Paytm sanctioned by its Central Bank

Indian payment giant Paytm has established itself as a leading FinTech in its home country. So much so that the Indian Central Bank is now seeking to constrain it in order to ensure the security of its system. This is a new blow for Paytm, which reminds us of the risks of a galloping growth.

FACTS

• The Central Bank of India (CBI) has just formalised a decision that FinTech Paytm must comply with two major constraints:

  • stop recruiting new customers until further notice,

  • carry out an audit of its IT services.

• The integration of new customers by the FinTech will be subject to authorization by the BCI after a strict examination of the report to be carried out by the IT auditors.

• The reason for this decision? Significant prudential, regulatory concerns from the CBI.

• Paytm has already responded by stating that it will work with the regulator to address its concerns.

ISSUES

• An alternative to cash: Paytm was launched in 2009 and took advantage of the Indian government's decision to withdraw certain banknotes from circulation in 2016 to attract Indians to mobile payments in the midst of a cash shortage. Since then, the FinTech has succeeded in establishing itself locally against global giants such as Google Pay.

• A new security alert: Paytm had already suffered accusations from the Indian financial supervisor in 2018. At the time, it was accused of failing to verify the identity of customers and KYC.

• A hindrance to its ambitions: Paytm was planning to expand, both geographically and in terms of activities. In particular, the FinTech was looking to obtain a banking licence to offer more profitable financial services.

MARKET PERSPECTIVE

• India's number one mobile payment service had managed to complete its IPO in November 2021, the largest ever in the country. Not without turbulence. For two days after its IPO, Paytm was facing a collapse of its share price and shares.

• And this new decision by the Indian Central Bank is likely to make the situation even worse (Paytm's share price having dropped several points again following this revelation). Especially since Paytm has still not reached its break-even point.

• This situation in India echoes that of the German N26 and underlines the fears that the explosion of activities of innovative and disruptive players on the financial market can represent.