Leading Indian payments firm Paytm has lost US$1.2bn (or 20%) of its market value after the Reserve Bank of India (RBI) ordered its payment bank to halt operations, ceasing all activity on its app from March.
The action of the RBI is set to markedly hit Paytm’s core business, damaging its credibility as a payments provider at the very least.
Earlier this week, the RBI ordered Paytm to stop accepting new deposits in its accounts or its portfolio of digital wallets from March, raising immediate worries over revenue and longer-term concerns over continued business operations.
Paytm: Bank licence cancelled?
Indeed, this action from the RBI could well be a precursor to further action, where the RBI cancels Paytm’s banking licence.
But why has the RBI taken such drastic action? Well, for years, it has accused Paytm of non-compliance with central bank regulations, particularly in areas of due diligence, technology infrastructure and the correct use of funds.
Despite the situation appearing potentially terminal from Paytm, its President and COO, Bhavesh Gupta, has said that Paytm expects to return to usual business operations by March, if not sooner, says Reuters.
This comes after supposed positive talks between Paytm and the RBI.
While a solution is being worked on between Paytm and the RBI, the damage is already being felt by India’s digital bank, with stocks falling to a low of 609 rupees per share.
The erasure of US$1.2bn in Paytm’s value is its biggest stock price fall since 2021 when India was facing COVID-19 pandemic struggles.
Paytm: The need to strike new partnerships
To be clear, it is not Paytm itself threatening forced closure, but the Paytm Payments Bank of which it has whole custody and ownership.
But of course, the Paytm Payments Bank is the core of Paytm’s business, and should it be forced to close, this will have dire consequences for Paytm.
The bank holds all of Paytm’s 330 million wallet accounts and is the essential Paytm app and wallet ecosystem for clients too.
Now, Paytm is scrambling to find new banking partnerships other than the Paytm Payments Bank, in which it can use its platform technology to digitise another bank's mobile app service.
Still, such a shift would prove highly challenging, both for Paytm and its customers. But, come March, what’s in store for the future of Paytm should become clearer, for better or worse.