Daybreak - What will Paytm do now?

Episode Date: February 14, 2024

The Reserve Bank of India has barred Paytm from continuing all its banking services via Paytm Payments Bank after February 29. It's been operational since 2017 and its services include current and savings accounts, fixed deposits with partner banks, and balance in wallets, UPI, and FASTag, among other services.The RBI has basically said it cannot take any more deposits or conduct credit transactions. This also means no top-ups on any customers accounts, prepaid instruments, wallets, and cards for paying road tolls. And this means, Paytm has three challenges it needs to win…and all of it by the end of this month. First, it needs to figure out a nodal banking partner where it will hold fund on behalf of its customers. Then, it needs to untangle its business from Paytm Payments Bank. And finally, it needs to do all of this without losing its existing customers.Each of these is more important than the other.Tune in

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Raman Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing and extensive post-production.

Sita and I are still reeling from the intensity of our first studio recording. Intermission launches on March 23rd. To get alert, as soon as we release our first video. episode, please follow intermission on Spotify and Apple podcast or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. You must have heard the news. Ptam is in big trouble. The Reserve Bank of India has bought the Fintech from continuing all its banking services via Ptm Payments Bank after the 29th of February. Ptium Payments Bank is a restricted digital bank that cannot lend, but it can take

deposits up to $2,000, it has been operational since 2017 and its services include current and savings accounts, fixed deposits with partner banks and balance in wallets, UPI, Fast Tag and some other services. Now, the RBI has basically said that it cannot take any more deposits or conduct credit transactions. This also means no top-ups on any customer accounts, prepaid instruments, wallets and cards for paying road tolls. So the RBI has essentially killed Ptm payments bank. And this means Ptm has three challenges that it needs to win and all of it by the end of this month. First, it needs to figure out a Nodal banking partner where it will hold funds on behalf of its customers. Then it needs to untangle its business from Paytm Payments Bank. And finally,

it needs to do all of this without losing its existing customers. Each of these tasks is more important than the other. But for now, Paytm has decided to focus on two. One is to set up a new Nodal account with a partner bank and second, in the meantime, get all the merchants using Ptm Payments Bank account to switch to another account on the Ptm app. Now, to pull off this goliath of a task, Ptm is relying on its ground force, its sales agents. Welcome to Daybreak, a business podcast from the Ken. I'm your host, Nick Das Sharma, and I don't chase the news cycle. Instead, thrice a week on Mondays, Wednesdays and Fridays, I will come to you with one business

story that is worth understanding and worth your time. Today is Wednesday, the 14th of February. Before we go ahead with the podcast, I want to wish you a happy Valentine's Day. How did it all start? I mean, how did PTM Payments Bank come into the RBI's radar? Let's go back a decade into time when the RBI was all about innovation, innovation and more innovation. It wanted to see how entrepreneurs could push the system and where they could push the system. The central bank had realized that more of a niche banking was required in India, and it began issuing licenses to applicants.

And PTAM's founder, Vijayshakar Sharma, happened to be among the 11 applicants. The RBI gave them the green flag to set up a payments bank back in August 2015. And that is how PATAM Payments Bank came to be. RBI, under the then-Governor Rajan, was off the view that regulations would evolve. as these new systems were created. But cut to now, a decade or so later, the RBI has had enough. The banking regulator has been sending out regular warnings. According to news reports, hundreds of thousands of accounts of P-TM payments bank

were found to be created without proper identification or KYC. There were thousands of cases where a single PAN card number was used for opening multiple accounts. In fact, according to a news report by Economic Times, there was one case where a single pancard was used to create a thousand accounts. So, it comes as no surprise that day before yesterday, the RBI governor, Shakti Kanta Das, said that the decision will not be reviewed again because it was made after a thorough assessment of the PTAM payment bank's operations and it was taken in the interest of consumers. So what is PtM going to do now?

Its rivals like phone pay and others are already closing in on its merchants. So naturally, Ptm wants its sales force to do everything possible to keep them on. Stay tuned. You see, Ptm's main advantage in the crowded payment fintech space has been its huge merchant base. With close to 40 million merchants, it accounts for nearly 75% of, of all merchants on UPI. This, of course, is a part room owning about 13% of the country's UPI market or unified payments interface market.

My colleague, the Ken reporter Gaurav Narona, spoke to a paytium executive who told him that the company is trying to do everything to protect this base. It is directing a majority of its resources towards getting merchants who operate on a paytium payments bank settlement account to link their personal bank accounts with the Ptm app. For context, Ptm has about one and a half million merchants spread across the country that use Ptm Payments Bank and the last date to get all of this done is the end of this month. And this giant task of merchant retention mostly falls on Ptm's chief business officer for offline payments, Ripun Jai Gore and his army of over 40,000 field

agents. So for now, the sales force has been to forget about selling new soundboxes, and apart from making sure that the merchants stay, they also have to get a message across to them, that all PTAM services are working and will continue to work beyond 29th of February if you switch your bank account. But this is not as easy as it sounds,

especially when rivals are closing in. India's largest UPI app, PhonePay has already managed to grow its 500 million strong usable. base by about 15% within the first few days of this month. Meanwhile, an executive claim that Bharat Pay saw its new merchant acquisitions jumped by nearly half over the same period. In fact, phone pay has actually started running full-page print ads in the times of India. But hey, Ptm has still got its lending business intact, right?

If you remember, I told you in a previous episode how personal loans became the go-to-driver of growth and revenue for PETM. In fact, it achieved operating profitability in the year that ended in March 2023 on the back of a surge in its loan distribution business. But now, as it turns out, the Fintech's lending partners, including Aditya Birla finance, Hero FinCorp and Pyramil Finance, are not happy with what is going on. The Fintech is finding it harder and harder to hold on to them. Loan dispersals have come to a complete standstill on paytm for both personal and merchant loans since the beginning of February,

and this is because the company is dealing with the lender's concerns. These lending partners want Ptm Payment Bank to completely be removed from the flow of funds between lenders and borrowers. But Ptm Paytm Payments Bank is deeply integrated with the Ptm app, and separating the two would take a lot of money. work on both the financial and tech front. Plus, there is the task of finding a bank partner to set up a new Nodal account to hold on to customers' funds so that the company can continue to function. Multiple industry executives told again that this alone could take between two to three months.

Otherwise, the company may have to replace its 35 million QR codes spread across the country. There are also other questions that the company has to deal with. Like, will Paytm have to redo the KYC process for its existing merchants? And also, how should it deal with those who only have a Paytm Payment's bank account? For now, though, all the FinTech can focus on is hold on to its merchants for dear life. Daybreak is produced from the Newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories, newsletters,

subscriber-only apps and podcast extras. Head to the ken.com and click on the red subscribe button on the top of the website. I am Snidtha Sharma, your host, and today's episode was edited by my colleague Rajiv Sien.