Shares of Paytm surged by 5 per cent, hitting the upper circuit limit on Friday, March 15, following the green light from the National Payments Corporation of India (NPCI) to operate as a third-party application provider for Unified Payments Interface (UPI) services.
The approval from NPCI comes amidst regulatory actions faced by Paytm Payments Bank, culminating in the cessation of its operations on March 15 due to non-compliance, as directed by the Reserve Bank of India (RBI). However, this development opens a new chapter for Paytm under a multi-bank model, forging partnerships with major financial institutions including Axis Bank, HDFC Bank, State Bank of India, and Yes Bank.
Under this arrangement, existing users and merchants are assured of uninterrupted service continuity as the "@Paytm" handle redirects to YES Bank, as confirmed in an exchange filing by the company. Paytm has also assured a seamless transition, urging users and merchants to migrate to the new payment service provider banks as necessary.
At the onset of the trading session, Paytm's shares surged by 5 per cent to 370.70 rupees, marking its most significant gain in two weeks. However, the stock has been on a downward trajectory since late January, following regulatory measures that prompted Paytm Payments Bank to halt fresh deposits.
Analysts from prominent brokerage firms like UBS and Jefferies weighed in on the implications of the third-party app provider license for Paytm. UBS suggested that Paytm would now operate similarly to its competitors like Google Pay and PhonePe, while Jefferies highlighted the potential necessity for Paytm to tap into its cash reserves to retain customers and merchants, which are pegged at 85 billion rupees ($1.02 billion).
Global brokerage firms view NPCI's approval as a positive step, removing regulatory hurdles for Paytm's smooth transition. However, uncertainties linger regarding customer and merchant retention and the normalization process for its lending business.
Despite these challenges, Jefferies remains optimistic about Paytm's prospects, predicting a modest increase in payment value and app usage. They suggest that the company is likely to utilize its cash reserves for retention purposes.
"The company's business model is moving to a pure payment company. Paytm is likely to dip into less than $1 billion cash reserve for merchant/customer retention," said Jefferies.
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