After falling continuously for three days, shares of payments platform Paytm bounced back on Tuesday, ending up 3.3%, compared to 10-20% declines seen over the last several days.
The stock had corrected by around 43% since Reserve Bank of India imposed crippling restrictions on Paytm Payments Bank – the company’s in-house provider of back-end banking services.
It is believed that the profitability of the financial services firm will take a huge knock if it is forced to depend on third party banks for supplying the back-end services.
“The uncertainty is still very high, there’s no knowing how long it will take to set things right at the backend,” Prateek Agarwal, DE, Motilal Oswal Asset Management said.
The company faces two main fallouts from the regulatory action.
First is the direct impact on the payments bank subsidiary – jointly owned by the company and its promoter Vijay Shekhar Sharma. The Street believes that the Payments Bank subsidiary will become more or less defunct with the RBI action.
The second impact is on the rest of PayTM’s business – such as its wallet, UPI and lending business. The wallet business accounts for less than 5% of the transactions by value, the UPI business accounts for 70% and loans account for around 10%.
On the first, the company has already said it is in talks with other banks who are keen to provide the back-end banking facility to host its wallet business.
The most pain is likely to be felt on the UPI side, since all the current UPI addresses and QR codes point to end-customer accounts created with Paytm Payments Bank. If Payments Bank becomes dysfunctional, the QR codes and the UPI ids too will become dysfunctional, and it will no longer be able to make payments using PayTM’s QR codes pasted on shop counters.
However, PayTM is trying to get permission from the regulators to map each of these UPI IDs to accounts belonging to the same customer, but at another bank. If it is allowed to do so, the migration process can be done entirely, and relatively painlessly, at the back-end, with no customer or merchant intervention. If not, it will have to manually replace all the QR codes so far issued.
Rahul Jain, Vice President of Research at Dolat Capital said it is not yet very clear as to what the exact impact or disruption on Paytm’s business will be, right now.
“There was an expectation of an over reaction from the investors, and it's happening,” he said.
“We would only learn about the real pain as they give more inputs in terms of how they are recovering from it, are they able to find alternatives? Everything is functional if they are able to identify the alternative to Paytm Payments Bank,” he added.