IPO-bound Paytm to create new company for payments business

A general view of Paytm's office

Mobile payments firm Paytm is looking to turn its payment aggregator business into a new subsidiary Paytm Payments Services Ltd, as the deadline mandated by the Reserve Bank of India (RBI) inches closer, it told stakeholders in a notice issued on August 31.

It is expected to seek approval for the same from its stakeholders through the extraordinary general meeting scheduled for September 23.

The move is in sync with the guidelines of the Reserve Bank of India which asks payment aggregators to be run as a separate company after obtaining a license from the central bank.

The indicative book value of Paytm's payment business which includes gateway business is around Rs 275-350 crore which will be paid to One97 Communications Ltd in five equal annual installments, as per the notice.

The actual consideration will be the derived basis book value appearing as of August 31, 2021.

Moneycontrol has seen a copy of the notice.

Paytm, which is targeting an initial public offering (IPO) of Rs 16,600 crore, offers payment, commerce and cloud and financial services to 333 million consumers and over 21 million merchants.

The Reserve Bank of India (RBI), in March 2020, released guidelines to regulate payment aggregators (PAs) and payment gateways (PGs).

The guidelines mandate that all PAs shall be authorised by RBI. For this, the regulator instructed non-bank companies offering PA services to apply for authorisation by June 30, 2021, which was later pushed to September 30.

PAs are companies who integrate with e-commerce firms and connect them with banks. They receive payments on behalf of these companies and transfer the money to their accounts

Entities like Billdesk, CCAvenue, Firstdata, Techprocess were the original players in this space. Then came the wave of startups who transformed the gateway business altogether. Players like Razorpay, Cashfree, Paytm Payment Gateway and others started offering payment services to ecommerce companies. Given the large-scale adoption of digital payments and emergence of so many players, the RBI expressed interest in regulating the space.

If successful, Paytm's IPO will be India's biggest public issue so far, a record that was previously held by Coal India, which raised Rs 15,000 crore over a decade ago, underscoring the appetite for new-age Internet companies among institutional investors.