However, one fintech industry expert, who wishes to remain anonymous, suggested that banks could not be easily forthcoming to partner with Paytm, given its tainted image, unless they received a “soft-nudge” to do so from the RBI.
RBI Governor Shaktikanta Das has adopted a harsh stance, saying there was no question of any relief for Paytm and that the bank’s restrictions are “always proportionate to the gravity of the situation”.
Prior to its crackdown in January, the RBI had taken punitive action against the firm at least four times over a series of lapses since 2018. It is hard to say what the RBI’s further approach will be like, even though Mr Prasanto Roy, a public policy consultant, thinks the government “in (an) election year does not really want an iconic unicorn startup to shut down”.
A worst-case scenario for the firm could see the markets turn more brutal if further crackdowns ensue.
Mr Srikanth Lakshmanan, founder of Cashless Consumer, an online collective working to increase public awareness on digital payments, said Paytm could see its stock value go down further and the firm could even be acquired by another company, which potentially means that the iconic brand is “going to die”.
Even if it survives this churning, Paytm will have to live with its value proposition significantly undermined, he argued. Owning a bank linked to millions of its wallet consumers gave it exclusive access to customer data, allowing it to develop revenue-earning products. This is something that Paytm will now have to share with other banks.
In India, the government implements a zero-charge regime to encourage the adoption of digital payments, which means neither consumers nor merchants pay for much of online payments infrastructure and service.
“The only money to be made is on credit offerings and over there if your data is dispersed then you do not have a unique value,” said Mr Lakshmanan.
There are also concerns that Paytm, like any other aggressive player, may have been cutting corners so as to not hold back its growth. But frauds and lack of regulatory compliance are wider issues in Indian fintech that have got amplified in Paytm’s case because of its scale and expansion into rural areas where checks can be weaker than in cities.
Digital payment fraud, Mr Lakshmanan told ST, has been a “parallel travel companion” to Indian fintech’s growth story. In its bid to push digital transactions, the government has allowed for relaxed norms such as mobile OTP-based onboarding. These relaxations, while boosting growth, have also enabled fraud.
“The mere act of offering digital onboarding exposes itself to this threat where you could possibly get fraudsters on-boarded very easily and that is not intentional but a by-effect,” Mr Lakshmanan said.
This persistent problem was highlighted in 2022 when Bollywood celebrity Sunny Leone reported that she had fallen prey to online theft, with her PAN card being used fraudulently for a loan of 2,000 rupees.
Meanwhile, the central bank’s regulatory crackdown has brought not just Paytm under scrutiny but also the RBI itself as it tries to get a better handle on digital payments and fintech, over which it has had a somewhat laissez-faire approach.
Mr Ashneer Grover, founder of BharatPe, another fintech firm, has criticised the RBI, describing its action against Paytm’s bank as an “overreach”, adding that the message conveyed by it was that “banks are (systemically) important, but fintechs are not”.
“It is demoralising for not just fintechs but global investors who will hesitate to pump in billions into a sector that can change overnight with knee-jerk notifications,” added Mr Roy.
India’s fintech sector has benefited from “lighter-touch regulation”, allowing startups to onboard hundreds of millions of new customers. But this has also prompted opposition from conventional banks, which have more onerous compliance mandates, and have seen their customer base whittled as unicorn startups acquire millions of their potential customers.
“The RBI therefore began to crack down on fintechs with the same compliance demands that it had of the banks,” Mr Roy told ST.
“This may sound fair, but the RBI is a banking regulator and is not really suited to payments regulation,” he added, suggesting that the government step in to create an independent payments regulator “that gives confidence to growing startups and investors”.
