Paytm shares fell 10% on Monday, marking the third straight session of falls, reaching an all-time low of 438.35 Indian rupees (or $5.28), as the RBI’s clampdown last week appears to have had a broader impact than originally anticipated.
Trading was suspended when Paytm’s shares plunged 10%, exceeding the arbitrary daily limit imposed by local exchanges. Even though Paytm initially expected the RBI’s decision to have a maximum annual impact of $60 million on its company, the financial services provider has lost roughly $2.5 billion in market capitalization in three days, or more than 40% of its value since Wednesday’s closure. Paytm’s market capitalization on Monday was $3.35 billion, lower than the $3.4 billion value at which it obtained financing from Ant Financial in 2015 and far lower than its IPO estimate of $20 billion. (More about numbers here.)
The Reserve Bank of India (RBI) tightened its restrictions on Paytm’s Payments Bank, which handles transactions for the company, this week, prohibiting it from providing numerous banking services, including taking new deposits and credit transactions across its services. Paytm first stated that it would discontinue operations with its subsidiary and seek partnerships with other banks.
However, uncoupling Paytm from its associated Paytm Payments Bank looks to present new challenges, both technological and perceptual.
Eltrys originally reported last week that the RBI is considering terminating Paytm’s Payments Bank license. When Paytm got the Payments Bank license in early 2018, which permits the holder to offer consumers a savings account of up to $2,400, the company had to forfeit its PPI license, which was necessary to run the wallet.
Paytm Payments Bank serves over 330 million wallet clients, and the company cannot transfer them to another banking partner until the central bank restores its PPI license. And it’s uncertain whether the central bank, which used unusually severe language in its penalty decision against Paytm, would make any compromises before the deadline (February 29). The Indian newspaper Hindu Businessline claimed on Sunday that Paytm is attempting to sell its wallet business.
And that’s not the only license at stake. Bengaluru-based fintech investor Osborne Saldanha adds:
The apparent, immediate result is that Paytm’s payment banking activities would be suspended until the RBI issued additional instructions. It is uncertain whether the RBI would allow Paytm to restart payment banking activities even after complying with the RBI’s standards, given that the notification does not include any corrective measures. It is highly feasible that the RBI would terminate Paytm’s payment banking license completely. If that occurs, please bear with me because I can’t say for sure, but it seems like Paytm may not even have a payment aggregator license because the RBI rejected Paytm’s application for a payment aggregator license. The payment aggregator license would have been part of the payment bank license.
In its notification last week, the RBI stated that Paytm’s “persistent” disobedience to a prior order—dating back to March 2022, when the RBI ordered Paytm to cease adding users to Payments Bank—created supervisory concerns and required additional action. The RBI stated that an audit discovered instances of noncompliance but did not provide any specifics.
Last week, the local media claimed that Paytm Payments Bank was plagued with concerns such as money laundering and that India’s crime-fighting agency, the Enforcement Directorate, was investigating the company. Paytm denied (PDF) that the ED was conducting any investigation, and at a town hall with staff on Saturday, Paytm’s senior executives guaranteed that the concerns highlighted in the media were “old” and had been resolved “long ago,” Eltrys first reported.
As we try to determine the full extent of the possible impact of the RBI’s initial verdict against Paytm, the firm is already losing users and merchants. As Macquarie analyst Suresh Ganapathy pointed out in an analyst call last week, many Paytm consumers already believe the company is no longer in business.
“We anticipate this to dent Paytm’s consumer brand credibility, which could lead to market share losses in segments where Paytm previously dominated,” JPMorgan analysts said in a note last week.
The recent Paytm incident is also undermining investors’ faith in the Indian fintech business. The RBI has implemented a series of regulation adjustments—or clarifications—over the previous three years, and the fintech industry was already growing hostile to many VCs.
“I believe this action against Paytm sets a precedent, is harsh, and has an impact on India’s broader financial services ecosystem.” “I don’t recall the last time the RBI revoked a bank’s license for reasons other than adequate capital requirements,” Saldanha noted.
Bipin Singh, co-founder of financial services startup MobiKwik, supported the RBI’s reasoning: “Having worked closely with the regulator over the last decade or so, I can say clearly that the RBI is not against innovation or fintechs. If they were, India would not have such a thriving financial industry today. Compliance, however, is not negotiable,” he said on Twitter.
