The year may have started off bruisingly for One97 Communications, the owner of fintech brand Paytm, with the regulator pulling the plug on its payments bank venture. While a full-blown recovery is still several quarters away, the senior management, led by Vijay Shekhar Sharma, once hailed as India’s fintech poster boy, has charted a course that promises to build on the company’s achievements in recent years.
Following the Reserve Bank of India’s crackdown on Paytm Payments Bank Ltd (PPBL), One97 Communications had to make an impairment provision of ₹227 crore — the investment in PPBL, giving it 49 per cent stake — which impacted its financials for the year ended March 31, 2024.
The RBI directed PPBL to stop accepting deposits or top-ups in customer accounts, wallets, FASTags, and other instruments after February 29 (later extended to March 15).
Paytm’s fourth quarter net loss widened 3.2 times year-on-year to ₹550 crore as both revenues and margins were hit.
Revenue from operations was down 2.9 per cent YoY at ₹2,267.10 crore (₹2,334 crore).
Despite these setbacks, however, FY 2024 proved to be a landmark year for the company. It achieved its first annual ‘EBITDA before ESOP profitability’ — earnings before interest, taxes, depreciation, and amortisation, excluding cost of employee stock option — of ₹559 crore since it went public in November 2021.
“We demonstrated strong revenue momentum (up 25%) and continued our disciplined focus on profitability (EBITDA before ESOP margin up by 8%), in spite of regulatory action on our associate entity, Paytm Payment Bank Ltd. (PPBL),” Sharma wrote in his letter to shareholders.
Paytm’s senior management has, in a recent earnings call, suggested that the full impact of the regulatory move will be seen in the first quarter of FY 2025 (April to June 2024) — revenues are pegged at ₹1,500-1,600 crore; loss at EBITDA level is estimated at ₹500-600 crore.
The company expects an improvement in Q2 after restarting a few paused products. The early signs of growth in consumer and merchant base during April and May 2024 seem to buttress this view.
Data from the National Payments Corporation of India (NPCI) showed a continued revival in Paytm’s Unified Payments Interface (UPI) business, with a month-on-month increase in transaction value in May and a stabilisation in transaction volumes.
The recent earnings numbers also showed that, excluding disrupted products (such as wallet), Paytm is seeing growth in payment gross merchandise value — value of goods sold on the platform — since April 2024. Paytm has transitioned its core payment business from PPBL to partner banks.
Key focus areas
One97 Communications is now making targeted investments to bring back consumers and merchants to the Paytm platform. Through cross-selling financial services, in line with regulations, Paytm is focusing on monetisation.
Except for Paytm Wallet and FASTag, all other products of the company have been transitioned to new partners, including operating UPI services as third-party application providers (TPAP) to existing customers and merchants, and onboarding new merchants (partnerships with SBI, Axis Bank, Yes Bank and HDFC Bank).
As for consumer loans, Paytm is limiting itself to distribution only and has added more lending partners during the quarter, including pilots with banks. This gives it a bigger addressable market, more access to large banks and non-banks, easier tech integration, and more regulatory clarity.
The restructuring — while painful — has de-risked Paytm’s business model and opened up new opportunities for long-term monetisation through customer and merchant engagement.
The restructuring exercise included employee rationalisation and other cost cuts. It expects to save ₹400-500 crore annually on staff payments.
Non-core business
While pruning its non-core businesses, Paytm continues to reinforce its core payments business and other existing segments such as wealth management, retail broking, distribution of mutual funds, and digital goods commerce to help merchants scale up their business.
Talks are also on to transfer its entertainment business, a part of its marketing services, to a suitable entity.
Paytm now also offers nodal/escrow accounts for settlement of funds to merchants (in partnership with Axis Bank). Besides Bharat Bill Payment Services (BBPS), it is now undertaking FASTag distribution of other banks.
Way forward
Paytm’s focus on technology and other innovations ensures it remains a formidable player in India’s digital economy, even as it resolves to prioritise compliance and regulatory adherence.
“We are taking various steps to strengthen the governance framework across our group entities (especially regulated entities) by appointing subject matter experts as advisors or independent directors, reviewing various processes etc. I am ensuring that we have greater regulatory engagement and have higher focus on compliance, in letter and in spirit,” Sharma told shareholders.