BENGALURU: Though One97 Communications, the parent company of Paytm, said that the recent regulatory directive of the Reserve Bank of India (RBI) is specifically targeted at Paytm Payments Bank Limited (PPBL) and not the broader Paytm ecosystem directly, fintech experts say this crisis is a setback for the company.
Brokerage firm Motilal Oswal Financial Services (MOFSL) says Paytm witnessed a significant decline in its Gross Merchandise Value (GMV) in February, and this trend is likely to persist into March. “While some of this decline can be attributed to the absence of new user additions, there is also a looming risk of losing customers and merchants to competitors. This competition is further impacting overall business activity on the platform,” it said in a recent report.
Also, the RBI’s restriction on PPBL from accepting new deposits has increased its competitors’ app downloads as Google Pay and PhonePe have been witnessing substantial growth. The brokerage firm also anticipates a further decline in UPI transaction volume/value data in March 2024 as well. Paytm’s UPI volume market share fell to 10.8% in February compared to 12.7% in the previous month. In value terms, the market share fell to 8.5% in February compared to 10.3% in January.
The central bank barred PPBL from accepting deposits, credit transactions and top ups in any customer account after February 29, and it further extended it to March 15. The RBI cited persistent non-compliances and continued material supervisory concerns in the bank. National Payments Corporation of India (NPCI) granted approval to One97 Communications to participate in UPI as a Third-Party Application Provider (TPAP) under multi-bank model. This means, Paytm can operate UPI services. Axis Bank, HDFC Bank, State Bank of India and YES Bank have started acting as Payment System Provider banks to OCL.
Ravi Teja Gupta, Founder, Guptaji Invests, said that payment banks’ business model is not a profitable business model as payments banks can’t provide loans. He said the fintech firm’s brand value will be negatively affected, but Paytm can recover by introducing innovative fintech products.
Talking about Paytm’s business and its future, Gupta said some of the business models Paytm can enter instantly are the business of giving loans like BharatPe, peer-to-peer lending like 12% club, credit card bills app like Cred, etc. He also added that the third-party licence will make Paytm an asset light model.
Rebuilding trust
Somdutta Singh, Serial Entrepreneur, Founder and CEO Assiduus Global Inc said this is a setback for the company. It disrupts their ability to offer a comprehensive financial ecosystem and potentially dampens growth. “If I were in their position, they would now likely focus on rebuilding trust with the regulator and exploring partnerships with other banks to fill the gap. Immediately, onboarding new merchants under new banks might create a temporary disconnect. Paytm will need to ensure a smooth transition and leverage its brand recognition to retain existing merchants. This serves as an opportunity to forge stronger partnerships with the new partner banks,” Singh added.
According to the angel investor, a well-structured third-party license can be a game-changer. It could allow Paytm to tap into new financial products and services, increasing their value proposition for customers and attracting new ones. Although Paytm is anticipated to retain the majority of its merchant base, following approvals from the NPCI, it is expected that around 15-20% of merchants (15% of whom have settlement accounts with PPBL) may churn, MOFSL said.
It also said that the recent regulatory restrictions have significantly impacted Paytm’s business environment and growth outlook. Despite the company’s extensive reach, its ability to mitigate the business impact will largely depend on the execution capabilities over the coming quarters.
Paytm Payments Bank will cut about 20% of staff. This will affect at least 550 employees. What will happen to the future of employees? Somdutta Singh said retaining the remaining employees requires a strategic approach including reskilling and redeploying.
“Retention bonuses or profit-sharing schemes could motivate employees to stay. Transparency about future plans and addressing employee concerns can foster trust and commitment,” Singh added. On PPBL employees, Paytm spokesperson told TNIE that as OCL and PPBL are distinct entities, they cannot comment on PPBL’s internal decisions. “However, it’s important to note that the regulator has not mandated a shutdown of PPBL but has imposed certain operational restrictions,” Paytm said. It added that the transition to working with new banking partners does not signify a change in its business model. Instead, it opens up opportunities for diversification and leveraging the extensive networks of these banks to enhance our service offerings and market reach.
When asked about the impact on its credit business, Paytm said, “PPBL was not a partner for our credit operations so there is no impact. Our focus remains steadfast on delivering innovative financial solutions and services through the Paytm platform, in collaboration with our extensive network of bank partners and financial institutions. This alignment ensures our credit business continues to thrive and expand.”