Will focus on compliance first, not technology, says Paytm CEO

Vijay Shekhar Sharma, founder and CEO of One97 Communications, the parent company of fintech giant Paytm, says the company will focus on compliance as a primary approach, before technology, as it works to navigate its business model after the central government’s restrictions Bank.

“The most important thing for us to remember is that if we don’t make compliance and risk a core part of the business, it won’t be the larger business we envision. As far as the group and the entity are concerned, we are now looking at compliance first, and then technology,” said Sharma.

Sharma interacted with analysts on Thursday evening following the Reserve Bank of India’s (RBI) decision to ban Paytm Payments Bank from accepting new deposits and conducting transactions from February 29 this year. He was responding to a question about how the company manages compliance and governance at One97 Communications. Paytm shares hit the lower circuit as its share price plunged 20 percent 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 issues”. The RBI said that no further deposits, credit transactions or top-ups will be allowed on customer accounts, prepaid instruments, wallets, FASTags, National Common Mobility Card (NCMC) cards, etc. after February 29, 2024, except any interest. cashback or refunds that can be credited at any time.

On the immediate action plans, Sharma added that Paytm will partner with other banks and not Paytm Payments Bank in the future.

“Going forward, the key word is that we will not work with Paytm Payments Bank, but that means we will work with other banks. Overall, I can say that it is more of a major speed bump, but we believe that with the collaboration with other banks and the capabilities that have already been developed, we can get through it in the coming days or quarters,” he explained. .

In a stock exchange filing, Paytm said it expects an impact on its annual EBITDA (earnings before interest, taxes, depreciation and amortization) of between Rs 300 and Rs 500 crore, following the central bank’s order.

Paytm’s lending business is likely to contribute to the overall EBITDA impact as new lending will be suspended for some time until operational changes are made, senior executives of the company said.

“The lending company has no other relationship with Paytm Payments Bank other than the fact that there are merchants who may have taken a loan and their repayments are coming from a Paytm Payments Bank account. We should move their settlement accounts to other bank accounts so that the refunds keep coming,” said Bhavesh Gupta, President and Chief Operating Officer of Paytm.

He added that the company is in discussions with its lenders to ensure these changes are implemented.

“We’ve been working proactively with our partners to say, until such time as we implement these operational changes, let’s pause new loan originations for that period. Once we’ve managed to fix it, we can restart. There will be some disruption and the impact will come from lending as we will not be lending in the coming weeks,” said Gupta.

He further explained that it is “not a very big process” as out of 400,000 merchant loans, about 60,000-70,000 merchants’ repayments are done through Paytm Payments Bank account.

“We have 30,000 sellers on the ground, who are already in the market to ensure that refunds and settlement account changes are made on or before February 29,” Gupta noted.

Meanwhile, the company said it is working to address other operational challenges such as moving the Virtual Payment Address (VPA) of Paytm Payments Bank users, including individuals and merchants, to other banks.

“Paytm Quick Response (QR) code has a VPA linked to Paytm Payments Bank. Now that needs to be changed to another bank. We have several options for the banks we are currently talking to. This will be a big exercise,” Gupta noted.

Meanwhile, company executives clarified that no data was shared between Paytm and Paytm Payments Bank.

“There was no data that Paytm took and received from Paytm Payment Bank in the past or in the present. At any point in time, the data was with Paytm Payment Bank when a customer used the payment bank’s wallet or UPI handle,” explains Gupta.

Meanwhile, analysts believe that this move by RBI will have a significant impact on Paytm. In a note, Jefferies said: “Wallet GMV (5% of GMV) may have to be phased out and Fastag GMV, where Paytm is the third largest player with 58 million customers (17% market share), will also be badly hit. amounts to 50 percent of total revenue and while management has not indicated the contribution of these segments, we estimate that these segments would account for less than 10 percent of segment revenue and 5 percent of total revenue.”

Jefferies also noted that the current restrictions could also impact lending. “An important additional impact could be on lending (+20 percent of turnover) if lenders limit activities due to operational/governance risks. This could be a significant risk to earnings/valuations and we await details from management,” the note said.

First print: February 2, 2024 | 12:18 pm IST