The ides of March is upon us and Paytm’s future hangs in the balance. March 15 is the deadline for subsidiary Paytm Payments Bank (PPBL) to wind down its operations, taking with it a significant portion of parent One97 Communication’s (OCL) business.

One97 insists that it will be business as usual post March 15. While the financial implication of PPBL may seem negligible to One97’s overall business, it needs to be seen in the context of the payments bank perhaps being the only profitable entity of OCL’s associates and JVs, in addition to being a critical component of the overall payments piece given that a significant portion of the transactions were routed through the bank.

In this scenario, shutting down of the bank is bound to have business implications for the parent.

Of OCL’s revenue base of ₹7,990 crore in FY23, the payments business accounted for ₹4,930 crore. PPBL suffered losses in FY22 but bounced to a net profit of ₹2 crore in FY23. In FY21, it was the most profitable arm of the holding company contributing ₹25 crore towards the net profit.

As per One97 Communication’s annual report for FY23, revenue from the bank stood at about ₹2,277 crore, of which ₹783 crore was received by the parent as ‘services received as payment processing charges’ and ₹1,494 crore as ‘amount receivable from the payment gateway’. There are other payables and receivables apart from these as well.

In terms of balance sheet impact, investors should brace for a markdown of ₹195.9 crore in OCL’s investments attributable to PPBL. Net worth attributable to shareholders at ₹254.3 crore may also suffer a mark down post March 15 if the payments bank is wound down after March 15.

UPI payments

Paytm secured the TPAP (third party application provider) licence from NPCI on Thursday which will help it continue its UPI-based operations that account for a bulk of the payments business and are key for its survival and growth. Other payment options include netbanking, debit and credit cards.

Since the regulatory directive against subsidiary PPBL on January 31, parent OCL has made all efforts to severe ties with its arm to dispel allegations of inter-connectedness of business operations and lack of transparency between the two entities.

This included Founder and Chairman Vijay Shekhar Sharma stepping down from the board of the bank and reconstitution of the bank board. However, Sharma continues to be the majority shareholder with 51 per cent stake whereas One97 holds the remaining 49 per cent in the bank. Also to be noted is that all communication so far has been from One97 and Paytm and not from the bank, which begs the question of how independent the bank really is?

One97, since the beginning of February, has lost major ground--losing its privilege to offer banking services such as savings accounts, allow wallet payments, and issue FastTag or NCMC travel cards. The company has now shifted FasTag and NCMC operations from Paytm Payments Bank to other banks albeit at lower margins and higher expenses. It has also lost ground to competitors such as BharatPe and PhonePe in terms of merchant payments, new merchant acquisition, UPI transaction volumes and exiting human resource.

These peers also have the advantage of Payment Aggregator (PA) licence, in the absence of which Paytm will for now be forced to only facilitate payments which in itself is not a profitable business.

Paytm vs the bank

The RBI, on its part, has been highlighting concerns with respect to compliance and governance, inter-connectedness of business and lapses in KYC/AML processes at the bank. Even as it took action against the payments bank (which falls under its supervisory jurisdiction), it intervened and asked NPCI to fast-track a TPAP licence for Paytm despite repeatedly highlighting governance issues, absence of appropriate demarcation between the two businesses and inadequate checks and balances.

This willingness to ensure a licence for Paytm, even if it meant ensuring customer convenience, appears to contradict the regulator’s communication so far, especially if customer data protection and safety are the main considerations.

Meanwhile, the central bank is expected to supersede the board of Paytm Bank post March 15 to ensure that all remaining balances are utilised and/or returned to customers before the bank’s licence is officially revoked.

Whether Paytm can manage to regain its position as a top payments player and grow hereon is then dependent on whether merchants and customers continue to trust the brand and whether One97 is able to diversify its revenue streams going forward. While peers Google Pay and PhonePe already have a PA (Payment Aggregator) licence, it remains to be seen if and when the regulator would be comfortable enough to grant similar access to Paytm.

This seems to be the end of the payments bank’s journey. But does that mark a new beginning for One97 Communication or has it dragged its parent along to the end, we will know in the next 6-9 months.

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