Paytm rides out collateral hit from gaming ban, bets on AI for growth

The government’s crackdown on real-money gaming hurt Paytm’s profits last quarter, but the fintech giant’s overall turnaround has been on track. The company is a one-time ₹190 crore impairment of loan to gaming joint venture First Games Technology Pvt. Ltd, but underlying profitability and growth momentum remained intact.

“Our future growth and expansion in profitability will come from India’s financial services business, global replication of our product technology and our AI stack from infrastructure to use cases,” founder and chief executive officer Vijay Shekhar Sharma said at the company’s September quarter earnings call on Wednesday.

With regulatory shake-ups largely behind it and the rollout of AI-powered tools across its merchant network, Paytm is refocusing on scalable, compliant and high-margin growth engines.

Paytm suffered a series of regulatory setbacks in 2023-2024 that caused its revenues to plummet and led to huge losses, and has been on the road to recovery ever since. It recorded its first PAT positive quarter in the June quarter of this financial year.

Despite the coup, profits are stable

Paytm reported 24% year-on-year revenue growth in the July-September period. ₹2,061 crore, led by merchant subscriptions and credit distribution.

Net profit was at: ₹21 crore, weighed down by one-off ₹190 crore depreciation in loan to gaming joint venture. Basic profit after tax, excluding expenses ₹211 crore. (oops comparison)

Payments remain the backbone of Paytm. Revenue from payment services, including other operating income, increased by 25% year-on-year ₹1,223 crore, while net payment revenue increased by 28% ₹594 crore.

Merchant subscriptions increased by 2.5 million during the year, reaching an all-time high of 13.7 million. “Revenue growth was stronger than expected, partly because people were spending more on credit and therefore Paytm made more money,” said Piran Engineer, vice president and research analyst at CLSA. Mint.

As people spend more using credit instruments during this festive season, the use of EMI and loan products has also increased. Consumers are shifting from paying directly through bank accounts, which may have lower margins, to paying through lines of credit or cards with relatively higher margins, and this hybrid shift is increasing Paytm’s revenue from the same user base.

Analysts said the company increased its net pay margin significantly in the quarter. “Credit card and EMI mix may vary from quarter to quarter, but overall trends are positive. We are also onboarding more online merchants, which generally have higher MDRs (merchant discount rates) and net margins,” said Madhur Deora, Chief Financial Officer.

The company’s earnings before interest, taxes, depreciation and amortization (EBITDA) ₹142 crore in the reporting quarter, while the margin increased to 7%.

The company approved investment up to 200 thousand lira ₹2,250 crore in its wholly-owned subsidiary Paytm Payments Services Ltd (PPSL) through a rights issue. This will be used to increase PPSL’s net worth, fund the acquisition of Paytm’s offline merchant payments business, support working capital and strengthen its leadership in merchant payments. This move comes after PPSL recently received in-principle authorization from the Reserve Bank of India to operate as a payment aggregator.

BNPL’s return

After a year-long hiatus, Paytm has re-entered the BNPL (buy now, pay later) space with Postpaid, which was relaunched as a line of credit on UPI (unified payment interface) in September in partnership with Suryoday Small Finance Bank.

The product was previously paused due to industry-wide asset quality issues.

While the business is yet to contribute meaningfully, analysts expect it to become a growth driver in the coming quarters. Overall, financial services distribution revenue increased 63% year over year ₹611 crore, led by commercial loans and stronger.

Sharma said the company aims to build out its financial services stack by adding Paytm Money, stockbroking and other elements. “Over time, insurance will also become part of this stack. We will explore replicating this model in other countries over the next three years,” he added.

Artificial Intelligence is a “huge source of revenue”

With the regulatory cleanup behind it, Paytm is now relying on AI to drive its next phase of growth. The company has begun using AI tools to improve cost efficiency and is moving towards AI-driven product innovation.

“AI is a big revenue driver. Cost optimization is still happening; AI is driving acceleration and deeper opportunities. It’s enabling entirely new products and services,” said Sharma.

Paytm plans to roll out AI-led infrastructure and tools across its merchant network within a year, and pilots are already underway.