Paytm Faces Fresh Challenges

Paytm is facing torrid times. Paytm Payments Bank, part of the Vijay Shekhar Sharma-founded financial services group, was recently directed by the Reserve Bank of India (RBI) to stop on-boarding new customers because of supervisory concerns. This comes as the group’s holding company—One97 Communications—battles falling prices since being listed.

Sharma, who has been frustrated by substantial value erosion, recently remarked that his business model hasn’t been understood by the market. Paytm is building a financial services model on top of a low-margin payments business. But there hasn’t been much progress or scale in the non-payments side, which comprises businesses like lending, insurance and investments, among others. In fact, the latest regulatory action will come in the way of the group getting a small finance bank (SFB) licence and entering the lucrative lending business. The current RBI guidelines allow a payments bank to convert into an SFB after the completion of the first 5 years. Paytm completes 5 years in June and was keen on an SFB licence. ICICI Securities, in a recent report, cited the recent instance of an embargo on HDFC Bank. “It took 8 months to partially lift the restrictions and almost 15 months to wholly lift the same,” says ICICI Securities. Clearly, the RBI isn’t likely to entertain Paytm’s application anytime soon. The SFB licence would have allowed Paytm to offer small-ticket loans and would have removed limits on the savings bank account balance.

The RBI has also directed Paytm Payments Bank to appoint an IT audit firm to conduct a comprehensive audit of its IT systems. The payments bank is one of the contributors to revenues and profits of the holding company; One97 Communications offers a payments gateway, marketing and distribution services to the payments bank, whose instruments like the Paytm Wallet and Paytm FASTag are offered on the holding company’s super app. The parent holds 49 per cent in the payments bank, while Sharma holds 51 per cent. In response to the regulatory action, Paytm has said that it is fully compliant with the data localisation rules of the regulator.

The group is yet to get the nod from the insurance regulator for the acquisition of private insurer Raheja QBE General Insurance Company, a deal it had announced in 2020. Paytm’s road to profitability is only getting longer.

@anandadhikari