One 97 Communications Ltd (PAYTM) Q2 FY23 Earnings ConCall Transcript

One 97 Communications Ltd (NSE:PAYTM) Q2 FY23 Earnings Concall dated Nov. 08, 2022

Corporate participants:

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

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

Bhavesh Gupta — Chief Operating Officer

Analysts:

Vijit Jain — Citigroup — Analyst

Saurabh Kumar — JPMorgan Chase & Co. — Analyst

Kunal Shah — ICICI Securities Ltd. — Analyst

Manish Shukla — Axis Capital Ltd. — Analyst

Rahul Bhangadia — Lucky Investment Managers Pvt Ltd. — Analyst

Sameer Bhise — JM Financial — Analyst

Rahul Jain — Dolat Capital Market Private Ltd. — Analyst

Piran Engineer — CLSA India — Analyst

Anand Bahudani — — Analyst

Presentation:

Operator

Thank you for joining and a warm welcome to Paytm’s earnings call to discuss its financial results for the quarter and half year ended September 30, 2022.

From Paytm’s management team, we are today joined by Mr. Vijay Shekhar Sharma, Founder and CEO; Mr. Madhur Deora, President and Group CFO; Mr. Bhavesh Gupta, CEO, Lending and Head of Payments; and Mr. Anuj Mittal, Vice President, Investor Relations.

Before we start, a few standard announcements. This earnings call is meant for existing shareholders of Paytm, for potential investors and research analysts to discuss the company’s financial results. This call is not for media personnel. If any media representatives are attending this call, request you to kindly drop-off the call at this point.

The information to be presented and discussed on this call should not be recorded, reproduced or distributed in any manner. Some statements made on this earnings call may include forward-looking statements. Actual events may differ materially from those anticipated in such forward-looking statements.

Finally, this earnings call is scheduled for 75 minutes. It will have a presentation by the management followed by Q&A. Kindly utilize the “raise hand” feature of your Zoom dashboard, if you seek to ask a question. We will unmute your line in the respective sequence and within the scheduled and permitted time. Please ensure your name is visible as first name, last name, followed by your company name at all times for us to identify you.

The presentation, a replay of this earnings call and a transcript will be made available online subsequently.

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

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

Thank you. And hello, everyone. Good evening. Good morning. I’m very happy to welcome you all for our earning presentation for our quarter-ending September 2022.

As you may have seen, we’ve had a good quarter as teams have performed very, very well on the focusing on our commitment to target breakeven by second quarter of next year before ESOP costs, as you know.

I will give you a little bit of summary of the business model once again that we acquire customers and we had 80 million [Indecipherable] customers. And these customers in turn bring us merchants and we have 30 million merchants who in turn work and give commerce services to consumers. This makes our business model core business to acquire customers on payments. And in turn, because this gives us insight, ability to distribute and a great brand name, we work with our lenders to distribute credit.

So, as you may be aware, over the period of time, in last four quarters, we have trimmed, since IPO, tremendous amount of businesses and focused on key business areas and pruned many business line items and made it very clean and clear that we acquired customers for payments and distribute loans from our credit partners.

In fact, our payment business, which is based on our merchant side business model where we deploy QR codes for merchants to enabling them for Soundbox or giving them for various devices and enterprise payments. We have expanded into online and omnichannel merchants which is the approach that the market is taking shape towards. I believe that payment will become more and more omnichannel where companies are going to be — online companies are going to be significantly offline and offline companies are going to be online.

Case in point, Flipkart, with whom we work, has lots of online business. We also help them take offline payments because there is a lot of cash on delivery out there. So, this is something we keep an attention to. And then, merchants use our platform which we call consumer payments to collect payments. So, technically, online merchants use our app to collect payments.

If you notice, our payment business, which is code payment business, thanks to a model where we have added subscription and UPI MDR which we don’t account for yet in our business model till the time government gives. So subscription and MDR revenues, mostly, and a little bit of platform fees. So, these revenues right now that you’re seeing on the right side are inclusive of MDR, subscription and select customers’ platform fee only. The government’s giving off UPI subvention revenue is going to be given only in the quarter that we get that money. So, these are the revenue line items that we ended up making absolutely for payment. And enabling commerce and cloud service also grew very healthily year-on-year. And as you can see, this is a business that is 55% up year-on-year, INR1,550 crores.

We believe that payments stack is the stack where we help merchants take payments in different, different avatars, move locations, occasions, and opportunities and enabling them for commerce. This stack makes for a scalable large growing profit and profitable business model for payment and enabling cloud commerce business.

Credit business, as you are aware, is based on the foundation that our abilities of a digital lending sourcing and cross selling partnership with our lending partners and over the period helping them collect the loans make this business model, I call it — typically in a fund management that this is a part where we get fixed fee, this is a part we get sort of a portfolio performance or carry, if you will. So, you can imagine that this business model has an inherent compounding because when we disburse the loan, we get certain percentage, but our ability of collecting, our ability of effort of collections enable us to get sort of a portfolio performance bonus on that.

Important thing to note is that, in last quarter, RBI came out with clarification around digital lending, sourcing and EMI servicing collection opportunity. Paytm’s business model was completely looked as clearly following the suggested guidelines. So, we are very happy to tell you that we have been able to include every delta incremental, whether small or large, in the business model, and business model was very, very much aligned to how regulator sees it.

We continue to believe that this loan disbursement and collection business for India will play an important role in democratizing credit. If you remember, at one point in time, RBI leveraged public sector banks and then created private sector banks, then created NBFCs. And now we believe different, different buckets of credit requirements were satisfied with that. And today, the digital lending, lending service provider, as LSP, RBI calls them, which is what Paytm is here, will generate and create new opportunities for dispersing digital credit.

As you are aware, our digital disbursement are typically small ticket loans and we internally call these two businesses as INR2 lakh and two-year tenure kind of loans, where average [Indecipherable] are INR1 lakh plus, one year and INR150,000 plus one year, and this is what the typical ticket size anyways remains in personal loan, merchant loans.

And Paytm Postpaid, which is where customers get an overdraft limit from lender to spend, it is typically now averaging around INR4,500.

The good part in my opinion is that, while these are incredible year-on-year growth, they are very small fraction of our customer base, which is availing all three services for us. And it is — there is a incredible amount of headroom for our disbursement opportunity quarter on quarter. And we continue to see post re-clarification — reconfirmation from RBI that this business model and this workflow is how regulator expects. It has now opened doors for many more lenders and many more partners to continue to join us and expand this business.

I would now call upon my colleague, Madhur, to expand and give you a summary of overall business and the numbers.

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

Thanks, Vijay. Welcome, everyone, to our earnings call. I’m very proud to report that we had a very strong quarter. Our revenue growth, as you would have seen from our earnings release, was 76% year on year. And our EBITDA before ESOP cost improved by 61% year-on-year.

Just to get into that, revenue from operations was INR1,914 crores. So, just under $1 billion run rate. Our contribution profit continues to improve. It’s at 44% of revenue. A year ago, this number was at 24% of revenue. So, significant step change over the last 12 months. And even on a quarter-on-quarter basis, we have had a slight improvement. And we’re currently doing INR843 crores of contribution profit.

Our EBITDA before ESOP costs is really starting to see operating leverage come through. So, INR166 crores of revenue, less than 10% of revenue as a loss. And it is nearly a INR260 crore improvement from a year ago and over INR100 crore improvement from last quarter. So by all measures, significant improvement in EBITDA performance and we expect — and for the last two quarters in a row.

Operating highlights, Vijay already talked about value of loans disbursed, INR7,300 crores, up nearly 6 times. And even a quarter-on-quarter basis, continues to grow at a very fast clip. And merchant subscription, which is our payment devices, primarily the 4.8 million devices, 3.5 million added in the last one month and obviously faster right now.

This is a breakup of revenue. But the basic point of this page is that we have seen platform expansion and increased monetization across businesses. So, this is not one or two businesses carrying the overall performance. Our payment services business is up 56% year-on-year and up nearly 10% quarter-on-quarter. Financial services obviously growing a lot faster, driven by lending, and commerce and cloud grew 55% year-on-year and 14% Q-on-Q.

Some of you may have noticed that there’s a small amount of other operating revenue here. This has to do with basically a fund that RBI has, which promotes acquiring site for digital payment infrastructure. And we are one of the beneficiaries of that. So, it is payments revenue. But our auditors asked us to put that as other operating revenue rather than as Payment Services revenue. So, that’s what it is.

Our contribution profit, like I said a year ago, was 24% of revenue. Now, it’s at 44% of revenue. So both in absolute terms and even as percentage terms, significant increase. The two main reasons for this, payments for us is now more profitable. You would have seen that our net payments margin has grown to INR443 crores per quarter, significant improvement in that, and we’ll talk about that a little bit later. And clearly, there is a benefit from high margin loan distribution, giving us better mix.

The right hand side, we’re very proud of the fact that we continue to invest in our business in three main areas — technology, sales and marketing. So, for example, a year ago, we had INR94 crores of investments in our sales team or spend in our sales team every quarter. That number is now INR172 crores. So despite increasing the investment, which we believe is important for long term scale and growth for Paytm, we are able to show operating leverage and grow from 63% — indirect costs, 63% of revenue down to 53% of revenue. So, a significant improvement due to operating leverage.

All of this translates into strong EBITDA performance. EBITDA, like I said, has gone down by — EBITDA losses has gone down by INR260 crores a quarter due to huge operating leverage. And our EBITDA before — EBITDA margin has improved from negative 39% to negative 9%. So, 30% margin swing in a single year due to focused execution. And as you may have figured out by now, 20% of that was from contribution margin improvement and 10% of that was from reduction in indirect expenses.

Just to get into the payments business a little bit. Again, payments, we, as you know, disclosed that payment services to consumer and payment services to merchant. The growth of both these businesses was roughly the same, 55% year-on-year for consumer business. That is basically due to our growth of MTU and GMV. And on the merchant side, 56% growth, which should do INR624 crores. And the reason there was subscription and MDR revenue from offline merchants. We did see a meaningful growth in revenue from online merchants this quarter as well, primarily because of some early festive in ecommerce. So, some of the big sales that happened in September and so on. As Vijay pointed out earlier, we don’t have UPI incentive recorded this quarter. Consistent with our methodology last quarter, we only record UPI incentives when it is confirmed by [Indecipherable].

Net payment margin is up 5x year-on-year to INR443 crores. And in addition to the revenue momentum, which is the main reason for it, we continue to focus on reduction in payment processing charges. And that’s why we get this significant uptick.

Some key operating metrics for payments. Our MTU is up 39% year-on-year. So strong performance there continues. That is driven by sort of increasing customer acquisition at relatively benign CACs, but also an improvement in customer retention. Our GMV was up 63% year-on-year. Like we mentioned in the last quarter, our primary focus in our payments business is to have profitable revenue rather than GMV as a metric. So, there’s enough and more GMV that one can go out and get. The key thing is, can you make revenue and can you make net payment margin off of it. So that’s what we optimize for. And as we had mentioned in the last quarter, we got rid of some business that we did not feel either generated us revenue on that payment margin or have significant upsell opportunities.

Despite that, we’re up 63% year-on-year. We’ll continue to trim business that we don’t make that payment margin on. But we will continue to become — try to make our payments business more and more profitable. Merchant subscription, we have talked about, that we are now at 3.5 million.

With that, I’ll hand over to Bhavesh to take us through the next few slides, please.

Bhavesh Gupta — Chief Operating Officer

Yeah. Thank you, Madhur. Hi. Good evening, everyone. Good morning. Our lending business continues to show good results. As you can see that we ended our revenue from Financial Services, where predominant part of the Financial Service revenues coming from lending, while our equity broking business and insurance business also started to contribute.

We had 4x growth from INR89 crores last year same time, we ended at INR349 crores. And the important part here is that our entire focus continues to be on our lending business aligning to the new digital lending guidelines.

We were always aligned. As Vijay said in his opening statement, we had to make some adjustments that we made to be absolutely aligned to those pieces and we are happy to inform that there was no disruption in the business. Our business continued to perform exactly for every single day in the same manner. And our BNPL business, personal loan business and merchant loan business continues to demonstrate the strength of the opportunity that we’re leveraging through the Paytm platform.

Next slide, please. Yeah, coming to the numbers here. Postpaid personal loans and merchant loans, the good information about here in this business it that all the three businesses are now showing tremendous growth. We are seeing postpaid, which has moved up 5x. We’re now disbursing — we disbursed actually INR4,000 crores. And if you look at the September run rate basis, this business obviously looking at a very healthy growth rate. It continues to demonstrate great penetration to merchants and I’m very happy to inform that we have now added 15 million merchants who accept Paytm Postpaid between offline and online. This is arguably the largest acceptance of any credit instrument across any funding sources in industry. And we do see a very large amount of merchants, both online and offline, coming towards getting to this 15 million addition and we hope to see this number continue towards the trajectory of 20 million and beyond in the next couple of quarters.

On the fact that postpaid is just still 4% of our MTU, that’s the headroom that we see. And we do see new acquisition continuously happening in a manner that we were saying, let’s say, two quarters back. So there is no letdown of new customers getting onboarded on Paytm Postpaid, and hence it gives us tremendous confidence that this growth of Paytm Postpaid will be as robust as we’ve seen in the previous quarters.

Coming to personal loans, I think personal has been growing very, very nicely on a small base, but if I look at June 22 and September 22, from there also, it has almost doubled its business. But there are two reasons behind this massive growth of personal loans.

One, as the Paytm Postpaid business is maturing, we are finding that our lenders are getting very comfortable seeing the mature book of the Paytm Postpaid business and offering them personal loans. So, almost half of our personal loans have been disbursed to customers who have a running Paytm Postpaid loan with one of our lending partners. So, the journey and the entire customer appreciation of the product is extremely simple. And that’s giving us a good growth trajectory and that is continuing because Paytm Postpaid is continuing. We will continue to see PL also continue on the back of Paytm Postpaid.

The remaining 50% is the customers who are directly coming and applying for a PL on our platform. And we also see that trend actually being a nice trend because these are consumers who are looking for a bit higher ticket size amount, and they are seeking for something which is instant. And as you understand, that 24/7, 365 days is the positioning for Paytm PL. And that is giving us a good headroom and head start.

We again don’t see any issue with the TAM. It is hardly less than 1% of our MTU as personal loans and there is a fairly decent amount of headroom ahead for us. While we are now almost averaging INR900 crores plus per month on PL and we’re clearly seeing good traction moving ahead for ourselves.

Merchant loan, there was a bit of a concern two quarters back when we were in COVID, how would merchant loan grow, etc. I think that’s behind us now. The quarter behind June saw the first focus from our perspective, a lender’s perspective in getting his capital back in merchant loan. And this quarter was absolutely bang on. We saw great momentum, great acceptance from merchants in seeking merchant credit on the back of great device growth that we’ve seen, almost a million devices a quarter. This number is actually getting good traction and I can very clearly see that, in coming quarters, merchant loan will continue to see great momentum on the back of our devices story.

So all in all, overall disbursement business and even the collection performance that we’ll talk about in the further slides has been showing great momentum and we don’t see this momentum getting slowed down. We do see calibration happening via lending partners, which is more initiated by ourselves because we do understand that quality of portfolio for lending partners is a more important obligation than just getting the business. As a result of that, every month, by design, we worked with our partners to take out the last cohort — five person cohort in our businesses and make sure that that cohort is not getting renewals for the next month, so that the portfolio quality is maintained the way it should be maintained. So all in all, a good story for us on the lending side.

This is the portfolio slide. This is purely an indicative slide, as we always mention, from a lending perspective for accumulation of all lending partners. As s we are the collection outsourced partners for our lenders, this is an indication. There has been no change that we’ve seen over the last two quarters in this business.

The bounce rates, the recovery rates in bucket one, the resolution rates on cross credit losses, and the expected credit loss continues to be the way the lenders are expecting. I can also confirm, while the ECL numbers called out are the numbers that we’ve written, the actual credit loss performance is better than these numbers. But we continue to maintain a conservative stand, and so do our lending partners in making sure that they are providing enough for the credit losses, looking at the macro headwinds or otherwise, and hence the risk appetite and the risk portfolio has been built on this piece.

So, even on the portfolio, we’re seeing very good signals. And we’ve not so far seen any kind of macro headwinds impacting the portfolio and that is giving the strength to our lending partners and new lenders to come on board and expand this entire business portfolio with Paytm.

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

Thank you, Bhavesh. Just the last couple of slides. We wanted to cover commerce and cloud revenue. Our commerce business is up about 50% year-on-year. Travel merchants continue to do well. Our entertainment merchants typically have a seasonally weak quarter in Q2, both on movies and event sites. So that has some impact on our quarter-on-quarter performance.

Cloud business, on the other hand, continues to be very well, 58% improvement year-on-year to INR252 crores. We have started to see some early signs of recovery in advertising revenue. We did mention in the last quarter that there was a meaningful amount of pullback. So, just towards the end of Q2, we started to see some recovery. But, obviously, it’s too early to tell whether that will continue for the next several quarters. On the other hand, we do see growth in our credit card distribution, as well as on our cloud revenue. So, those businesses do well.

And finally, we just wanted to summarize and leave this with you, which is our improvement in EBITDA before ESOP costs is continuing, while continuing investments in scale and growth. So what we focus on his three main levers, one is platform expansion, so that we have high monetization capacity down the road; our monetization engines working, which is revenue growth across all the businesses; and finally, on profitability, improving our unit economics, while generating operating leverage as we continue to invest in our business. And that is giving us improvement in EBITDA before ESOP costs. So, that’s all I have.

And I’ll hand it back to the moderator who can help us with Q&A.

Questions and Answers:

Operator

Thank you, Madhur. We will now proceed to Q&A. [Operator Instructions]. We’ll take the first question from Mr. Vijit Jain from Citi.

Vijit Jain — Citigroup — Analyst

Thanks, Anuj. I have a couple of questions. One, on the personal loan side, QoQ, has the growth come from outside of the postpaid base of customers? I asked that because I recall last quarter, the share of postpaid customers was 50%, this quarter is 40%. I’m just wondering if there is a greater growth from outside that base. That’s one. And I’ll just come back with the next question.

Bhavesh Gupta — Chief Operating Officer

Sure. Thank you, Vijit, for the question. So, your observation is right. Actually, it is on number of loans because we have grown much, much larger than the previous quarter. Percentage were like — looks like 40% has come from postpaid, but there’s nothing material which has changed.

One definitely material change which has happened, as the personal loan book has started to mature more, and I mentioned about this last quarter also, earlier, broadly, we were doing about 10% approximately — our existing personal loan customers, when they close their loan, a new loan by the lenders, that percentage has started inching more closer to 15%, 17%. So that has been — and that ticket size is a bit larger. So, hence the value of loans coming from existing personal loan customers has increased. But the postpaid number of loan penetration to overall PL has remained the same. So, it’s more mathematical outcome, but no material change in terms of the customer adoption of the product.

Vijit Jain — Citigroup — Analyst

Got it. Thanks, Bhavesh. My next question is in terms of overall lending partners, is that number at eight right now? Same as last quarter? And could you share what percentage of loans disbursed is disbursed by the partner with the highest share among those eight?

Bhavesh Gupta — Chief Operating Officer

Yeah. So, the number is actually nine. We’ve got Flipkart partners. And we got I think about five or six lending partners. We don’t actually disclose the share that we do. But I think that we’d mentioned to you that we have partners across this category who do personal loan, postpaid, and merchant credit. So there is not one partner who’s taking the lion’s share of this business. There is a material distribution basis, the lenders appetite on how much business they want to take. But, currently, it is reasonably well distributed amongst the partners that we have.

And the other question, we had announced publicly that we’ve added one more lender, which is Piramal Enterprises. Hopefully, we will take them live sometime in quarter four. And we have a decent pipeline of new lending partners that intend to get onboarded to leverage the Paytm ecosystem on the platform for credit. And we obviously welcome all the new partners coming onboard, and we will be adding them in due course of time.

Vijit Jain — Citigroup — Analyst

Great. Thank you, Bhavesh. Those are my questions. I’ll jump back into the queue.

Operator

Thank you, Vijit. The next question we’ll take from is Mr. Saurabh Kumar from JPMorgan. Saurabh, your line is unmuted. Saurabh, your line is unmuted.

Saurabh Kumar — JPMorgan Chase & Co. — Analyst

Hi. Am I audible?

Operator

Yeah, you are.

Saurabh Kumar — JPMorgan Chase & Co. — Analyst

Okay. Just three questions from my side. One is the indirect costs reduction, which we’ve had, or at least, the cost control we have, how should we think about the indirect cost growth from here on?

The second is, if we look at the EBITDA trend, it’s very clear that you could turn positive or EBITDA neutral, at least maybe by March quarters. So, will that be a fair assumption to be making?

And lastly, on the credit card business, could you just kind of comment on what’s the card sourcing velocity at this point of time? And how should we think about it? Thank you.

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

Thanks, Saurabh. Maybe I’ll take the first two and Bhavesh could take the third question. So, indirect expenses and EBITDA, maybe I’ll take it together. Obviously, I have given EBITDA guidance for breakeven, which is September 2023 quarter. Compared to the time when we gave that guidance, we are ahead of our plans. But we would like to maintain our September 2023 guidance for EBITDA breakeven.

On indirect expenses, in particular, obviously, our focus is to make sure we reduce EBITDA losses as per the guidance that we have given, but when we do see opportunities and we do see many opportunities to invest in our business for short and medium term growth [Technical Issues] opportunities. While our last quarter number was relatively flat on indirect expenses, you would have seen that on a year-on-year basis, we’ve actually increased our indirect expenses by 47%.

So, we do make — continue to make investments in our business. And we have the sort of luxury of being able to do that because our revenue and contribution margin are performing really, really well. So we can achieve both objectives of reducing our EBITDA burn while continuing to invest in indirect expenses where we see high ROI.

Bhavesh, you want to take the question.

Bhavesh Gupta — Chief Operating Officer

Yeah, sure. Yeah. Hi, Saurabh. So, Saurabh, on the cards business, we’re very excited in building our cards business. It’s a very nascent business that we started about 18 months back. We are very privileged to have two of India’s largest issuers as our partners, HDFC Bank and SBI Cards. And hence our portfolio of cards business has shown robust growth. While we’ve not declared actual numbers, but we — I can only suggest to you is, at this point in time, that business is operating much beyond our expectation in terms of customer adoption, coming on the back of the fact that the customer value proposition, which is powered by our issuing partners and obviously powered by Paytm platform usage, is really giving us good customer quality with our issuers are very happy with. And we’re seeing very high scale of the card business.

What we believe is that our aspiration to build at least a million cards a year on issuing side, maybe over the next 12 to 18 months, continues to remain as strong as ever. And we would be guided by that as we build this cards business. And, hopefully, in the future, as we feel it is now a material side of our business, we would like to disclose more details about it.

Saurabh Kumar — JPMorgan Chase & Co. — Analyst

So, thank you. So, 1 million cards in 12 months, that’s the target, right?

Bhavesh Gupta — Chief Operating Officer

No, I’m saying we continue to aspire to build 1 million cards originated over the next 12 to 18 months. And that’s an aspiration that we would like [Indecipherable].

Kunal Shah — ICICI Securities Ltd. — Analyst

Okay, got it. Thank you.

Operator

Thanks, Saurabh. The next question we’ll take from Mr. Kunal Shah from ICICI. Kunal, you can unmute your line.

Kunal Shah — ICICI Securities Ltd. — Analyst

Hello, yeah. Am I audible?

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

Yeah, Kunal. You’re good.

Kunal Shah — ICICI Securities Ltd. — Analyst

Yeah. So, firstly, again, to touch upon this question with respect to the postpaid, in fact, when we look at the overall traction in terms of the number of loans disbursed, in fact, normally, it used to be in the run rate of, say, 2-odd-million. But this quarter, it seems to be slightly on the lower side. So just want to get that sense in terms of [Indecipherable] postpaid, why it’s just like point-six-odd million and how should we look at it? Because it’s hardly like 7%, 8% kind of a sequential growth?

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

Yeah. So, Kunal, we had to make some adjustments with regards to new digital lending guidelines, which we had called out very clearly, which meant that our lending partners and ourselves, we had to make adjustment in terms of fund flow. That clarification took time from the regulator. I think it came in about 40, 50 days later on, that the entire fund flow has to be reorganized this manner, which was the way we were doing, and hence that is a disruption that we saw in the last quarter. But it is — from a new customer origination and acquisition perspective, we continue to see very robust growth. Every month, we’re onboarding more than 400,000 new postpaid customers. So, that hasn’t stopped. It was just a recalibration that we had called out in a specific call that we had done to align to the front row, which took some time for us to align and clarification, which is now behind us.

Kunal Shah — ICICI Securities Ltd. — Analyst

Okay. So, when we look at it now, incrementally, the run rate should get better towards that number. So this was just a quarter’s disruption and that’s more or less…

Bhavesh Gupta — Chief Operating Officer

Yeah. So, very honestly, we don’t track this on that basis that how much is postpaid doing in terms of number of new incremental loans. We track on basis on new customer acquisition. I can definitely confirm to you that our new customer acquisition on postpaid will be highest ever that we’ve seen thus far and will continue to have the same trajectory.

What will that mean in terms of new customers converting their postpaid lines to actual loan is a matter of conjecture, which will happen as per the customer expectation over the next quarter. It should broadly be in the same range, but I can’t comment, actually, we’ll be 2 million or 1.5 million or 2.5 million, but it will be in that range for sure.

Kunal Shah — ICICI Securities Ltd. — Analyst

Sure. And secondly, with respect to the direct cost on the promotional cashback and incentives, so whatever would be the incremental which is there for the quarter, maybe almost like more than 30% kind of sequential rise out there, any color that you can share in terms of how much would be related to the payments and how much would be towards the rolling out of the Financial Services or maybe enrolling more of the customers for that service? And how much would be towards the commerce?

Bhavesh Gupta — Chief Operating Officer

Yeah. So, actually, the cashback is split predominantly into two parts, which is that we do cashback on our payment services. There is some customer incentives that we also used to pass till September for promoting postpaid at different online merchants on behalf of lenders. So, that cashback increase, we’ve got postpaid of the GMV was very high in the last quarter. That cashback saw a rise. But what we figured out very clearly now with our partners, that is actually a payment charge. So from next quarter onward, that will start showing in our payment charges. So that postpaid incentives will all move to payment charges. So, it is predominantly the increase that you see in the last quarter was driven by postpaid.

Kunal Shah — ICICI Securities Ltd. — Analyst

It was driven by postpaid, yeah.

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

Kunal, one more thing I’d like to add here. Your question was related to, let’s say, payments, commerce and financial services. So, postpaid — because we are accounting for — as a payment, so it’ll go towards payment charge from next quarter. So, you’ll see payment charge line item, but the commerce spark incidentally, we internally have a key KPI that it should not be more cashback than the margin we’ve talked about in our previous earnings also where our commerce business continues to operate with profitability as a target and it has achieved profitability, complete operating, full cost loaded profitability. And like you said, we don’t have it immediately [Indecipherable] available that this much was for payment, this much for commerce. In payment, the cashbacks are given only as an incentive to the new customer. If you are a first time customer, we give you incentive to try out different services, but if you are old customer, that is reduced dramatically. And that is how the cashback and marketing expense were reduced over the period.

Kunal Shah — ICICI Securities Ltd. — Analyst

Sure. And lastly, in terms of the commerce now, maybe with the opening up of all the activity levels and situations stabilizing, and now we would get more sense in terms of how the overall positioning is, say, for Paytm in the commerce. So, sequentially, I think there was a dip, but otherwise how should we actually see the traction with respect to the commerce business going forward?

Bhavesh Gupta — Chief Operating Officer

More or less, all commerce — we do three kind of commerce. One is led by shopkeepers commerce, deal gift vouchers that shopkeepers enable. Second is ticketing commerce, which is led by movie trends, cinema, and all these commerce. The movie part has not come back, by the way. We want to still tell you that movies footfalls have not happened yet. So, one of the important driver of commerce movies has not happened. Third is advertising, which is definitely — not just — because we treat credit card as advertising. So for us, it definitely has grown. And like I said, first part where we help the shopkeepers has grown and travel has grown, but not movies.

Kunal Shah — ICICI Securities Ltd. — Analyst

Thanks. And all the best. Yeah, thank you.

Bhavesh Gupta — Chief Operating Officer

Thank you, Kunal.

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

Thank you.

Operator

Thanks, Kunal. The next question will be from Manish Shukla from Axis Capital.

Manish Shukla — Axis Capital Ltd. — Analyst

Good evening. Thank you for the opportunity. Firstly, what does it take for a merchant to start accepting BNPL because that number is growing very fast at now at 15 million merchants. So what does a merchant need to do to start accepting BNPL?

Bhavesh Gupta — Chief Operating Officer

So, Manish, the merchant has something called a Paytm for Business app. On the Paytm for Business app, the merchant can subscribe to the service. Depending upon the category the merchant, there is a charge the merchant has to accept. And it could also be given free if you are a very, very small merchant and we would like to enable that merchant for Paytm Postpaid. The moment the merchant accepts the terms and conditions for Paytm for Business, it is — the merchant is onboarded. If the merchant meets the risk criteria, as defined by our risk team, because it’s a credit instrument where the merchant is allowed to go through a risk criteria. So, that is how the entire onboarding process works. It’s completely digital and it is obviously DIY for the merchant.

Manish Shukla — Axis Capital Ltd. — Analyst

So, the number of devices, we are at 5 million and acceptance of BNPL is at 15 million. Should we think of that 15 million as a potential universe where you can cross sell devices?

Bhavesh Gupta — Chief Operating Officer

Yeah. I think that could be one of the ways because these are materially decent sized merchants, then only they meet the risk filter and also they meet the classification for themselves to accept a credit instrument. Yeah. So you could say that could be an opportunity, but not an exact opportunity. But, yeah, that could be an opportunity for us.

Manish Shukla — Axis Capital Ltd. — Analyst

Okay. Moving on to platform fees, could you tell us how does a platform fee work and what percentage of your users might be paying platform fee at the moment?

Bhavesh Gupta — Chief Operating Officer

See, platform fee as a part of our overall revenue is a small number. We — for our various categories, when customer come on the Paytm app, right, for doing certain set of donations and activities, let’s say, movie ticket booking or doing some recharges, etc., there is a small fee which is levied on a cohort of customers because we offer them various other value-added services including, and not limited to, things like bill reminders, autopay, etc., etc. And hence these customers subscribe to these services and they end up paying a platform fee.

But purely from a rupee quantum of this charge, that charge is still very immaterial to the overall revenue that we make from payments.

Manish Shukla — Axis Capital Ltd. — Analyst

And has there been any communication or otherwise from either the regulator or government about this platform fees being levied? Because in some sense, technically, that makes UPI as not a free service, right?

Bhavesh Gupta — Chief Operating Officer

No. So, I just want to clarify, Manish. There are two different parts. There is no low platform fee that we’re charging to merchants when we’re giving them any kind of funding source. Some of the competitors do that in the online space. We are not charging those kinds of fees, etc. This is the fees that the consumer is paying when they’re trying to consume certain services on the Paytm platform. The regulator has very clearly called out on what services you can charge and on what services you cannot charge. The ones they have allowed us to charge, we are charging on them. So, it’s completely compliant to the regulatory guidelines.

Manish Shukla — Axis Capital Ltd. — Analyst

Okay. Thanks. And the next question, in response to an earlier question, you said that the starting next quarter, accounting will move from cash back to processing charges. Is it material enough for you to read to a sequential decline in net payment margins?

Bhavesh Gupta — Chief Operating Officer

Madhur, would you want to take that?

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

Yeah. It is an immaterial number, but our net payment margin sort of continues to grow. So it will have some impact, but we don’t think it will lead to a drop in net payment margin per se.

Manish Shukla — Axis Capital Ltd. — Analyst

Okay. And really, the last question, any update on your payment aggregator application with the Reserve Bank?

Bhavesh Gupta — Chief Operating Officer

Yeah. So, the payment aggregation, which is our — Paytm Payment Services license is in progress, whatever engagement that we had to do with RBI has happened. As you can see, publicly, that various other PAs have started to get the license. We do believe that we should also be getting our own license in the due course of time and fairly soon.

Manish Shukla — Axis Capital Ltd. — Analyst

Okay, sure. Those were my questions. Thank you.

Operator

Thanks, Manish. The next question, we’ll take from Rahul Bhangadia from Lucky Investments.

Rahul Bhangadia — Lucky Investment Managers Pvt Ltd. — Analyst

Thank you for taking my questions, sir. Congratulations on a great set of numbers. Just one question. What — should we expect the capex rate to be in — on a run rate basis, I see H2 last year and H1 this year were reasonably higher than what we used to see before.

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

Yeah. So, Rahul, most of our capex is related to soundbox and devices. And as you know, we have ramped up — ramped that up and we have continued to talk about there being a large opportunity there. So, currently, I think we’re doing somewhere between INR120 crores, INR150 crores a quarter of overall capex. As I said, vast majority of that is related to devices. And you should expect that to be broadly the level over the next few quarters.

Rahul Bhangadia — Lucky Investment Managers Pvt Ltd. — Analyst

So, roughly, what, INR crores to INR500 crores per annum is the [Indecipherable] number we should expect?

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

So, the INR120 crores to INR150 crores a quarter…

Rahul Bhangadia — Lucky Investment Managers Pvt Ltd. — Analyst

Yeah, yeah. Okay.

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

…might do INR600 crores a year.

Rahul Bhangadia — Lucky Investment Managers Pvt Ltd. — Analyst

Yeah. And the related question would be what would be the depreciation policy here because now we are running a run rate of about INR400 crores of depreciation per annum and we are doing a capex of INR500 crores or maybe INR600 crores. What’s the policy that we are looking at here?

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

Yeah. The philosophy that we took on depreciation is that we wanted our depreciation to be — so we wanted the depreciation rate to be faster than the average life of a device. So, for soundbox, we depreciate it in two years. For card machine, we depreciate in three years, which we think is at least 20% to 30%, if not more, less than the average life of the device. And the way we price this is a payback period, which is better than the depreciation period for the device. So, we try to be conservative on each one of these things. But to answer your direct question, soundbox is at two years and card machines is for three years.

Rahul Bhangadia — Lucky Investment Managers Pvt Ltd. — Analyst

Thank you so much.

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

Thanks, Rahul.

Operator

The next question, we’ll take from Mr. Sameer Bhise from JM Financial.

Sameer Bhise — JM Financial — Analyst

Yeah, hi. Thanks for the opportunity. Can you talk a bit about the GMV per MTU metric. I think last couple of quarters, probably we have not alluded, but how do you think about it over the medium to long term?

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

Just to be clear, the reason why we don’t refer to that number is because, effectively, we have a total GMV number, which is all transactions which are processed by Paytm. And in some of those cases, that is being done by the MTU numbers that you see, but in some cases, that is actually not being done by that MTU number. So, for example, if I have a card machine at a retail shop or at a petrol pump, they might be accepting credit card which does not belong to our MTU. And same thing would happen in the online world. Same thing would happen when you — somebody uses a third party app to scan a Paytm QR. So there’s a fair amount of GMV in our business which is unrelated to the MTU base that you see.

So, sort of taking the GMV divided by MTU is probably not — [Indecipherable] apples and oranges. And as a result, we sort of don’t calculate that and give that number because it may be misleading to think that it is this MTU which is generating that GMV. Does that make sense, Sameer?

Sameer Bhise — JM Financial — Analyst

Yeah. Probably I’ll take it offline as well. Secondly, there is a news article on RBI giving some clarifications or response on the IT audit. Would be helpful if you could give us some sense on that.

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

So, we actually have, in our earnings release, given a statement on this. So, I’ll just refer you to that. In summary, the Paytm Payment Bank management has told us that they have received the IT audited report and RBI’s observation on the report. As per the preliminary assessment done by them, most of the observations are around continuous strengthening of IT processes, IT outsourcing processes and operational risk management. And the bank is in the process of responding to RBI. And they’re just, obviously, very, very highly focused and prioritizing the conversation with RBI to make sure that we’re fully compliant in letter and spirit. And, yeah, so that’s sort of the update that we have.

And, obviously, if we have more updates, we’ll share them with the stock exchanges. But I’ll just refer you to the note that we have in the earnings release, which sort of gives you the complete picture.

Sameer Bhise — JM Financial — Analyst

So those were my two questions. Thank you. And all the best. Congrats on…

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

[Technical Issues] the opportunity to also mention that we have shared in March 2022 when this issue first came up that we believe that the measures that were imposed by RBI on PPBL would not impact Paytm’s business overall business. And the fact that you see the MTU and the revenue growth performance of Paytm since then, it sort of confirms that our initial assessment was correct. And we don’t see any sort of material impact on Paytm’s overall business because of the RBI measure on Paytm Payments Bank.

Sameer Bhise — JM Financial — Analyst

Sure. That’s helpful. All the best. Thank you.

Operator

Next in queue would be Rahul Jain from Dolat Capital.

Rahul Jain — Dolat Capital Market Private Ltd. — Analyst

Yeah, hi. Thanks for the opportunity. And congratulations on very strong execution. I would just like you to help me on arriving at potential areas for us to get EBITDA neutral and beyond. So, firstly, from a payment processing charges perspective, this is the first quarter we see very little optimization in this line item as a percentage of payment services. So, can we conclude that easy optimizations or the relatively easy picking in this cost item are behind us and it would be — the run rate that we see right now would be optimized further on a very smaller level? That is question number one.

Second, in this quarter, we saw other marketing expenses, seeing a big drop. So, is that a drop already baked in from a run rate point of view or some of the savings have come in the second half of the quarter, so we would see this cost going down further in the upcoming quarter? And maybe in general, if you could share what could be the areas where we could see this savings coming [Indecipherable]?

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

Yeah. On your first question, maybe I’ll answer it at the contribution margin level, Rahul. We do continue to obviously look for small and big opportunities to improve the profitability of each of our businesses. So, we continue to do that. But I think it’s fair to say that — we sort of went from single digit contribution margin two years ago to 24% a year ago to 44% now. So, clearly, that sort of trajectory, which was what we call the step change in contribution profit, we don’t expect that — anywhere close to that sort of pace to continue. But we will — we do and will continue to look for opportunities to do certainly small improvements, if not big improvements, in each of our businesses.

We do also expect to continue to benefit from some mix effects, particularly from lending business because lending is growing and is expected to continue to grow faster than our overall business, and the lending is higher margin than our payments business, for example. So, we do expect some mix effect — positive mix effect to come from that as well.

On your second question on marketing, like we had mentioned in the last quarter, we did have a jump in marketing costs last quarter because of cricket sponsorships because we had IPL as well as cricket matches last year — last quarter. This quarter, we did not have that. And as a result, our marketing costs went down. And now a chunk of marketing costs, not all, but a chunk of it is sort of lumpy, right? Especially when you start getting into sponsorships and so on. So, we did not have that this quarter. And we expect that to get a lower level going forward.

Having said that, I will say that, if there are opportunities for us to invest in user growth, whether it is to promotion incentive or marketing, which is having good ROI, we’ll continue to do that. That will not take us away from our path to breakeven and our path to creating a long-term, very profitable business. So we’ll absolutely achieve that. But if there are opportunities for us to invest in efficient marketing, whether it is through cashback or through APL or through any other mechanism, we would continue to do that, and still achieve our profitability targets.

Rahul Jain — Dolat Capital Market Private Ltd. — Analyst

Right. So, just to conclude from your thought, is it — can we say that, here on, the growth would be more sales — optimization on profitability will be more revenue driven rather than cost optimization driven?

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

I think it’s fair to say that revenue growth, as well as high — growth of high margin revenues, such as lending, will be sort of the next big uplift to contribution profit. But I will point out that we have a large payments business, which is generating significant net payment margin. So, even small improvements in that, when they drop to the bottom line, they can be very significant from a bottom line standpoint, right? So, if we’re doing INR443 crores a quarter of net payment margin, then even a 10%, 15% improvement in that can have a significant impact on the bottom line. Right? So, just because the number is actually now quite large and working on continuing to improve that number is very, very high ROI for us.

Rahul Jain — Dolat Capital Market Private Ltd. — Analyst

Sure, thank you. Those are my questions.

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

Thank you.

Operator

The next in queue is Mr. Piran Engineer from CLSA.

Piran Engineer — CLSA India — Analyst

Hi. Thanks for taking my question. Congrats on the quarter. Just on your lending business. Firstly, on BNPL, if I’m a customer who’s paying some fee and I think one-third of the customers were delight customers who don’t pay any fee, how long does it take for me to get upgraded to a delight customer status, assuming that I don’t default, of course?

Bhavesh Gupta — Chief Operating Officer

Hi, Piran. Piran, there is no — there is no time-led formula. I think the different lenders have different appetite. But I could say between six to nine months of vintage of performance, continuous performance, the lenders revisit both the limit and the risk classification. And there could be a set of customers who could be upgraded or downgraded. So, it is not that, once you’re a delight customer, you’ll remain always a delight customer. There is a small portion, I would say, which is downgraded also, and you could also be upgraded. So, it is a continuous process. But that ratio or the share of the delight to lite to mini broadly remains rangebound.

Piran Engineer — CLSA India — Analyst

But — yeah, that’s also probably because you’re still growing and a lot of your incremental customers will be, say, lite and mini. I’ll just assume as customers mature over time, maybe next two years or four years, and of course, if they’re paying, you should have more delight customers than lite and mini. And if that happens and the take rate reduce, will you pass it on to the banking partner or will we have to absorb it?

Bhavesh Gupta — Chief Operating Officer

So, Piran, it’s a matter of conjecture, which is fairly long ahead of our time at this point in time. I do believe that two things will happen. And I think I had mentioned this earlier. Number one, we don’t see for at least a couple of years to come, because it’s just 4% of our MTU, and MTU is also growing, that our new customer acquisition engine is going to slow down. And I just mentioned in a previous answer that we are seeing very robust growth every month now, more than 400,000, 450,000 users getting [Indecipherable] postpaid. So, we don’t see that slowing down. And hence the overall share of delight, lite, etc., will remain broadly rangebound.

The other thing that we also will see over a period of time is that the merchant looking at the impact of Paytm Postpaid to his sale, and hence the increasing the MDR will also be a revenue generating opportunity, which will very easily offset any drop in convenience fee, if at all it was to happen. So, that’s the way the entire business model is going to play out.

At this point in time, the business model, at least for the next 12 to 18 months, I don’t see any change in the business model, albeit it may only have an increase in revenue, especially coming from MDR because more and more merchant acceptance, especially enterprise merchants, resulting in higher MDRs, is the trend that we already see.

Piran Engineer — CLSA India — Analyst

Okay, okay. That makes sense. And on your merchant loans, what would be sort of the TAM of this business? I understand it’s just like — what, about, 1% or 2% of merchants have a loan right now. But practically speaking, what percentage of merchants are going to be on boarded on merchant loans at just INR1 lakhs, INR1.5 lakhs [Indecipherable]?

Bhavesh Gupta — Chief Operating Officer

Sure. I think that’s a very good question, Piran. The simple answer, the way we look at this piece of this, merchant loans are derivative of devices merchant because, largely, 80% of our loans are given or taken by a devices merchant. So, we index our entire merchant business to devices merchant. In total, that number is approximately 4.8 million, growing about a million a quarter. And what our belief here is, once a merchant has taken a device, six months forward, their probability of getting eligible becomes very, very high and, give or take, we see about 50% of them keep getting eligible six months forward. So, as we continue to remain very bullish on adding more and more devices, we obviously remain very, very bullish in adding more and more merchant loan.

Having said that, at current point in time, we have approximately 1.5 million merchants who are whitelisted to be given credit and have a pre-qualified offer on their app from various lenders broadly amounting to about $2 billion of disbursals that we can do. So, the TAM of current itself is very large. And as we’re adding more devices, the TAM will keep increasing.

Piran Engineer — CLSA India — Analyst

Okay. So, you said $2 billion.

Bhavesh Gupta — Chief Operating Officer

Yeah, about 1.5 million, 15 lakh merchants are currently pre-qualified by lenders. Approximately, as you know, that number is about INR1.5 lakh per merchant. So that’s the amount, INR15,000 crores to INR20,000 crores of revenue.

Piran Engineer — CLSA India — Analyst

Okay, perfect. And just lastly, in your earnings release, you mentioned about some seasonality in the cloud business [Technical Issues] if you can just sort of clarify what that was.

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

We mentioned seasonality in our commerce business. And typically, Q2 for entertainment is seasonally weak. In fact, we have said, specifically, for entertainment business, there’s seasonality. So, entertainment in Q2 is generally weak because of monsoons and so on. Also, this particular quarter, not a regular season situation, but this particular quarter, the content lineup was very weak. Whichever sort of relatively good content that we had in movies also just didn’t work as well as it was expected to. So, as a result, both movies and events had a seasonally weak quarter.

Piran Engineer — CLSA India — Analyst

I get that. That was on commerce. But if you refer to your write-up on here, I don’t know which page — there’s no page number here, but I think page 12 of the PDF, you say it’s a seasonally strong quarter for PAI cloud. And clearly, it seems so because, last three quarters, your revenue is in the range of INR190 crores to INR220 crores and now it’s shot up to INR250 crores.

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

I shouldn’t have said seasonally strong. It just was a strong quarter. Because cards did well, advertisings did a little bit better, PAI cloud did well. So, I think there we didn’t mean to say it was seasonally strong. It was just a strong quarter. Actually, we have not said seasonally strong. We just said it is driven by strong uptake in our credit card distribution. Yes, you’re right. And a seasonally strong quarter for PAI cloud. That has nothing to do with season. It just happened to be a strong quarter.

Piran Engineer — CLSA India — Analyst

Okay, okay. Fine, fine. That clarifies it. Thank you. And all the best.

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

Thank you.

Operator

Next question we’ll take from is Anand Bahudani [Phonetic] from Baidu [Phonetic].

Anand Bahudani — — Analyst

Thank you for the opportunity. And congratulations for a good ramp up in the lending services business. If you could give us some color on other financial services that you’d want to explore as the lending business kind of continues to gain momentum and it’s stabilized, what other financial services are on your priority list?

Bhavesh Gupta — Chief Operating Officer

We do Paytm Money, which is a stock brokerage and mutual fund distribution, and we also have insurance distribution and brokerage business. So these two are the line items.

Anand Bahudani — — Analyst

So on those, can you give us some color as to what you’re targeting in terms of numbers and what kind of TAM…

Bhavesh Gupta — Chief Operating Officer

We call them future bets because there’s a tremendous amount of technology development and brewing up that it requires. So, they are materially large as you can see numbers yourself. It is led by credit. Most of the revenue is driven by credit and loans.

Anand Bahudani — — Analyst

Got it. Secondly, on our expected credit loss, in case of merchants, I see the number is higher than in case of postpaid. So, just wondering, I would have assumed that merchants because they’re a lot more located on a particular spot and because they probably have a device and everything, there’ll probably be lesser credit risk.

Bhavesh Gupta — Chief Operating Officer

Anand, when a loan is defined as a portfolio in lender side, as a part of that definition of loan portfolio, they put expected credit loss as a number. It has nothing to do with expected actual credit loss. That credit loss is called net credit loss, meaning this is — when you start a business, you say this is my customer acquisition cost, this is my credit loss, this is my revenue. So, expected credit loss is a number that lender puts in definition of their book of this kind of loss, which has actually nothing to do with whether the loan performance will be based on that or not. What you’re seeking is net credit loss, which is in the presentation and otherwise. We always share as a detail in subsequent slides.

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

And, Anand, if I can just supplement to Vijay’s piece, there are two different products. BNPL is a INR4,500, INR5,000 rupees short term consumption credit for 30 days. The chance of default is far, far lower for [Indecipherable] INR5,000, whereas a merchant loan is a one year, 14-month, INR1.5 lakh product through daily installments deducted through payer settlements. So, the IRR and the income that the lender makes are very different. And what customer pays in postpaid is hardly much lesser than what they’re paying merchant. So, from a risk adjusted return, merchant loan, even at a 5% expected credit loss, but the actual credit loss, as Vijay said, is lower than that. But expected credit loss, the return — for lender return for Paytm is much higher versus a Paytm Postpaid.

Anand Bahudani — — Analyst

Noted. Thank you very much. All the best.

Bhavesh Gupta — Chief Operating Officer

Thank you.

Operator

Thank you, Anand. The next question will be a repeat question from Mr. Vijit Jain. Vijit, your line can be unmuted.

Vijit Jain — Citigroup — Analyst

Yeah. Thanks, Anuj. Just a housekeeping question, alluding to one of the comments earlier made. So when a customer scans Paytm QR code to make UPI payment from a competitor app, in this instance, in this particular transaction, there is no scope for monetization. Right? And is this particular transaction included in Paytm’s UPI GMV when the regulator, NPCI, reports it on their website?

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

So, Vijit, there are — monetization definitely is included. So, if you’re looking at monetization from our device [Indecipherable] perspective or from lending perspective, that monetization is agnostic to which app is being opened to pay to the merchant, right? Could be scanning from a competition app and paying to a merchant. The merchant still needs a subscription service because he needs reconciliation at the shop and, obviously, that GMV that merchant is actually collecting is being processed through us and that is available to us to underwrite through a lending part to give credit. So, actually, there’s no problem. And this GMV is called out as B2M GMV also in definition of NPCI, and hence it eligible for various kind of incentives below INR2,000 at different points in time.

Vijit Jain — Citigroup — Analyst

Okay, got it. Thanks, Bhavesh. That was my question. Thank you, Vijit.

Operator

Thank you. And with that, we come to an end of the Q&A session. As mentioned earlier, a recording of this call and the presentation and a transcript will be put online on the company website. So, thank you all for joining.

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

Thank you. Namaskar.

Bhavesh Gupta — Chief Operating Officer

Thank you, everyone.

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

Thank you, everyone. Good day.