Merchant payments outpace consumer play as Paytm holds profit edge: Bernstein
Merchant payments are emerging as the more attractive segment in India’s digital payments ecosystem, with Paytm retaining an edge in revenue intensity and profitability, according to a February 23 report by Bernstein.
The brokerage said merchant acquiring offers structurally stronger monetisation than consumer payments, driven by higher take-rate instruments such as credit cards and online gateways, device-led revenue streams, and the ability to cross-sell credit.
In contrast, consumer payments, particularly peer-to-peer (P2P) UPI transactions, remain difficult to monetise, with take rates limited to under 0.4 basis points and incentives forming a key revenue source.
In payments, a take rate is the percentage of transaction value a platform earns as revenue, and a basis point is one-hundredth of a percentage point. Despite processing significantly lower total payment value, Paytm reported revenue comparable to its larger rival in the first half of FY26 (H1 FY26). After adjusting for revenue streams for non-recurring payment categories, including rent-related payments, real-money gaming flows and the RBI’s PIDF incentive, Paytm’s revenue was about 20 per cent higher in the period, the report noted.
The Noida-headquartered payments giant had reported revenue of INR3,979 crore in the first half of FY26, marking a 26 per cent year-on-year increase.
On the merchant side, Paytm earns more than twice the revenue of its peer, aided by a larger installed base of payment devices, stronger lending penetration and a greater share of higher-margin products, Bernstein said. This has translated into higher revenue per device and per active merchant, reinforcing its monetisation advantage.
The report added that while the consumer scale provides long-term optionality, the path to monetisation remains clearer on the merchant side. Cross-selling loans to merchants offers underwriting advantages due to visibility into transaction flows, making the segment structurally more attractive.
On profitability, Paytm has reached breakeven at the profit-before-tax level in FY26, while its rival continues to report losses. The company has reported three consecutive profitable quarters, with profit after tax of INR334 crore in H1 FY26, excluding exceptional items. For the quarter ended December 2025 (Q3 FY26), it posted a profit of INR225 crore.
Bernstein attributed much of the gap to elevated ESOP expenses at the competing platform. At present, Paytm’s ESOP expense stands at just 1.6 per cent of its overall H1 FY26 revenue, demonstrating strong cost discipline. The brokerage concluded that scale alone does not guarantee superior monetisation, and that merchant-focused economics currently offer a more dependable route to profitability.
