount remains the same irrespective of what is the fund flow and the revenue model remains the same irrespective of the fund flow.

Rahul Jain — Dolat Capital — Analyst

Right, right. Appreciate the color. That’s it from my side. Thank you.

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

Thank you, Rahul.

Unidentified Speaker —

Thank you. Given the scheduled time, we’ll take two more questions. The next question is from [Indecipherable]. [Indecipherable] your line is unmuted. We’ll get back to [Indecipherable].

The next in queue is Praveen Mani from Kaizen [phonetic]. Praveen, your line is unmuted.

Praveen Mani — Kaizen — Analyst

Hi. Thank you so much. Just wanted to go back to the same point on the customer account. Just one quick clarification. So you mentioned it will be clarified when you transfer the money to the merchant directly, but is there a worst case scenario where the RBI sticks to its — or say, it has to be transferred to the customer account in which case what happens, what are the implications for Paytm and for the industry?

Bhavesh Gupta — Chief Executive Officer Lending and Head of Offline Payments

See, I don’t want to speculate. I think the — our conversations with the regulator and our REs conversation with regulator, the intent behind not having an intermediatory hold any money is the reason why the guidelines have set that the money should not be disbursed into an intermediatory account because there could be misuse of funds. That is the intent.

We also — and with that intent, the money is going into merchant’s account on behalf of the customer loan that they’re taking for buying some good or service of the merchant and/or the money is going in the customer account in case of PL and merchant loan is the right method. So I think it’s more of a clarification, because the entire industry for purchase finance, be it two-wheeler, durable, car loans, mortgages, everywhere the money goes into the end use where you’re doing. So it’s a very fundamental change, If, then there is no purchase finance, right?

So I don’t think it’s a matter that I would like to speculate what it could mean for Paytm. I think it’s a very, very material change for the industry, which is not the intent behind it. So it’s a clarification which should we hope they will come fairly soon. But yes, the money can go to the merchant account by the RE directly, right, on behalf of the customer. It’s a clarification versus everything else, because that is what the way we have read it and that’s what all our lending partners have read.

Praveen Mani — Kaizen — Analyst

Okay. And just to clarify, the current on paper regulations would mean that every customer needs to have a bank account with the lenders bank. And then, I mean there has to be a flow from that account to the customer’s account and that with the customer’s account to the merchant account.

Bhavesh Gupta — Chief Executive Officer Lending and Head of Offline Payments

So they don’t need to have a bank account. So it’s — let’s say, I am taking a loan from a lender A and my bank account is with let’s say, X bank. The lender can have their current account with the Y bank, it’s IMPS, RTGS, NEFT transfer. That’s it. It’s an API transfer, so there is no need…

Praveen Mani — Kaizen — Analyst

Okay. So the workaround even a worst case scenario is just routing of that payment through different bank accounts ultimately to the merchant.

Bhavesh Gupta — Chief Executive Officer Lending and Head of Offline Payments

Yeah. So instead of — so today what Paytm does is because the merchant is onboarded to accept Paytm Postpaid money on our payment gateway, just like the merchant accepts credit card or UPI or wallet, he accepts postpaid. And whenever the customer pays to a merchant using Paytm Postpaid, a loan gets created with the lender. And the lender settles that money in the payment gateways account, the nodal account, and the payment gateway settles from nodal account to the merchant account.

That is the way current flow is, because that is the payment aggregation guideline that you can collect money as a payment aggregator into a nodal account. So that is a clarification to be seen that if a lender is using a payment aggregator to disburse loan for a purchase that a customer is doing at a merchant how should the flow be. And that clarification will — and see, every time I think we need to look at the intent of the guideline.

Some of these practical nuances may not have been covered in as much detail as we may so desire because the Working Group guidelines implementation. These nuances are then built in over a period of time. You have seen this in co-branded credit card guidelines some nuances scheme, right? This is always the case. We are very clear that these nuances will follow over a period of time. So I’m not very concerned about this area at all, because it is a correct flow.

And if something has to change, we will have a view at that point in time. And this is only applicable for Paytm Postpaid because that’s the only place where the money has to go merchant. PL and merchant loan, there is absolutely no change in the process we follow, because money anyways goes from lender to the customer’s account directly.

Praveen Mani — Kaizen — Analyst

Understood. All right. Thank you so much for the clarification.

Bhavesh Gupta — Chief Executive Officer Lending and Head of Offline Payments

Thank you, Praveen.

Unidentified Speaker —

Thanks, Praveen. We will come back to Mr. [Indecipherable] for the next question. Aden, your line is unmuted now.

Unidentified Participant — — Analyst

Hi. Thank you for taking time. Just wanted to dig a bit deeper on the postpaid side or the BNPL side of things. You mentioned that the settlement flow will be going direct to the merchant, right? But I’m just trying to understand if you think about it from an operational perspective we currently own the relationship with the merchants. And going forward if, correct me if I’m wrong, if the relationship is going to be more skewed towards a lender and the transaction itself, right, and most of the time Postpaid transaction is tend to be fairly small-ticket, high frequency transactions.

Today we could do any more work from the lenders perspective. So I’m just curious like operationally, it seems like we can solve it, but can you help us understand what are some of the considerations the current lenders that we work with have to think about from that perspective, right? Because I guess they’re used to disbursing customer and merchant loans, but I don’t think that system is set up for high frequency postpaid transactions, right? So maybe you could help us understand how the conversation with your partners will evolve from here.

Bhavesh Gupta — Chief Executive Officer Lending and Head of Offline Payments

So Aden, here in this case, the customer has got underwritten credit from lender and this payment is being made to the merchant. Whether we need to route it to the customer’s account and then to the merchant, answer is, it is as simple as the personal loan then, where we could route it to the customer’s account. Customer is already KYCed and instantly take that money from the customer’s account to the merchant. But the logical flow is that merchant — the lender settles to the nodal account which goes through the merchant.

If the lender settles to the customer’s account it is easy [Indecipherable] no extra work at all just like the personal loan. And if it has to be settled to the nodal account, again no extra work. It’s just a single bank account they will have to settle all these things. So one of the two cases will be the answer, logically [Indecipherable] because the settlement happens in [Indecipherable] various payments mode.

In the personal loan style, [Indecipherable] bank account to merchant’s fee [Indecipherable] that technology is ours [Indecipherable], settling technology is ours. We will give the technology to the lender, lender will set up bank account and [Indecipherable]. So technology wise, [Indecipherable].

[Indecipherable] I am getting a message that I was not very good.

Unidentified Participant — — Analyst

Yeah. I think you faded in and out for the response. Maybe it’s my line, but not so sure for the Group.

Bhavesh Gupta — Chief Executive Officer Lending and Head of Offline Payments

Yeah. So I’ll repeat it Aden, once again. I hope it is better.

Unidentified Participant — — Analyst

Yeah, this is better. Thank you.

Bhavesh Gupta — Chief Executive Officer Lending and Head of Offline Payments

Okay. So there are two ways the lender can give money for postpaid to the customer stroke merchant. If he has to give money to the customer and that money has to be settled to the merchant, it will be like personal loan. And high frequency part that you were calling, it is actually [Indecipherable] the account owned by lender. That’s it.

[Indecipherable] in further — can you hear me? I mean I’m just getting a message once again that you can’t hear it.

Unidentified Participant — — Analyst

Yeah. I think you faded out again. So sorry about that. Yeah.

Bhavesh Gupta — Chief Executive Officer Lending and Head of Offline Payments

Okay. So I can definitely take this offline, Aden. The short answer is that we have to change the source account from Paytm’s account to the lenders account. Rest of the technology is just the same what exists today already. That’s a big message that you want to take as a short kind of message that the source account is lenders bank account instead of Paytm’s bank account. As far as technology is concerned, it already exists to settle and operate just like that.

Unidentified Participant — — Analyst

Okay. Sure. Thank you.

Bhavesh Gupta — Chief Executive Officer Lending and Head of Offline Payments

Thank you.

Unidentified Speaker —

Thank you. And we’ll just squeeze in a last question to the session, which will be from Mr. Manish Shukla from Axis.

Manish Shukla — Axis Capital — Analyst

Good evening, and thank you for the opportunity. Bhavesh on one of the things guidelines says is that we LSVs cannot charge anything to the customer. Sticking to postpaid, the postpaid customer pays convenience fee as well as MDR. You think, that will need to be revisited or that is in compliance with what the guidelines say?

Bhavesh Gupta — Chief Executive Officer Lending and Head of Offline Payments

Yeah. So, Manish, convenience fee paid by the customer not to Paytm, convenience fee goes to the lender, lender pays us that convenience back as a part of our distribution revenue or collection revenue, whatever the case of commercial revenue, So nothing goes in Paytm’s account. MDR is not paid by customer. MDR is paid by merchant and hence this regulation has no bearing on that we will continue to collect MDR, because the MDR will be paid by the merchant, not by the customer.

Manish Shukla — Axis Capital — Analyst

Okay. Second question, based on your interpretation of the guidelines and the very current flows between you and vendors, is there any reason why going forward your revenue line would be lower and there will be a corresponding offset in the cost line? I mean is revenue…

Bhavesh Gupta — Chief Executive Officer Lending and Head of Offline Payments

No, no, no. It’s got — see there is nothing here which impacts our revenue from any imagination because we do not have any revenue which is contingent on something that we were charging the customer independent of what the lender was earning. So everything was going to the lender and lender will give it to me. So there is nothing which changes.

As I said, the only thing which is operationally as Vijay also called out is, we have to get the source account it needs to be done, we will do, which is only for Paytm Postpaid. There is nothing else in that.

Manish Shukla — Axis Capital — Analyst

Sure. Understood. Thank you very much.

Bhavesh Gupta — Chief Executive Officer Lending and Head of Offline Payments

Thank you.

Unidentified Speaker —

Thank you. With that, we come to an end of this Q&A session with the management. For the questions we could not take and for any further queries on this topic, please feel free to write to the company at ir@paytm.com. Thanks a lot to all attendees for joining.