API in a press release has imposed some restrictions on Paytm Payments Bank. Posts on the subject have put hashtag Paytm right at the top on the trending section on X formerly known as Twitter. Now all kinds of information is being shared and this seems to have caused some panic among users and shareholders.
Now if you’re a Paytm user or a shareholder of both, this must have got your attention as well. To help us understand what this means, the potential impact, I’m joined by Lloyd Matthias, a board member, independent director and advisor to companies, the technology and consumer space and also an investor. Mr. Matthias, thank you so much for taking the time so late in the night and talking to us. My pleasure, I wish you thank you for having me.
All right, quickly, before we get into the nitty gritties and the details of the notice, the press release, which I’m sure you must have seen by now, just sort of give us a load on of what has happened and how serious is this and how different it is from the restrictions which RBI imposed on the payment bank a couple of years ago.
I think the wording of the RBI circular, I think was very, very stringent. So I think in any which way one looks at it, the issue is serious. Basically, what RBI has done is put out a circular, clearly stipulating and preventing PayTM payments bank from accepting deposits or top ups in customer accounts, including wallets, fast tags, effective February 29th.
So it gives a whole month, but effectively, for the entire 29 days, at the end of 29 days, what it tells anyone is that there is a big issue. And of course, they have kind of detailed the area saying that way back in February 2022, they had asked for a full -fledged system audit and from external auditors.
And basis what they saw in the compliance validation report of the external auditors, it revealed what RBI calls persistent non -compliances and continued material supervisory concerns in PayTM payments bank that warranted kind of supervisory action.
So I think it’s kind of a fairly, almost a kind of whole year and therefore now taking on a very stringent action with very strong words like not allowing for any transactions beyond February 29, I think it sends out a very, very strong warning.
So I think this is far more stringent. I know that two years back, another payments bank, in a sense, fell foul of the RBI, but everything about the wording of this kind of makes it far more critical and therefore, obviously a concern and also given the depth and penetration of PayTM.
I mean, it is in a sense, at least in large parts of the country, one of the largest digital payment mechanisms. And of course, the payment, the $197, the payment, the owning company, you know, kind of runs PayTM, but I think they’re interlinked because fundamentally everything that PayTM does happens through PayTM payments bank. So I think this is a big concern for users. Right. And in terms of the number of restrictions which have been imposed from the point of view of users, we can talk about shareholders perhaps a little later. But in terms of users, what kind of restrictions are we looking at?
I think what the bank is saying is that virtually you cannot make any fresh deposits, which really tells the users that the bank, the Paytm payments bank is under watch. And what it really means is that it also gives current users a sense of discomfort, that the fact that RBI is very clearly putting out a mandate that you cannot put any fresh deposits. The only thing that can go into the account is let’s say your cashbacks and interest payments where the Paytm payments bank is linked. So that obviously is incoming money.
For accounts including wallets, fast tags, effective February 29. So it gives a whole month, but effectively for that entire 29 days, at the end of 29 days, what it tells anyone is that there is a big issue, right. And of course they’ve kind of detailed the area, saying that way back in February 2022, they had our, for a full fledged system audit. And from external auditors and basis what they saw in the compliance validation report of the external auditors, it revealed what RBI calls persistent non compliances and continued material supervisory concerns in Paytm payments bank that warranted kind of supervisory action.
So I think it’s kind of a fairly, almost a kind of whole year, and therefore now taking on a very stringent action with very strong words like not allowing for any transactions beyond February 29, I think sends out a very, very strong warning. So I think this is far more stringent. I know that two years back, another payments bank, in a sense, fell foul of the RBI, but everything about the wording of this kind of makes it far more critical and therefore obviously a concern. And also given the depth and penetration of Paytm, I mean, it is in a sense, at least in large parts of the country, one of the largest digital payment mechanisms.
And of course, the payment, the 197, the payment, the owning company kind of runs Paytm, but I think they’re interlinked because fundamentally everything that Paytm does happens through Paytm Payments bank. So I think this is a big concern for users, right. And in terms of the number of restrictions which have been imposed, from the point of view of users, we can talk about shareholders perhaps a little later, but in terms of users, what kind of restrictions are we looking at?
I think what the bank is saying is that virtually you cannot make any fresh deposits, which really tells the users that the patient payments bank is under watch. And what it really means is that it also gives current users a sense of discomfort that the fact that RBI is very clearly putting out a mandate that you cannot put any fresh deposits, the only thing that can go into the account is, let’s say, your cash backs and interest payments, where the Paytm payments bank is linked. So that obviously is incoming money, I think sends a bit of a dire warning. And what I fear, until some quick action is announced the next day or two, is that it puts a lot of users, makes them very wary. It’s the equivalent of a big red flag. And this is the country’s banking regulator raising the red flag and specifically also talks clearly about issues of non compliance.
So I think really all these indicators will actually send a very strong signal to users, and that is a big danger. So this could severely disrupt Paytm’s existing operations. But the bigger concern is it could also spill over into its offline merchant business, as well as its gateway business. You know that you can kind of make any transaction pay from anywhere through the Paytm gateway, through the offline merchants. Paytm is possibly one of the largest, if not the most dominant, payment gateway. When you go to any store, you have a Paytm pop device where you can make payments to. So I think that is going to be pretty critical. And, therefore, for all practical purposes, it kind of, for now, ends the operation of Paytm Payments bank. So this is definitely a negative development, and it also adds to the relatively heavy regulatory overhang on the Paytm business. The concern, therefore, is for existing customers who have money in their balances.
If they at pretty much, you know, I mean, very, very clear action. So PTM payments bank has to stop onboarding new customers with the widget effect, I think, from March 1st. And I think that’s only going to make, you know, make it, make it very, very difficult. Of course, there are today large gateway payment gateway services. So a lot of that business can migrate effortlessly, but when it comes to the depth and the range of POP devices, the penetration that PTM has, I think that will take some time to overcome
