One97 Communications has reduced its payment processing costs by about 35% by moving backend operations from Paytm Payments Bank to private lenders. This shift is a key part of the company's efforts to reach profitability in FY26 by improving operational efficiency.
One97 Communications, the parent company of Paytm, has seen a notable drop in its payment processing expenses following the migration of its backend operations to other banks. Data from the company indicates that processing costs have fallen by approximately 35% since it began using private sector lenders like Axis Bank, HDFC Bank, and Yes Bank instead of its associate entity, Paytm Payments Bank Limited (PPBL).
Impact on Operational Costs
Before this transition, the cost of processing payments relative to the company's gross merchandise value, or the total value of transactions processed, was about 0.18%. Following the move in the first quarter of FY25, this figure has declined to around 0.12%. This reduction is significant because payment processing is a major operational expense for fintech companies. By lowering these costs, the company aims to improve its profit margins.
Shift in Business Model
The move comes after regulatory actions by the Reserve Bank of India, which restricted the operations of Paytm Payments Bank. While Paytm had previously indicated that the costs of working with outside banks might be similar to those of its internal payments bank, the recent data shows a more favorable outcome. Large private banks are often able to manage payment services more efficiently because these operations represent a smaller portion of their total business volume.
As part of this shift, Paytm is also changing its business focus. The company is moving away from being a direct provider of some payment services and is instead positioning itself more as a distributor of financial products. While this change has affected its total revenue, it is designed to help the company achieve sustained profitability by streamlining its cost structure. Analysts and investors have been closely tracking this transition as a primary driver for the company's financial performance in the coming quarters.
Challenges and Monitoring
Despite the efficiency gains, the company continues to operate in a highly competitive digital payments space where profit margins remain thin. The transition away from its own payments bank has forced a complete restructuring of its backend infrastructure. Investors will likely watch whether the company can maintain these lower processing costs as it scales its financial product distribution. The key monitorable for the next few quarters will be the company’s ability to turn these cost savings into consistent bottom-line growth, especially as it navigates the impact of its shifted business model on overall revenue.