The Reserve Bank of India (RBI) has directed Paytm Payments Bank Limited (PPBL) to stop all basic payment services, including those through various platforms and digital channels, effective from February 29. The central bank further prohibited PPBL from offering banking services as such. how to accept deposits and process payments.
Financial impact on Paytm
The sudden cessation of services is expected to have a significant financial impact on PayTM, with an estimated annual loss of revenue ranging between Rs 300 crore to Rs 500 crore. This projection was revealed during a press conference called by PayTM in response to the regulatory directive.
Functional changes for merchants
Merchants currently associated with PPBL will have to transition their relationships to other banks. Paytm has initiated collaboration with other regulated banks to facilitate a smooth migration ahead of the looming deadline, ensuring business continuity.
Tap on SoundBox subscription revenue
One notable casualty of the directive is the subscription revenue of SoundBox, a budding business segment for Paytm. The pause in operations is expected to result in a significant decrease in SoundBox subscription revenues. Major banks entering the sound box arena could further complicate matters, with potential reach to PayTM merchants for migration.
Impact on Paytm’s financial services
The directive poses challenges to Paytm’s financial services, particularly its merchant lending business. The company, lacking a lending license, partners with regulated lenders to provide access to a wider customer base. This disruption could hamper the touted growth engine for PayTM, affecting personal loans and Buy Now, Pay Later (BNPL) models in the near term.
Future prospects and challenges
Despite the setback, there may be hope for Paytm in the long run. Solving KYC challenges and navigating regulatory hurdles could pave the way for continued growth, especially in the commercial lending business.
Networked enterprises and the way forward
The impact extends beyond Paytm Payments Bank, affecting businesses under One Ninety Seven Communication Limited (OCL), Paytm’s parent company. About 10-15% of Paytm’s business base had nodal accounts with PPBL. Paytm’s efforts to partner with other banks for migration may face challenges, possibly resulting in some medium-sized businesses choosing to move entirely.
Fastag and payment bank
Fastag users with accounts linked to Paytm Payments Bank will face restrictions as top-ups will not be allowed after February 29. The lack of PPI portability between issuers can present challenges for users looking for alternatives.
Wallets and UPI business
A likely scenario involves closing all Paytm Payments Bank-related accounts in the backend, redirecting users to a new bank for wallet services. The winning bank in this transition is likely to be the one offering the most seamless onboarding process.
ETBFSI now has its WhatsApp channel. Subscribe for all the latest updates.