Global: Paytm Commits to Sustaining Digital Wallet Operations Amid Regulatory Uncertainties

Paytm, an India-based digital payments company, is grappling with uncertainties surrounding its license as the Reserve Bank of India (RBI) instructed it to cease accepting deposits after February 29.

The RBI’s directive has raised questions about the future of Paytm’s banking operations and its ability to continue providing digital wallet services, as reported by Reuters on Friday (February 2).

The license for the banking business is held by Paytm Payments Bank, and approval from the RBI is necessary for it to be transferred back to Paytm, according to the report. However, obtaining such approval might prove challenging given the concerns expressed by the central bank.

In response, Paytm has declared its commitment to keeping the digital wallet business operational by establishing new banking relationships, the report stated. Paytm CEO Vijay Shekhar Sharma assured Paytm users on Thursday (February 1) that the app would continue to function beyond February 29 as usual.

Nevertheless, operating the digital wallet business without the license held by Paytm Payments Bank may present challenges, according to the report.

The regulatory concerns raised by the RBI have also impacted Paytm’s ability to form partnerships with banks. Several Indian banks have shown caution in doing business with Paytm due to these regulatory concerns, and any potential partnership with Paytm for offering banking services for their digital wallets would necessitate prior approval from the central bank.

The uncertainty surrounding Paytm’s license has taken a toll on its market value, the report highlighted. Paytm’s shares have experienced a 20% decline for two consecutive days, resulting in a loss of approximately $2 billion in market value. The company’s shares are now trading near record lows, leading several analysts to downgrade their ratings on the stock and lower their target prices.

In addition to the impact on its digital wallet business, the RBI’s order is expected to affect Paytm’s other services. Paytm’s digital highway toll payment service, known as FASTag, will no longer be able to accept replenishments after February 29, despite holding a 17% market share.

This isn’t the first time Paytm has encountered regulatory challenges. In 2022, the RBI fined Paytm Payments Bank for non-compliance with regulations, including know your customer rules, and ordered an IT system audit. The company has also faced concerns related to its valuation, business model, and profitability.