Paytm's Loan Model: A Short term Positive, Long-term Negative

In the short term, Paytm's loan model can be beneficial for both consumers and the company. For
consumers, it can provide access to quick and easy loans that can be used to meet urgent financial
needs. For the company, it can generate additional income through processing fees and interest
payments for Partnered NBFC.

It is estimated that the lending business contributes around 22% of Paytm's overall revenue. The
company generates revenue from lending loans in two ways:

• Loan origination fees: Paytm charges a fee to its lending partners for each loan that is
originated through its platform. This fee is typically 2.5% to 5% of the loan amount.
• Collection fees: Paytm also charges a fee to its lending partners for each loan that is
collected through its platform. This fee is typically 0.5% to 1.5% of the loan amount.

In addition to the loan origination and collection fees, Paytm also generates revenue from lending
loans through other means, such as:

• Fees for other services: Paytm may also charge fees for other services related to lending
loans, such as credit scoring, KYC verification, and loan disbursement.

For example, in your case, you took a loan of Rs. ₹18,000 from Paytm for 6 months. The monthly
EMI is Rs. ₹3,200, which includes the interest and processing charges. This means that Paytm will
earn 5% Processing Charges in the first payment itself. So, Consumer will get only ₹17,100 deducting
processing charges at the time of disbursal and Partnered NBFC will earn Rs. ₹19,200 in total from
you over the course of the loan.

In addition, Paytm also offers the option to take a new loan even if you are still repaying the
previous loan. This can be beneficial for consumers who need additional funds, but it can also be a
trap as it can generate additional income through processing fees, and they eat out @5% markup on
your loan without paying the first instalment. If you take a new loan without carefully considering
your financial situation, you may end up in debt trap.

© Vijay
The Long-Term Impact of Paytm's Loan Model:

In the long term, Paytm's loan model can have negative consequences for both consumers and the
company. For consumers, it can lead to over-borrowing and debt problems. For the company, it can
increase the risk of defaults and bad loans for Partnered NBFC.

A study by the Reserve Bank of India found that the number of Indians with outstanding personal
loans has increased by 50% in the last five years. This is partly due to the rise of online lending
platforms like Paytm, KreditBee which make it easier for people to get loans.

However, easy access to credit can also lead to over-borrowing. People who take out loans without
carefully considering their financial situation may end up struggling to repay them. This can lead to
debt problems, such as missed payments and defaults.

For Paytm, the rise in over-borrowing can also be a problem. If too many people default on their
loans, it can hurt the company's bottom line. In addition, it can also damage Paytm's reputation and
make it more difficult for the company to attract new borrowers in the future.

Online Real-Life Data:

• According to a report by the Credit Information Bureau (India) Limited (CIBIL), the number of
borrowers with overdue loans of more than 90 days has increased by 25% in the last year.
This is a worrying trend, and it suggests that many people are struggling to repay their loans.

• The report also found that the average debt burden of Indian households has increased to
Rs. 7.08 lakh. This means that many households are spending a significant portion of their
income on debt repayment.

• According to Report by RBI, the number of borrowers who defaulted the personal loans
increased by 20% in the quarter of 2023. This is likely to the high interest rates and
processing fees on loans.

• Another Report by Credit Agency Report found that average debt to income ratio of Indian
Households, has increased to 26% in 2023.

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 • These data points suggest that the long-term impact of Paytm's loan model could be
negative for consumers. If more and more people take out loans that they cannot afford, it
could lead to a debt crisis in India.

Conclusion:

In conclusion, Paytm's loan model can have both positive and negative consequences for consumers
and the company. In the short term, it can provide quick and easy access to funds for consumers and
generate additional income for the company. However, in the long term, it can lead to over-
borrowing and debt problems for consumers, and it can also increase the risk of defaults and bad
loans for the company.

It’s Vey Commendable that, What NAVI is following the practices in this Business.

And there is a high probability that these Lending business models can thrive and succeed for a
couple of more years in India. As India, now in a better job market and employment opportunities
and there is sufficient income resources to repay the dues.

But, this model can possess the greater risk exposure to the economy when there is a big financial
crisis like Banking Crisis in 2008.

In this process, there is nothing wrong did by Paytm. It’s all the stock market game, Investors
Pressure.

Until then, they succeed.

© Vijay