The following is my assessment of the situation.
- It is excessive to think that Paytm is lost without its own Payments Bank. Paytm’s most competitors do not have Payments Bank license. For example, PhonePe tied up with Yes Bank to provide UPI VPA (@ybl) and GPay with HDFC (@okhdfcbank), ICICI (@okicici), Axis (@okaxis?), etc.
- Tieing up with multiple banks helps with diversification in UPI. Next time, if a partner bank gets into trouble, Paytm wouldn’t have similar difficulties. This is a very good lesson for Paytm not to rely on any single entity for its various verticals. This realization will help the company in the long run.
- What about the challenge of migrating away from Paytm Payments Bank? These difficulties are of very much temporary in nature. The management conveyed the same. They estimate at most 3 months for the operations to be back to normal. RBI clarified that this is action against Payments Bank and NOT Paytm super app.
- Getting rid of Paytm Payments Bank helps Paytm app stay clear of long-standing threat of regulatory overhang. Paytm app is coming out of this problem now, which I see it as positive. Yes, there are bound to be bruises. But the lessons from this will strengthen the company in the long run.
- Since the beginning, there is one aspect of the company that I was counting on is the execution skills on the ground. None of us can forget their swift action during demonetization. Then came their innovation of sound boxes. More than the innovation, the success of their sound box is due to the field agents and their execution skills. I even think that paytm’s field agents to be the company’s durable strength over its competitors. Some of us believe that Payments Bank was Paytm’s edge. But in the hindsight, it is actually paytm’s main weakness. The edge remains to be the field agents and the execution skills. So in my view the edge remains intact, and the weakness is forced away.
- What about the credibility loss? I admit, this is the main setback from this fiasco. I keep in mind Nestle’s Maggi fiasco and Pepsi & Coca Cola’s fertilizer traces fiasco. These were equally, if not much more, serious that affected credibility. These companies came out of these successfully. I think it is very much possible Paytm will do the same, considering their execution skills. I suspect this setback is temporary in nature. It’s a matter of paytm’s field agents communicating with their merchants. RBI even conveyed their commitment to minimize the inconvenience to paytm customers. Once paytm makes everything work well again, there is no reason why merchants would avoid paytm. Yes, some ground will be permanently lost to the competition. But the rate at which paytm is growing, the lost-ground is not worrying me.
- What about the hesitation by the potential partners due to regulatory action? RBI clarified that tieing up with Paytm is purely business decision by the banks. I don’t think any more clarity can be expected from RBI in regard to this. Bottom line is, RBI is not discouraging potential partners. I believe the partners would sense the business opportunity here.
In short, a lot depends on the execution skills of paytm. There are reasons to believe the company would come out strongly from this difficulty. I also don’t see anything that would negatively impact paytm for the long run.
Disc: Invested. I always consider myself as a novice investor. No recommendations here. I welcome opposing views, which would help me keep my thinking unbiased.