Come Back Within 120 Days, India’s Central Bank Tells Paytm As Licence Application Stumbles

November 30, 2022
A subsidiary of Paytm, India’s online payments giant, has had its application to provide payment aggregator and payment gateway services for online merchants put on hold.

A subsidiary of Paytm, India’s online payments giant, has had its application to provide payment aggregator and payment gateway services for online merchants put on hold.

In an investor statement published on November 26, Paytm said the Reserve Bank of India (RBI) has asked it to redo its application with additional financial disclosures.

“We would like to emphasise that this is not a rejection of our application by the RBI, as the central bank has directed us to re-apply in 120 days,” said Paytm.

“We are taking all necessary steps and are hopeful of getting the required approvals soon.”

As per the RBI’s response, Paytm’s wholly-owned subsidiary Paytm Payment Services Limited (PPSL) must seek necessary approval because of past downward investment from its parent company.

PPSL was told this is necessary to comply with India’s foreign direct investment (FDI) guidelines.

Additionally, during the 120-day re-application window, PPSL has been instructed not to onboard any new online merchants.

“We want to highlight that this has no material impact on our business and revenues, as we will continue to service our existing online merchants,” said Paytm.

“We can continue to onboard new offline merchants and offer them payment services including All-in-One QR, Soundbox, Card Machines, etc.”

As one of the largest online payments firms in India, Paytm said it is hopeful that PPSL will receive the necessary approvals after re-submitting its application.

In the meantime, PPSL may continue to work with banks that provide payment gateway services.

Paytm, which is owned by Indian fintech group One97 Communications, has informed the Bombay Stock Exchange and Stock Exchange of India of the RBI’s instructions.

On a quarterly basis, Paytm said its 12 percent revenue increase in Q3 this year was due primarily to growth in its payment gateway business from higher gross merchandise value (GMV) in online merchants.

This was true for e-commerce merchants and for device subscriptions, which drives both subscription revenues and merchant discount rate (MDR) revenues.

When Paytm went public in November 2021, it was valued at $2.44bn, making it India’s largest ever initial public offering (IPO).

However, in its first two quarters of trading, it shed more than 60 percent of its value, and currently sits almost 70 percent down from its IPO price.

The company has yet to a turn a profit and regulatory hurdles are also seen as a potential drag on future business.

Non-bank aggregators

The RBI introduced new regulations back in March 2020, as covered by VIXIO, that permitted banks to offer payment aggregator services as a standard banking activity, while non-bank payment aggregators must apply for a licence to do so.

Non-bank payment aggregators must also be incorporated as companies and meet a net-worth threshold imposed by the RBI.

When the new rules were first introduced, existing non-bank applicants had to have a net worth of IDR15m ($1.8m) by March 2021 to be eligible for a licence and had to apply for the licence by September 2021.

Following multiple rejected applications, and due to RBI concerns around payment system disruption, this deadline was later extended to September 2022.

However, a requirement for non-bank payment aggregators to have a minimum net-worth of IDR250m ($3m) by March 2023 still remains.

Although this threshold will not have affected Paytm. According to Paytm's 2022 annual report (year ending March 2022), the company had a net worth of IDR137,125m (£1,679m).

Paytm did not reveal what information was missing from its original application.

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