paytm: Paytm says RBI diktat may lead to Rs 500-crore hit on annual earnings

Financial services company Paytm expects a hit of around Rs 300-500 crore on its Ebitda (earnings before interest, taxes, depreciation and amortisation) after the Reserve Bank of India (RBI) ordered it halt its banking business from March 1. It will continue on its trajectory to improve its profitability, the company said.
In a late-night filing to the stock exchanges, One97 Communications (OCL), which runs Paytm, said that the company is in the process of moving most of its business relations away from Paytm Payments Bank to ensure it can continue offering its services.

“Going forward, OCL will be working only with other banks, and not with Paytm Payments Bank Limited. The next phase of OCL’s journey is to continue to expand its payments and financial services business, only in partnerships with other banks,” the company said in the filings.

This effectively brings Paytm back to being a payment and financial services application which can offer banking services in partnership with other regulated entities.

Also read | RBI move against Paytm likely to disrupt retail payments; rivals spring into action

With regards to its merchant payment business, one of the major revenue generators for the company, it will continue to operate these services through third party banks, the company said.

Its offline merchant payment network offerings like Paytm QR, Paytm Soundbox, Paytm card machine, will continue as usual, it said and it will continue to onboard new merchants in this space. Paytm had lost its ability to onboard new merchants for its online payment gateway business in March 2022. Currently, its payment aggregator licence is pending with the RBI.

In what could be a major impact and an operational nightmare for Paytm, it will now need to move all its nodal accounts from the bank and start working with other banks.

A nodal account is a special purpose account created to accept payments from different bank accounts and forward to merchants. This is used for online merchant payments as well as offline payments through point of sales terminals.

Interestingly when Yes Bank was brought under an embargo by the RBI in 2020, Paytm’s Bengaluru-based rival PhonePe had to almost overnight shift its payment services to ICICI Bank.

With regard to its business operations in credit disbursal and wealth management, Paytm has said that all those businesses will continue.

But industry insiders said that given the hit on the brand, there could be a massive erosion of customer trust in the company.

Stay on top of technology and startup news that matters. Subscribe to our daily newsletter for the latest and must-read tech news, delivered straight to your inbox.