Paytm could build profitable business model with customer data, says Alchemy Capital CIO

Hiren Ved, CIO of Alchemy Capital

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Paytm, the parent company of the banking entity that’s been asked by the regulator to stop accepting deposits from March, could build a profitable business model with its customer data, according to Hiren Ved, chief investment officer of Alchemy Capital.

One97 Communications, the mobile payments and financial services distribution company that owns the Paytm brand, has 40 million transacting customers and can use their data to provide small loans to them and working capital loans to merchants, Ved told Moneycontrol.

The Reserve Bank of India placed restrictions on Paytm Payments Bank Ltd. (PPBL), an associate company of One97, on January 31, saying “persistent non-compliance and continued material supervisory concerns in the bank” warranted the supervisory action. The RBI did not provide details of the concerns.

One97 said its marketing and financial services business is not affected by the RBI’s directions towards PPBL. Its financial services such as loan distribution, insurance distribution and equity broking are not related to PPBL and are expected to be unaffected.

According to Ved, the RBI wanted PPBL to operate at arm's length from the service provider and that did not happen. Despite the huge customer base, he said the regulatory issues led to uncertainty, which investors do not want.

One97 Communications shares gained 10 percent to Rs 496.75 on the BSE on February 7 after falling almost 50 percent since the RBI imposed restrictions on the fintech company's payments bank business.

Strategic buyers

Ved said Paytm gained popularity after the November 2016 demonetisation as customers and merchants started using its app for online payments. After this, Paytm became the de facto platform for payments, said Ved.
"While everyone in the private sector thought there was no money in UPI, Paytm gained a significant market share in UPI," said Ved, referring to the Unified Payments Interface, a platform that enables online fund transfers between bank accounts.

Ved said Paytm was unique because it had a platform for customers and businesses and could cross-sell services between them.

Paytm built a business of significant value and was on the path to profitability, said Ved. Even though the company has quantified the impact of the central bank's restriction, Ved was not sure how much time the company would take to claw back what it lost.

Paytm said the regulatory measures are expected to have a worst-case impact of Rs 300-500 crore on its annual operational profit.

There could also be strategic buyers for Paytm's payments business, said Ved.

"I don't know whether Vijay Shekhar Sharma is willing to sell Paytm Payments Bank or not. There may be buyers. However, we have to see whether the existing founders are willing to sell stake or not. We also have to see whether the merger and acquisition is blessed by the regulator or not," he said.

The central bank directed Paytm Payments Bank to stop accepting deposits or credit transactions or top-ups in any customer accounts, prepaid instruments, wallets, FASTags, and NCMC cards after February 29, other than any interest, cashbacks, or refunds. It also directed the payments bank to settle all pipeline transactions and nodal accounts by March 15.

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