18 highlights
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A little over four months ago, digital payments giant Paytm—incorporated as One97 Communications Ltd—pulled off a Rs 18,300 crore initial public offering, India’s largest.
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All this happened at a price of Rs 2,150 per share. The stock, four months on, trades at about Rs 570—i.e., almost three-fourths of the company’s market value has been wiped out.
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Regulators remain uncomfortable with nearly a third of Paytm’s shares being held by Chinese investors.
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According to three executives close to the company, despite Paytm being listed as a professionally managed firm rather than with any single promoter, its culture continues to remain that of a startup run by founder and his close aides.
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But the thing about a startup running at scale as large as Paytm is that there is no rewind button
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While the fintech firm was one of India’s most well-capitalized startups, with more than $4.5 billion raised over the last decade, nearly 70% of this capital has gone towards offsetting losses suffered by Paytm’s subsidiaries.
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“Eight of ten fraudsters in India use Paytm wallet to siphon off money after duping customers,” the banker said, according to an executive present at the meeting, who spoke on condition of anonymity.
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The banker told the central bank officials that the problem of digital payment frauds can be eradicated if digital wallets like Paytm improve their know-your-customer, or KYC, checks; as they are currently, a potential fraudster can obtain multiple transactional accounts using just a mobile number and a doctored PAN card.
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According to the same person, the central bank is also said to be worried that some of Paytm’s servers continue to sync data with servers hosted in China. “When Alibaba invested in Paytm back in 2015, as part of the deal, it gave Paytm server space in China where Alibaba’s own systems were set up. In those days, the deal was also to build an interoperable transactional marketplace between Paytm and Alibaba as the former grew in scale and ambition,”
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A payments bank can only collect deposits and facilitate payments; it cannot issue loans on its own, though it can act as a seller of financial products for other companies. A small finance bank, on the other hand, has far fewer limitations. Importantly, it can issue loans on its books.
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Paytm Payments Bank is owned 51% by Vijay Shekhar Sharma and 49% by One97 Communications. This would mean that around 15% is indirectly held by entities based in China.
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“The primary purpose of the IPO was to shed the Chinese influence in the company as it had become apparent to the firm that regulators would not compromise on the ownership integrity of any entity applying to be a serious financial services business. In this context, the Chinese backers were clear that they would sell only at a premium and the management, led by VSS, was under pressure to show to the regulators that they could get Ant Financial to offload their stakes,” says a merchant banker.
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In July 2020, Paytm announced it was acquiring Raheja QBE, a Mumbai-based general insurance company, from QBE Australia and its 51% domestic partner Prism Johnson of the S Raheja Group for Rs 568 crore.
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After 20 months, the acquisition is still awaiting regulatory approval. According to the CEO of an insurance firm, the insurance regulator is not happy with how the deal is structured.
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Paytm Postpaid is the firm’s flagship buy-now-pay-later and personal loan platform, where the firm works in partnership with the likes of Aditya Birla Finance, Fullerton Capital and Clix Capital. Its loan platform acts as a distributor of BNPL loans without taking any credit risk. The firm has seen sharp growth on its platform which has translated into strong revenue growth as well, albeit on a low base.
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However, as we wrote last month, the RBI is soon set to regulate BNPL and other loan marketplaces where the central bank could stipulate a mandatory NBFC licence for those originating loans. Additional stipulations could also include tighter KYC checks and minimum capital requirements, which could all affect fintech lenders’ unit economics.
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Another area where Paytm has been doubling down is its payment gateway business, whose clients include IRCTC, LIC and Flipkart. But even here, the roadmap looks tight as rivals PayU-BillDesk and Razorpay are both building specialized checkout services at scale.
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Another area where Paytm expects growth in the upcoming fiscal is in its platform services business, which includes ticketing, entertainment, gaming, e-commerce and plug-in integrations with different online merchants on its mini app store.