paytm business other banks: Paytm to staff: focus on moving business to other banks

As Paytm navigates the complexities of the RBI’s recent action, its leadership met senior executives over the weekend to reassure employees and address concerns about the future of the embattled fintech firm, said two executives who attended the meetings.
The brass held two townhall meetings with senior business leaders at Paytm Payments Bank and One97 Communications, the executives told ET asking not to be named. “Conversations were mostly to rebut multiple theories going around and on the future course of action; the company is still waiting for regulator nod to initiate the next step of shifting backend bank accounts,” said one of the executives cited above.

While the detailed reasons for the RBI’s decision were not disclosed during the townhalls, the One97 Communications team has been primarily tasked with creating backend systems, which can be used to transfer the payment settlement systems from Paytm Payments Bank to other banking partners.

ET wrote on February 3 that Yes Bank, Axis Bank and HDFC Bank are the three lenders looking to take on Paytm Payments Bank’s settlement systems for UPI payments.

“Senior management of Paytm and its affiliates keep meeting their respective teams for operational matters. We work in an agile work environment and have always had teams that cut across functions to achieve business objectives,” a Paytm spokesperson said in response to ET’s queries.

The spokesperson added that as communicated to the exchanges earlier, Paytm is working to expand third-party bank partnerships for the distribution of payments and financial services.

Changing business model

“As a bank we had greater control over the payments journey, but as a third-party app, the challenge will be to ensure transaction success,” a second executive said.

“Our priority now is to ensure our users are not inconvenienced,” he added.

On January 31, the RBI asked Paytm Payments Bank to stop offering basic banking services from February-end. Responding to the regulator’s action, One97 Communications, which runs the Paytm application, said it will transfer the business from the payments bank to two or three other lenders.

“It is a change in business model for us; from being a bank, we will become a third-party payments app, so that will mean a bunch of changes in the backend and the time that we have is limited,” the first executive said.

Internally, Paytm employees are battling uncertainty and challenges while the leadership has not been forthcoming so far with all the exact reasons for the regulatory action.

“It was shocking for the entire company; it was something that we were not prepared for,” said the executive cited above.

Concerns about business impact

Paytm Payments Bank had been under embargo since March 2022, which pushed Paytm to shift a lot of new acquiring business to other banks. But the associate banking entity remained a major settlement engine for payments initiated by Paytm customers. That will be gone after February 29.

“There will be impact on the user experience; the company always stood out on higher transaction success rates mostly because of the banking licence. Now, without the bank play, it will have to redesign a lot of the architecture,” said a senior industry executive in the know. “Expect some degree of transaction failures on Paytm from March.”

Also read | RBI action on Paytm indicates tough times ahead for fintech startups

However, Vijay Shekhar Sharma, founder Paytm, was confident during an analyst call on Friday that given there is precedence of shifting from one bank to the other, it should not be a major challenge. He is also counting on his technology teams to stand up to the task.

Back in March 2020 when Yes Bank was put under an embargo by the RBI, almost overnight PhonePe, which used the bank’s settlement system for its UPI payments, had to shift to ICICI Bank.

Regulations vs innovation

For now, the messaging that has gone out to the larger teams is that the leadership is awaiting further guidance from the RBI.

Also, there is buzz inside the company that the regulator is being ‘anti-innovation’. Some felt that while Paytm might have pushed regulatory boundaries in some places, it was mainly to help customers have a better experience.

“Something as basic as making a payment on Paytm is easier than other bank apps, Paytm does not ask for whether the customer wants to do an IMPS, NEFT or RTGS payment; it routes automatically depending on the traffic, amount being paid,” said one of the persons cited above.

As the bank does its own firefighting with the regulator, One 97 Communications is currently busy trying to disentangle itself from the current imbroglio and expand its popular mobile app. However, how much it manages to extricate the decades-old payments business from this is the next big question.

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