A glimpse of the good, the bad and the ugly of India’s fintech industry emerged on January 15, 2024, when the Reserve Bank of India (RBI) barred Paytm Payments Bank (PPBL) from accepting fresh deposits and making credit transactions, among other things.
Before the RBI crackdown, the payment bank’s parent, One97 Communications (OCL), had clocked over two years on the stock exchanges.
The listing of OCL in November 2021, despite its underwhelming debut, inspired many fintechs to chart their stock market journeys. Several players, including BharatPe, Cred, PhonePe, Lendingkart and Kreditbee, listing plans began contemplating their initial public offering (IPO) plans.
For instance, in September 2022, chairman of BharatPe Rajnish Kumar said that the company could look at going public in another 18 to 24 months. This could mean going public around the second half of 2024. Yet, despite nearly seven months since PBBL’s ban, work on IPOs is either stalled or deferred, not just for BharatPe but for most fintechs and payment outfits.
According to sources Moneycontrol spoke to, most of the abovementioned companies haven't had serious internal discussions on their listing plans yet. “After the initial conversations with investment banks which started in mid-2022, we haven’t had much discussion on this matter. We are looking at going profitable first and after that we will see on going public,” said a fintech founder who didn’t want to be named.
Lendingkart, a decade-old lender, says it is in no rush to go public yet. Focused on small and medium enterprises (SME) and other small businesses loans, Lendingkart may draw an IPO plan within the next two fiscal years. “The plan is to grow and we are growing at a good pace. We will look at going public after a year or two,” an executive who did not wish to be quoted said.
In Q1FY24, Lendingkart’s revenue from operations grew 30 percent to Rs 230 crore year on year, while PAT grew to Rs 34 crore versus Rs 32 crore a year ago.
Watmart-backed PhonePe also has a similar stance on listing. Walmart’s executive vice president for corporate affairs, Dan Bartlett, on June 8 of this year told Reuters that the IPO for PhonePe may come in two years. "This is something we're looking at over the next couple of years,” Bartlett said. Walmart owns the majority 83 percent controlling stakes in PhonePe.
With more than 490 million registered users, PhonePe had a nearly 51 percent share of the value of transactions on India's UPI payments as of March 2023, according to the report. "There's a lot of processes that have to be put in place before we go public," Bartlett said, referring to PhonePe. “Obviously the question about the Indian exchange versus others" is "under consideration" for the future IPO listing, he added.
Profitability hopes
Meantime, the fintechs’ efforts to boost profitability are gradually bearing fruit.
In FY24, PhonePe reported an adjusted profit after tax at Rs 197 crore against a loss of Rs 738 crore in FY23. This is the first time the company has reported profit on consolidated numbers. The company reported a 74 percent jump in its revenue for FY24 at Rs 5,064 crore, up from Rs 2,914 crore in FY23.
Take the case of BharatPe. The homegrown fintech showed posted 182 percent growth in revenue from operations for FY23 EBITDA loss narrowed by Rs 158 crore. It recorded Rs 904 crore revenue from operations in FY23 as against Rs 321 crore in FY22. BharatPe said it made significant progress in reducing loss before tax, from Rs 5,594 crore to Rs 886 crore. The company has not yet posted numbers for FY24.
PPBL and aftermath
On January 31, 2024, RBI barred Paytm Payments Bank Ltd (PPBL) from accepting fresh deposits and making credit transactions. The central bank said in a statement that the action was precipitated by the PPBL's "persistent non-compliances". The bank was barred from activities like topping up any customer accounts, prepaid instruments, wallets, and cards for paying road tolls. Other than the payments business, which was the backbone of the fintech major, prepaid wallet and other facilities backed up its core business.
A few days after this, Union Finance Minister Nirmala Sitharaman had a meeting with the start-up and fintech ecosystem stakeholders. During the interaction, Sitharaman said that the regulators may hold meetings via virtual mode once a month to discuss any questions or concerns of the startups and fintech companies.
India is home to approximately 10,244 fintechs, making it the third largest fintech ecosystem in the world. With matured markets such as the UK and the US expected to see fintech IPO boom, including some big bang issuances such as Revolut and Stripe, when will large Indian fintech land in the listed space?
It’s at least a 2–3 year wait, say experts.
“What the Paytm incident did was bring to the fore some of the practices widely followed by the industry, but these may not necessarily cut ice with the regulator as fintechs grow. Currently, the ecosystem is in a bit of overhaul and we need to make a proper case for listing only after these concerns are addressed,” said a senior consultant who closely works with many fintechs. Some of the issues he pointed out pertain to know your customer (KYC) and data storage.
That said, while the scars of PBBL remain, the larger question of fintechs demonstrating their ability to be profitable entities is yet to play out convincingly.
“Once you go public, there cannot be flip flops every quarter and fintechs haven’t reached a stage of consistently generating profits quarter after quarter. This is still work in progress which may take 2-3 years,” said an investment banker.
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