Why Paytm continues to struggle

Written by Kapronasia || May 23 2024

On May 8, Paytm’s share price hit a nadir of 317.45 Indian rupees (US$3.80). While since then the company’s stock has risen top about 369 rupees, Paytm continues to face a slew of challenges. The Indian fintech giant’s stock has fallen about 49% in value over the past year and 76% since its November 2021 IPO.

While India’s fintech market remains full of low-hanging fruit, and Paytm still has time to get back on the right track, it is undeniable that the subcontinent’s most prominent fintech company faces some serious challenges. Fundamental questions exist about the viability of its business model, especially with the demise of its payments bank and its inability to reach profitability after 15 years of operation.

Lending travails

Ever since its investors got cold feet about growth-first development – and all the cash that was being burned – Paytm has been scrambling to prove it has a viable business model that in the long term can ensure profitability. Integral to the company’s strategy is lending because of its high margins. While Paytm does not have the requisite licenses to directly provide loans to customers, it can do so through its network of banking partners.

Paytm’s trouble with loans started in December when the Reserve Bank of India (RBI) tightened rules on consumer lending. At the time, Paytm said it would reduce sub-50,000-rupee (about $600) loans but increase its portfolio of high-ticket personal and commercial loans. Paytm said that it expected a 40%-50% drop in volume of loans it issues through post-paid product, but a minimal impact on revenue growth.

Analysts were not convinced. Goldman Sachs said at the time that Paytm would not swing to a profit until the 2025-26 fiscal year. Previously, the investment bank expected Paytm would be profitable in the 2024-2025 fiscal year.

Meanwhile, in early May, Paytm refuted reports that suggesting that its lending partners had invoked loan guarantees provided by the company due to customer repayment defaults. Paytm said that it does not offer loan guarantees to its lending partners, adding in a statement that “claims about invoking loan guarantees due to repayment defaults by our partnered lenders are inaccurate.”

Leadership shake-up

Another sign of the ongoing challenges at Paytm is the shuffling of the company’s leadership. In a May 4 statement, the Indian fintech giant said that it is expanding its leadership team to build "a large and profitable payment and financial services distribution business.” To that end, Paytm said that that its president and chief operating officer Bhavesh Gupta, who had been overseeing payments and lending, had resigned to move to an advisory position. The company said Gupta is taking a career break “for personal reasons.” It is unclear who will replace him.

Gupta has not mentioned if the debacle with Paytm Payments Bank had anything to do with his departure, but it is hard to believe the two issues are unrelated. After all, he was in charge of payments.

Meanwhile, Rakesh Singh was recently appointed as head of Paytm Money Ltd, the fintech giant’s wealth management subsidiary. Singh is a financial services sector veteran who  previously served as CEO of the stock broking business at Fisdom and has held key management positions with ICICI Securities and Standard Chartered Bank.

There have been several other notable management changes at Paytm in recent months. In January, Paytm Payments Bank's MD and CEO Surinder Chawla resigned, while founder and CEO Vijay Shekhar Sharma stepped down as the non-executive chairman of the bank's board in February. In March, Paytm's senior vice president of business Praveen Sharma left the company.

Latest earnings

On May 22, Paytm reported earnings for the March quarter, in which its net loss widened to 5.5 billion rupees and revenue fell about 3% to 22.7 billion rupees. Further, Paytm said it lost about 4 million monthly transacting users during the January-March period. It disbursed 57.76 billion rupees in loans in the quarter, a significant decrease from 155.35 billion rupees in the previous three-month period. Paytm attributed the disappointing performance to the RBI’s ban on Paytm Payments Bank.

However, for the full 2024 fiscal year, Paytm said it was profitable before interest, taxes, depreciation and amortization, and before taking employee incentives into account.

It is likely that the fallout from the closure of Paytm Payments Bank is winding down and that the impact will be felt much less acutely from the September quarter as Paytm begins to restart certain paused products. That said, we understand that Paytm wants to double down on insurance and wealth products, and believe that any expansion in those segments should include adequate investment in compliance. Otherwise, Paytm could run into similar issues as it did with its payments bank.