India’s leading fintech player, Paytm, is encountering hurdles in navigating central bank restrictions and potential disruptions to a key payments affiliate, leading to a significant shift in consumer behavior.
According to data from the National Payments Council of India, the value of Paytm payments made on India’s state-backed transactions system declined by 14% to 1.65 trillion rupees ($19.9 billion) in January. In contrast, Walmart-owned PhonePe and Google’s GPay experienced an increase in their payments value during the same period.
Paytm’s dwindling performance indicates a growing inclination among consumers towards alternative payment services even before the implementation of any disruptions to its systems. While new restrictions affecting Paytm are set to take effect on March 15, the company anticipates its digital payments services to continue operating as usual. However, concerns over the potential impact of the restrictions have led to a decline in the company’s stock since the regulatory announcement in late January.
Despite Paytm’s setbacks, PhonePe and GPay witnessed growth in transaction volumes and values, as per NPCI data. While transactions on the state-backed Unified Payments Interface (UPI) do not generate direct revenue for these companies, they provide access to a vast consumer base for cross-selling services like insurance and mutual funds.
The Reserve Bank of India’s directive on January 31 forced Paytm Payments Bank, a crucial component of Paytm’s operations, to suspend much of its business activities. Although Paytm has swiftly formed partnerships with other banks to sustain its operations, the regulatory action has negatively impacted its stock performance and customer sentiment, with shares plummeting nearly 50% since late January.
In response to the regulatory challenges, Paytm’s founder, Vijay Shekhar Sharma, expressed confidence in the company’s ability to overcome setbacks and emerge stronger. While both Paytm Payments Bank and Paytm are part of Sharma’s fintech empire, PhonePe and GPay have maintained a significant lead in UPI transactions by value and volume, even before Paytm’s affiliate bank faced regulatory curbs.
