April 28, 2024

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PICKING UP THE PAYTM PIECES

vijay shekhar sharma's digital payments journey has weathered many a storm over the years. Now, the 46-year-old's situation is akin to rowing a boat constantly springing leaks. Sharma fixes one hole, only for another to spring upLet's go back a bit. Sharma's One 97 Communications Ltd (OCL), founded in 2000, pioneered the use of QR codes at merchant outlets much before the demonetisation in 2016, giving its brand, Paytm, a head start. Soon after QR codes became popular, the government came up with the Unified Payments Interface | (UPI), sparking a revolution in the digital payments space. UPI levelled the playing field, and service providers such as Google Pay and PhonePe cornered a lion's share of this. While demonetisation did give a boost to payments firms, it became clear that Paytm's UPI business was financially unviable because of the near absence of the merchant discount rate (MDR)--a fee that a merchant is charged for accepting paymentsSharma then diversified Paytm, which has SoftBank and Alibaba as investors, into a loan distribution and investment products firm, using the payments insights of customers and merchants. Just as things began to normalise after Covid-19, regulatory scrutiny over Chinese ownership created uncertainty. Sharma quickly reduced Alibaba affiliate Ant Financials' stake and increased his own to 19.4%Then earlier this year, OCL suffered a major blow when the Reserve Bank of India (RBI) took action against its associate entity, Paytm Payments Bank Ltd (PPBL), for persistent non-compliance with KYC norms and other issues. PPBL was barred from accepting fresh depos- its or top-ups in any customer account, prepaid instruments, wallets, FASTags, etc., after March 15. Will Sharma be able to put Paytm back on track this time? Some experts like Barnik Chitran Maitra, Managing Partner of Arthur D. Little (ADL), India and South Asia, feel that Sharma lacks focus. "He has not been able to scale up any business to market leadership with several bets such as Paytm Mall failing spectacularly. He needs to focus on the one or two businesses that he believes has the potential to scale and achieve market leadership," says Maitra, adding that there is also the issue of credibility in the financial sector. "He has to work hard to earn that trust back. The banking system operates on trust. Your loan partners need to trust you, your mutual fund (MF) partners need to trust you, and everyone in the ecosystem needs to trust you, particularly regulator RBI." Paytm's core focus is on acquiring customers for payments (currently at 100 million-plus monthly transacting users) and leveraging that data to build a financial services business. How has RBI's action affected Paytm, that has more than three dozen subsidiaries and associates, and connects retail customers and merchants? RBI's moves have impacted one of Paytm's three business lines, namely payments. (Financial services and marketing are its two other business lines.) Revenues from payments, that make up more than half its total revenues, may experience a hit due to RBI's restrictions. But Paytm insiders claim that minus payment gateway costs, the share of the three businesses is one-third eachDays after RBI's move, Sharma termed the PPBL action as "more of a big speed bump". He assured investors that in partnership with other banks and the capabilities that

MAKING THERIGHT CHOICE

First permitted in 1993, portfolio management services (PMS) have seen their popularity grow. This is no doubt thanks to the stellar returns their schemes have generated, especially in recent years. These schemes—oriented towards high net-worth individuals (HNIs) with a minimum investment size of `50 lakh— invest directly in securities. Investors' assets are not pooled into one large fund, as is the case with mutual funds, but are maintained separately. A recent report bears testimony to this investment avenue's good performance. According to the portal PMS Bazaar, 79% of PMS schemes outperformed their benchmarks over a 10-year period, while only 49% of mutual funds bettered the returns generated by their benchmarks. As a result, perhaps, the number of clients has increased from around 106,000 to about 147,000 in just the last five years since 2019, according to PMS Bazaar. And this despite the fact that the minimum investment size has doubled from `25 lakh to `50 lakh. But despite such good returns, investors must exercise caution while choosing PMS schemes. The choice must account for the needs, risk tolerance, and objectives of the investor. And it must depend on a careful consideration of the credentials and track records of the PMS providers, and a comparison of the fees and service structures. This is definitely not a scheme for the faint of heart. It is ideally suited to those who invest in a large ticket size, understand equities, and don't panic at the first sign of market volatility.