India’s fintech sector, once a high-octane engine of growth fueled by a volume-first strategy, is undergoing a profound transformation in Q4 FY25. Companies like Paytm, PB Fintech (Paisabazaar), and MobiKwik, which previously chased scale through aggressive transaction growth and easy credit, are now pivoting toward profitability and sustainability. This shift, driven by regulatory pressures, economic realities, and evolving investor expectations, signals the end of the "swipe now, figure out later" era. But what does this mean for the middle class, a demographic that has been both a driver and beneficiary of fintech innovation?
From Breakneck Growth to Measured Profitability
For years, fintechs thrived on a volume-first approach, prioritizing rapid user acquisition and transaction growth over immediate profitability. Paytm’s UPI dominance, MobiKwik’s Buy Now, Pay Later (BNPL) product Zip, and PB Fintech’s credit marketplace Paisabazaar exemplified this strategy, leveraging India’s digital infrastructure, like UPI and Aadhaar, to onboard millions. However, Q4 FY25 earnings reveal a sharp departure from this model. Paytm’s personal loan disbursals dropped 19% quarter-on-quarter to ₹1,422 crore, with CEO Vijay Shekhar Sharma explicitly stating, “Personal credit, unless something big changes, will not see much larger growth.” MobiKwik’s BNPL disbursals fell 41% to ₹5,358 crore, and its financial services revenue shrank 28% to ₹402 crore. Meanwhile, PB Fintech’s Paisabazaar saw a 2% decline in unsecured lending volumes, with credit card sourcing dropping from 583,000 to 517,000 units year-on-year.
Instead, these companies are doubling down on secured lending, payment monetization, and operational efficiency. Paytm is focusing on merchant lending, with disbursals growing 13% sequentially to ₹4,315 crore, underpinned by Default Loss Guarantee (DLG) structures to mitigate risk. MobiKwik has shifted toward high-yield use cases like RentPay, achieving a Q4 take rate of 0.64% and net margins of 15 basis points, while slashing user incentives by 62%. PB Fintech is scaling secured products like home loans and loans against property, with loan disbursals rising 38% to ₹20,465 crore, primarily driven by secured lending.
Why the Pivot?
Several forces are driving this strategic recalibration:
Regulatory Tightening: The Reserve Bank of India (RBI) has tightened oversight, particularly on unsecured lending. The Digital Lending Guidelines (DLG) require lenders to rely more on internal underwriting, reducing fintechs’ roles to tech enablers rather than full-stack lending players. This has constrained companies like MobiKwik and Paytm, which saw significant revenue drops in their financial services segments. The RBI’s actions, including its clampdown on Paytm Payments Bank for compliance lapses, underscore a broader push for risk mitigation and financial stability.
Economic Realities: A higher cost of capital, driven by global economic trends and domestic inflation concerns, has made cheap credit less viable. The RBI’s expected interest rate cut to 5.75% on June 6, 2025, reflects cautious optimism, but lenders remain wary of unsecured loans due to rising default risks. The sharp 15% decline in personal loan disbursals in Q3 FY25 (₹25,050 lakh crore from ₹29,608 lakh crore) highlights this caution.
Investor Pressure: Investors, once enamored with growth metrics, now demand profitability. The fintech sector’s funding dipped 11% year-on-year to $795 million in H1 2024, signaling a “funding winter” that prioritizes sustainable business models. MobiKwik’s IPO downsizing from ₹1,900 crore to ₹700 crore reflects this sobering reality, as does Paytm’s stock volatility post-RBI actions.
Market Maturation: India’s fintech ecosystem is maturing, with a staggering 87% adoption rate compared to the global average of 64%. As the market saturates, fintechs must extract more value from existing users rather than chasing new ones. This is evident in MobiKwik’s focus on UPI-enabled RuPay credit cards and Paytm’s push for product-led growth via AI-driven cost efficiencies.
Implications for the Middle Class
The middle class, a key driver of India’s fintech boom, stands at a crossroads. Fintechs have empowered this demographic with accessible credit, seamless payments, and wealth management tools, but the pivot to monetization could reshape their experience:
Reduced Access to Unsecured Credit: The pullback in personal loans and BNPL products like MobiKwik’s Zip may limit quick credit options for middle-class consumers, particularly for discretionary spending. For instance, Paytm’s 60.8% year-on-year drop in personal loan disbursals and MobiKwik’s pause on Zip for new users signal tighter credit availability. This could force reliance on traditional banks, which often have stricter eligibility criteria, potentially sidelining younger or less creditworthy borrowers.
Higher Costs for Digital Payments: As fintechs seek to monetize UPI, which currently offers low or no merchant discount rates (MDR), transaction costs may rise. Paytm’s Sharma anticipates MDR introduction “sooner than later,” which could translate to higher fees for merchants and, indirectly, consumers. For the middle class, accustomed to near-free digital payments, this could mean marginally higher costs for everyday transactions like groceries or utility bills.
Shift to Secured Lending: The focus on secured loans (e.g., home loans, loans against property) benefits middle-class consumers with assets but disadvantages those without collateral. PB Fintech’s 38% growth in loan disbursals, driven by secured products, highlights this trend. While this could stabilize credit markets, it may exclude lower-middle-class households seeking small-ticket loans for education or emergencies.
Potential for Financial Inclusion: On the flip side, the pivot could deepen financial inclusion. Paytm’s soundbox, which dominates Mumbai’s kirana stores, and MobiKwik’s RentPay leverage data to offer targeted financial products, potentially benefiting small merchants and gig workers within the middle class. These tools provide insights into transaction patterns, enabling fintechs to offer tailored loans or insurance, fostering entrepreneurship.
Balancing Innovation and Stability
The fintech pivot reflects a broader tension between innovation and stability. While the volume-first strategy democratized financial access, it often masked unsustainable unit economics. MobiKwik’s 19.7% gross margin in payments, achieved through slashing incentives, and Paytm’s 60% reduction in customer support costs via AI signal a maturing industry that prioritizes long-term viability over short-term scale. Yet, this shift risks alienating the very middle-class base that fueled fintech growth. The challenge lies in balancing profitability with affordability, ensuring that digital finance remains inclusive.
For the middle class, the signs are mixed. Those with assets or stable incomes may benefit from expanded secured lending and innovative payment solutions. However, younger or less affluent segments could face reduced credit access and higher transaction costs, potentially stalling their financial mobility. Fintechs must innovate within regulatory constraints, leveraging tools like the Account Aggregator framework to underwrite thin-file borrowers without reverting to risky unsecured lending.
The Indian fintech sector’s shift from volume to value in Q4 FY25 marks a pivotal moment. Driven by regulatory scrutiny, economic pressures, and investor demands, companies like Paytm, MobiKwik, and PB Fintech are redefining their growth engines. While this pivot promises sustainability, it could reshape the middle class’s financial landscape, limiting credit access for some while opening new opportunities for others. The true test will be whether fintechs can maintain their inclusive ethos while chasing profitability—a delicate dance that will define India’s digital finance future.
-Chetan Desai (chedesai@gmail.com)
