 "Paytm's Chief Executive Officer Vijay Shekhar Sharma addresses at Global Fintech Fest 2022, in Mumbai on Thursday.")
Vijay Shekhar Sharma, Founder and CEO of One97 Communications, the parent firm of fintech major Paytm, says the company will focus on compliance as a primary approach, ahead of technology as it works to navigate its business model post the central bank's restrictions.
“The important thing for us to remember is that if we do not make compliance and risk a core part of the business then it does not become the bigger business that we envision. As far as the group and entity is concerned, we now look at compliance first, technology second approach,” Sharma said.
Sharma was interacting with analysts on Thursday evening following the Reserve Bank of India’s (RBI) decision to bar Paytm Payments Bank from accepting fresh deposits and carrying out transactions from February 29 this year. He was replying to a question on how the company manages compliance and governance at One97 Communications. Paytm's stock hit the lower circuit as its share price plummeted 20 per cent to Rs 609 per share on the Bombay Stock Exchange (BSE) within minutes of the stock market’s opening bell.
The regulator had cited “persistent non-compliance” and “material supervisory concerns”. The RBI said no further deposits or credit transactions or top-ups will be allowed in customer accounts, prepaid instruments, wallets, FASTags, National Common Mobility Card (NCMC) cards, etc., after February 29, 2024, other than any interest, cashback, or refunds that may be credited at any time.
On the immediate action plans, Sharma added that Paytm will work in partnership with other banks in the future and not Paytm Payments Bank.
“Going forward, the keyword is that we will not work with Paytm Payments Bank and that means we will work with other banks. Overall, I can say that it is more of a big speed bump but we believe that with the partnership of other banks and capabilities that are already developed, we will be able to see it through in the next few days or quarters,” he elucidated.
In an exchange filing, Paytm said it expects an impact on its annual EBITDA (earnings before interest, taxes, depreciation, and amortisation) in the range between Rs 300 and Rs 500 crore following the central bank’s order.
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Paytm’s lending activities are likely to contribute to the overall EBITDA impact since the origination of new loans will be paused for some time until operational changes are made, senior executives at the company said.
“The lending business does not have a relationship with the Paytm Payments Bank other than the fact that there would be merchants who may have taken a loan, and have their repayments coming from a Paytm Payments Bank account. We would have to move their settlement accounts to other bank accounts so the repayments keep coming,” said Bhavesh Gupta, President and Chief Operating Officer, Paytm.
He added that the company is in discussion with its lending partners to ensure these changes are made.
“We have proactively worked with our partners to say, till the time we make these operational changes, let's pause the new origination of loans for that period of time. Once we are able to solve it, we can restart. There will be some disruption, and the impact will come from lending since we will not be originating loans for a couple of weeks,” Gupta said.
He further explained that it is ‘not a very large process’ since out of the 400,000 merchant loans, about 60,000-70,000 merchants have their repayments happening from a Paytm Payments Bank account.
“We have a 30,000 salesforce on the ground, which is already in the market to make sure that those repayments and the settlement account changes, are done on or before the 29th of February,” Gupta noted.
Meanwhile, the company said it is working on addressing other operational challenges such as moving the Virtual Payment Address (VPA) of Paytm Payments Bank users, which includes individuals and merchants, to other banks.
“Paytm Quick Response (QR) code has a VPA linked to Paytm Payments Bank. Now, that has to be changed to some other bank. We have multiple options for the banks that we are currently in conversation with. This will be a large exercise,” Gupta observed.
Meanwhile, executives at the firm clarified that no data was shared between Paytm and Paytm Payments Bank.
“There was no data that Paytm was taking and getting from Paytm Payment Bank in the past or in the present. At any point in time, the data resided with Paytm Payment Bank when a customer used the wallet or UPI handle of the payments bank,” Gupta explained.
Meanwhile, analysts believe that this action of RBI will have a significant impact on Paytm. In a note, Jefferies said: "Wallet GMV (5% of GMV) may need to be wound down and Fastag GMV where Paytm is the 3rd largest player with 58m customers (market share of 17%) will also be majorly affected. Payments business is 50 per cent of total revenues and while the management has not indicated the contribution from these segments, we estimate that these segments would be sub-10 per cent of segments' revenue and 5 per cent overall revenues."
Jefferies also noted that the current curbs may impact its lending business as well. "An important collateral impact may be on can be on lending business (+20 per cent of revenues) if lending partners limit business due to operational/governance risks. This can be a key risk to earnings/valuations & we await details from management," said the note.
