
In the last two days, the stock of One97 Communications, parent company of Paytm Payments Bank, has experienced a 20% decrease each day. This decline is attributed to strict measures imposed by the Reserve Bank of India (RBI) on Paytm Payments Bank, raising concerns about its future.
Impact of RBI Circular on Paytm
The RBI circular, effective after February 29, 2024, essentially imposes a moratorium on Paytm Payments Bank, limiting its ability to conduct business. This has led to a significant drop in One97 Communication’s stock and raised doubts about the future viability of Paytm.
Market Share
However, per latest NPCI data, PhonePe accounted for 46 per cent of UPI transaction volumes in October 2023, Google Pay for 36 per cent, and Paytm another 13 per cent. In comparison, as of October 2022, PhonePe had a market share of 47 per cent, Google Pay of 34 per cent and Paytm of around 15 per cent.
In terms of value of transactions, PhonePe had a market share of 48 per cent, Google Pay of 34 per cent and Paytm of 11 per cent as of October 2023.
Collectively, PhonePe, Google Pay, and Paytm accounted for 94 per cent of UPI transactions by volume and 96 per cent by value in March 2023, per the Centre for Advanced Financial Research and Learning (CAFRAL)’s India Finance Report for FY23.
Challenges Without Payment Bank License
Once a leader in the fintech space with its payment bank license, Paytm now faces challenges as this advantage has been revoked. The crucial question arises: Can Paytm maintain its competitiveness without the payment bank?
Without the payment bank, Paytm loses its distinctive edge over competitors like PhonePe and GooglePay. The company expects a substantial dent in its operating profits, ranging from Rs 300 to 500 crores annually. However, doubts persist about whether this projection accurately reflects the actual impact.
Uncertainties Surrounding Paytm’s Future
Several questions remain regarding the fate of Paytm’s wallet, FASTag, UPI services, and the overall financial health of the company. With the need to collaborate with other banks, Paytm’s challenges are expected to increase, potentially impacting its financial stability.
Migration Challenges for Paytm Users
To ensure continuity for existing users, Paytm will have to migrate them to third-party banks, losing the exclusivity of its customer base. The fate of Paytm wallet and FASTag, the continuity of UPI services, and the financial outlook of the company are all uncertain post the RBI ban.
Merchant Challenges and Disruptions
About 15% of Paytm merchants transact with its payments bank, which will be shut down. While the company claims this is not a substantial base, the competition is poised to seize the opportunity. The challenge lies in migrating QR codes for merchants using physical scanners, potentially affecting a portion of Paytm’s user base.
Revenue Dependency and IPO Challenges
Over 60% of One97’s revenue comes from payments, and the company is yet to generate operating profits. The ban on Paytm Payments Bank comes at a time when fintechs are entering the IPO market, posing challenges for Paytm’s ability to tap into capital markets and influence valuations.