What MobiKwik's Q2 reveals about the fintech's profitability challenge

MobiKwik Systems posted a challenging second quarter marked by sharply widening losses and declining revenue, as the digital payments company grappled with the fallout from exiting its buy-now-pay-later business, an 11-crore fraud incident, and margin pressures from its surging UPI transactions.

The company's net loss ballooned nearly eightfold to Rs 28.62 crore in the September quarter, compared with Rs 3.59 crore a year earlier. Revenue from operations declined 7% year-on-year to Rs 270.21 crore, while EBITDA swung from a profit of Rs 6.80 crore to a loss of Rs 6.38 crore.

Yet CFO Upasana Taku struck an optimistic tone on the earnings call, highlighting the steady reduction in EBITDA losses. “You may recall that from Q4 to Q1, we narrowed the EBITDA loss by about Rs 15 crore, and this quarter we’ve improved it further by Rs 25 crore,” she said.

Taku noted that the company faces approximately Rs 10 crore in costs below EBITDA (roughly Rs 6-7 crore in financing costs and Rs 2-3 crore in depreciation). "We do hope that we will turn profitable sooner than later," she said.

Lending loss

The sharpest pain came from MobiKwik's financial services segment, where revenue plummeted 52% to Rs 61.3 crore from Rs 127.1 crore a year earlier. The decline reflects the company's strategic withdrawal from short-term loans in favour of its longer-tenure ZIP EMI product.

"We had discontinued our short-term BNPL product completely" as of April, CEO Bipin Preet Singh explained, noting that the product "was a sizable amount last year in every quarter."

The pivot is improving unit economics despite the revenue hit. Lending expenses dropped 46% year-on-year as margins expanded substantially, delivering a Rs 17.9 crore quarter-on-quarter gain in gross profit. Lending margins improved to 3.17% of Gross Merchandise Value from just 1.11% in the previous quarter, though still below the company's historical 3-4% range.

However, the take rate—revenue as a percentage of lending GMV—also compressed, falling from 8.41% in Q1 to 7.59% in Q2. Singh attributed this to a changing product mix.

The company operates through two models: a Default Loss Guarantee approach (80% of business), where it shares credit risk with lenders and earns 7-8% take rates on smaller loans, and pure distribution (20% of business), where it simply connects borrowers to lenders without risk, earning just 2-4%.

As MobiKwik shifted more volume toward pure distribution for larger loans, the blended take rate fell from 8.41% to 7.59%, but this compression proved worthwhile—lending expenses dropped 46% year-on-year, and net lending margins improved to 3.17% from 1.11%.

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Payments: growing fast but earning less

MobiKwik's core payments business provided relative bright spots with revenue rising 11.3% year-on-year to Rs 208.9 crore and gross profit surging 70.6% to Rs 61.36 crore. The company processed record quarterly GMV of Rs 43,217 crore, up 53% year-on-year.

But the growth came with a profitability trade-off. As UPI transactions—which generate no revenue under current regulations—grew from 35% to 40% of total GMV, the payment take rate compressed from 56 basis points to 48 basis points. Net payment margins also slipped to 14 basis points from 15 basis points in Q1, though still above the 13 basis points recorded in Q2 of the prior year.

The profit engine remains the company's wallet business, which dominates the revenue-generating portion of payments. Of the 60% of GMV coming from non-UPI sources, wallet transactions account for approximately 80%, with bill payments making up most of the remainder. The company's ZaakPay merchant payment solution is also included in this 60%.

Management pointed to potential relief ahead from "Pocket UPI"—where users pay via wallet on UPI rails—which could eventually generate interchange revenue. "The industry body has already agreed on that revenue commercial," Singh said, though the awaited NPCI circular has yet to materialise. "We were also expecting that it would have come in Q2, but it has not come so far."

Despite the margin pressures, gross margins in the payments segment hit a record 29.4%, up from 27.9% in the prior year quarter, as the company maintained tight control over payment gateway costs.

The fraud incident

MobiKwik disclosed a fraud incident on September 12 that resulted in an exceptional charge of Rs 11 crore, stemming from a technical bug introduced in a September 9 code release.

The flaw allowed approximately 2,400 merchants from Haryana's Nuh and Mewat regions to exploit the QR code payment system—when customer payments failed and weren't debited, the merchant side incorrectly showed transactions as successful.

Of the initially estimated Rs 40 crore in unauthorised settlements, the company has recovered Rs 28 crore (with over Rs 21 crore secured in bank accounts) and obtained court orders for additional recoveries, booking the Rs 11 crore charge as "abundant precaution" for remaining exposure.

Looking ahead

The company is also pursuing several growth initiatives beyond its core business. ZaakPay, its payment gateway offering, is "operationally just slightly negative, you know, couple of crores plus or minus," according to Singh, who expects it to "break even also in the next few quarters" and contribute meaningfully next year.

Other opportunities include a wealth and broking platform currently under development, and Quick Collect, an AI-based collections system built in-house that the company plans to eventually offer as a SaaS product to banks and NBFCs.

On the lending side, Singh acknowledged the business won't return to previous peaks this fiscal year. "From 60 crore revenue mark this quarter, it will take us time to...get to first 100 and then 140...which was the high previously where BNPL was baked in," he said. "We don't expect we will reach that 100, 150 revenue number in lending alone this financial year. It will be something that we can look forward to in the next financial year."

The company's user base grew to 183.5 million registered users, up 9.9% year-on-year, while its merchant network expanded to 4.71 million, up 7% annually. Assets under advice in its investment products reached Rs 13,957 crore.