On Friday morning, Vijay Shekhar Sharma, the founder of fintech giant Paytm, took to social media platform X, stating that the app was working and will keep working beyond February 29 "as usual."
Sharma's statement, which came after the Reserve Bank of India announced major restrictions on Paytm Payments Bank, was an attempt to assure people that things would be all right. On Thursday, during a conference call with investors, he said the RBI action was a speed bump and the company would continue to accelerate its partnerships with banks other than Paytm Payments Bank.
However, shares of Paytm's parent One97 Communications still plunged 20 per cent for the second straight day on Friday, an indication that despite Sharma's message, investors continue to remain apprehensive about the fintech firm's future. The stock has now hit the lower circuit for two consecutive sessions, crashing from Rs 761 on January 31 to a 52-week low of Rs 487.05 on February 2.
On Wednesday, the RBI imposed severe curbs on Paytm Payments Bank, stating that a comprehensive system audit report and subsequent compliance validation report of the external auditors revealed persistent non-compliances and continued material supervisory concerns in the bank.
Under the curbs, no further deposits, credit transactions or top-ups would be allowed in any customer accounts, prepaid instruments, wallets, FASTags, NCMC (national common mobility) cards, etc. after February 29 although customers will still be able to use or withdraw existing money in their accounts.
Sharma said Paytm has already been working with other banks over the last two years and the dependency on Paytm Payments Bank has continued to decline. The fintech company said it will continue to expand its payments and financial services business in partnerships with other banks.
"Paytm and its services continue to remain operational beyond February 29 also, as most of the services offered by Paytm are in partnership with various banks (not just associate bank)," it said.
For customers, who frequently use Paytm for bill payments, ticket bookings, shopping, and
making retail payments via unified payments interface (UPI) through Paytm, things are unlikely to change much if the UPI address is linked to an account of another bank.
If you have a Paytm Payments Bank account, you will still be able to use the balance that is there in the account to make payments. But, you won't be able to deposit more money after February 29. If your UPI address is linked to Paytm Payments Bank account, then transactions will be restricted after that date too, so you may want to link UPI to another bank account.
The RBI directives were specific to the payments bank and the operations of Paytm Money or any investments people have in stocks or mutual funds through Paytm Money will not be affected in any way, Paytm has clarified. The loans that Paytm distributes are also done through third parties. So, they remain unaffected too, unless the partner bank decides to go slow in the backdrop of the RBI move.
Paytm's offline merchant payment network offerings like the QR, Soundbox, card machines etc. will also work as usual, the company said. However, merchants who have linked them to Paytm Payments Bank account may have to move it to another bank account.
Paytm was the third largest player in the UPI space after Phone Pe and Google Pay. But, Paytm Payments Bank was the largest beneficiary bank in the UPI ecosystem, that is, it had the most inbound transactions, according to industry watchers. Paytm Payments Bank had 300 million wallet users, 30 million bank account holders, and 17 per cent share in FASTag by value. So, the RBI restrictions on Paytm Payments Bank will have an impact.
"The Paytm wallet is housed within the Paytm Payments Bank and hence the stoppage of top-ups onto the wallet is material for the listed parent company," noted Shivaji Thapliyal, head of research and lead analyst at Yes Securities. It could potentially erode 30 per cent of payments revenue, he felt.
Paytm has warned the RBI action is likely to have a "worst case impact" of Rs 300-500 crore on its annual EBITDA (earnings before interest, taxes, depreciation and amortization) going forward.
The nodal accounts of One97 Communications and Paytm Payment Services are to be terminated by February 29. Nodal accounts are used for the settlement of merchant transactions. The termination of nodal accounts could impact Paytm's payment business, at least in the interim, till these are moved to nodal accounts with other lenders.
Other fintech players like Phone Pe and Google Pay as well as banks are likely to seize this opportunity and look to expand their business, pushing their QR codes, sound boxes and card machines, especially among the offline merchants.
"The requirement for termination of nodal accounts can cause immediate disruption in the payment business," said Manish Shukla of Axis Capital.
He further noted that restrictions on wallets and FASTag would slow down customer acquisitions.
"While there is no direct impact on the financial services business (loan and credit card origination), there could be a collateral impact if the bank/NBFC partners decided to go slow," pointed Shukla.
Analysts at Motilal Oswal also said they would be watchful of Paytm's business model and its ability to navigate through this "highly uncertain" regulatory and macro environment.
"Paytm has recently announced its plan to downsize its BNPL (buy now pay later) operations and was working to mitigate the impact by scaling up higher-ticket personal and merchant loans. Against this backdrop, the latest measures raise serious concerns over its business outlook and dent overall investor confidence," the analysts said.
Sharma has thus far put up a brave face stating that for every challenge there is a solution and they were "sincerely committed" to serving the nation in "full compliance."
"India will keep winning global accolades in payment innovation and inclusion in financial services—with PaytmKaro as the biggest champion of it," he said.
But, will investors regain confidence in the stock and will customers and merchants continue to PaytmKaro (use Paytm) will have to be seen.
