Paytm to be key beneficiary of UPI incentive scheme, may cash in 5-7% of total: Morgan Stanley

New Delhi [India], January 12 : Digital payments and financial services company Paytm is expected to be a key beneficiary of India's latest UPI incentive scheme, said brokerage and global investment firm Morgan Stanley.
This report by the firm came right after the Union Cabinet on Wednesday approved the incentive scheme with a financial outlay of Rs 26 billion for the promotion of RuPay Debit Cards and low-value BHIM-UPI transactions (P2M) for 2022-23, compared with Rs 15 billion in 2021-22.
"Apart from banks, Paytm should be a key beneficiary of the above (scheme). On our estimates, Paytm would have received 5-7 per cent of the FY22 incentive, and assuming a similar share for FY23, this would represent 3-5 per cent of our contribution profit estimate (1 per cent higher than what we previously assumed for FY23)," the brokerage firm also mentioned.
The associate of Paytm's parent firm One97 Communications' Paytm Payments Bank is the top beneficiary and leading remitter bank for UPI transactions.
Paytm Payments Bank being an Issuer and PSP Bank in itself along with being an acquirer of UPI transactions. Under the scheme, acquiring banks are provided with financial incentives for promoting point-of-sale and e-commerce transactions using RuPay debit cards and BHIM-UPI transactions.
Vijay Shekhar Sharma, Founder, CEO and MD of Paytm, welcoming the Cabinet's move, tweeted, "Huge commitment by GOI Cabinet to push Digital Payments thru UPI and RuPay! The #DigitalIndia mission of our government will bring long-term benefits to our economy."
During its last earnings call, Paytm's top management had said, "UPI merchant payments (which are free for the merchant) have become revenue-generating given the government is encouraging digital payments in the form of incentives for UPI P2M transactions. UPI helps us with efficient customer and merchant acquisition and allows us to better monetize our platform by upselling financial services as well as payments devices."
This incentive scheme will facilitate the building of a robust digital payment ecosystem and promote RuPay Debit Card and BHIM-UPI digital transactions.
In line with the objective of 'Sabka Saath, Sabka Vikas', the scheme will also promote UPI Lite and UPI 123PAY as economical and user-friendly digital payments solutions and enable further deepening of digital payments in the country, across all sectors and segments of the population.
The government also intends to continue the financial support for digital payments announced in the previous Budget, with a focus on promoting use of payment platforms that are economical and user-friendly. The scheme has been formulated in compliance with the aforesaid Budget announcement.
Meanwhile, the Paytm Super App continues to see growing consumer engagement with the average Monthly Transacting User for the quarter that ended December 2022 at 85 million, registering a growth of 32 per cent on a yearly basis. The total merchant Gross Merchandise Value processed through the platform for the quarter ended December 2022 aggregated to Rs 3.46 Lakh crore (USD 42 billion), marking a yearly growth of 38 per cent.
Moreover, Morgan Stanley pegged Paytm's shares target price to be at Rs 695 going ahead as against Rs 579 at Wednesday's close. It essentially means there is an upside potential of about 20 per cent returns on investment for investors.