Paytm Ends Postpaid Loans, Focuses on Distribution-Only Model

Paytm is undergoing a major shift in its lending strategy by completely phasing out postpaid loans and ceasing collection services for personal loans, as confirmed by a company spokesperson to Moneycontrol. The company is now focusing exclusively on a distribution-only credit model.

Currently, Paytm partners with banks and non-banking financial companies (NBFCs) to distribute and collect loans, earning commissions for distribution and bonuses for collections.

These partnerships vary, with Paytm sometimes handling both distribution and collection or just one of these functions. The lending partners manage credit assessment and risk, while Paytm’s collection commission is tied to the repayment rates of customers.

To ensure asset quality, especially for small-ticket personal loans, Paytm will no longer receive collection bonuses on existing personal and postpaid loans and will pause these products until the credit cycle stabilizes.

“Given industry asset quality deterioration for small ticket personal loans, accordingly we will not receive a collection bonus on existing books of personal loans and Postpaid loans and have decided to pause these products till credit cycle plays out,” the company stated in its earnings release.

This shift follows a slowdown in lending activities, which became evident after issues with Paytm Payments Bank Ltd (PPBL).

In response to RBI’s concerns about unsecured lending, Paytm had already announced in December last year that it would “slow down” small-ticket postpaid loans (less than ₹50,000). The latest announcement confirms a complete phase-out of the postpaid loan product.

Paytm is exercising caution with collection services while emphasizing a distribution-only model for credit growth.

“For the loans where we do distribution as well as collections, we are going to remain cautious even on merchant loans, to avoid any asset quality deterioration beyond our partners’ thresholds,” Paytm said.

The company reported that “distribution-only” loans have continued to scale well, with new lending partners, including pilots with banks, added during the quarter.

“This type of loan contributed the vast majority of consumer loans this quarter, and is our key focus as it has bigger TAM, wider interest from large banks and non-banks, easier tech integration, and more regulatory clarity,” the company informed.

Paytm clarified that it never engaged in first loss default guarantee (FLDG) agreements with its partners.

Instead, its commissions were based on collection efficiency, earning around a 3.5 percent margin for facilitating lending. Collection services for financial institutions provided an additional revenue stream, ranging from 0.5 percent to 2 percent based on efficiency.

Paytm also plans to focus on “prime and super prime” category customers, offering competitive interest rates.

“Going forward, we are also expanding by offering larger ticket business loans through a distribution model where the lender is responsible for collections,” the company said.

Source: Moneycontrol

Disclaimer: This information is covered based on the latest research and development available. However, it may not fully reflect all current aspects of the subject matter.

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