The Reserve Bank of India (RBI) has directed Paytm Payments Bank to cease accepting new deposits in its accounts and popular digital wallets starting from March. This regulatory action has led to a significant decline in Paytm’s shares, with a 20% drop on Friday, bringing them to their lowest point in over a year. Despite the company’s efforts to reassure users and investors, shares have fallen by 36% over the course of the week.
Paytm CEO Vijay Shekhar Sharma sought to allay concerns in a post on Friday, stating that the app will continue to function normally beyond February 29. He emphasized the company’s commitment to finding solutions to challenges and serving the nation in full compliance with regulations. The RBI’s order has raised concerns about the potential impact on Paytm’s main payments business and revenue streams.
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What are the struggles
Paytm has encountered setbacks in its expansion into the insurance broking sector, as the Insurance Regulatory and Development Authority of India (IRDAI) rejected its application, citing challenges in overcoming regulatory hurdles. This rejection could pose obstacles to obtaining a banking license for the company.
Furthermore, the Reserve Bank of India (RBI) is contemplating regulations that may limit the charges on digital payments, potentially impacting Paytm’s revenues. Currently, digital transactions through credit cards, debit cards, and wallets incur charges of approximately 2-2.5%. If these charges are reduced, it could significantly affect Paytm, given that 70% of its overall gross revenues come from the payments business.
The rising attrition rate and subsequent increase in employee costs are additional concerns for Paytm, as highlighted in a report by Macquarie. Due to these challenges, Macquarie has revised its expectations for the company, projecting higher losses with a 16-27% reduction in earnings for the fiscal years 2022-2025, citing lower revenues and increased expenses related to employees and software.
Moreover, Paytm has seen a consistent decrease in the average ticket size for loans disbursed over the past year, adding to the array of challenges faced by the company.
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