However, he said the best-case scenario for the Noida-based fintech would be a acquisition by a bank or a large non-banking financial company (NBFC).
Banks are trying to build consumer-oriented apps like HDFC Bank’s PayZapp or ICICI Bank’s credit line on UPI (Unified Payments Interface) products. With Paytm, they can quickly grow their customer base and offer them superior products.
As a “middle path,” Bernstein suggested that if Paytm manages to attract a large investment for a sizable stake in a major corporate housethen there is a chance that the business will recover more quickly and also gain some protection from future regulatory shocks.
Paytm was recently considering selling a stake to the Adani Group, according to some reports, but the company denied any such talks.
One 97 Communicationsthat runs Online paymentwas negatively impacted after its associate entity Paytm Payments Bank saw its business activities halted earlier this year due to severe regulatory restrictions imposed by the central bank. Bernstein said the losses reported by the company were a direct result of the business impact on its banking operations.
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Moreover, the government has reduced its budget allocations for digital payments, which is bound to impact Paytm’s revenue streams in the current fiscal year, Bernstein noted. ET wrote on July 25 that the government has reduced the budget allocation for Digital payments from Rs 3,500 crore to Rs 1,441 crore announced in the February provisional budget.
Going solo
According to Bernstein, if Paytm decides to go it alone, the company will need three important factors to accelerate its profitability. First, it will need to quickly scale up its secured lending products, something it has already started offering. Second, if it captures an 8-10 basis point share in the merchant discount rate on UPI payments above Rs 2,000, Paytm could turn profitable by Q3 2025-26. Lastly, if it can cut costs faster and reduce its headcount, there is a chance of breaking even faster, the report said.
A basis point is one hundredth of a percentage point.
Acquisition by a bank or NBFC
According to Bernstein, if Paytm is acquired by a bank or non-banking financial institution, it will be the best outcome for the company. Banks can use Paytm’s user base to cross-sell non-banking products, something they have been trying without much success. They can also launch innovative credit products across payment channels like credit lines on UPI through Paytm’s distribution base.
In case an NBFC acquires Paytm, it can start offering smaller-dollar loans, something banks do not offer currently. However, Bernstein said this might not be the best time for any lender to enter the unsecured small-dollar loan product segment.
Infusion of funds from a company
If Paytm receives a significant investment from a large corporate, it will get protection from regulatory shocks and in turn help the investor enter the financial services sector, something that almost all large corporates are considering now.
From Reliance Jio to Adani Group and Tata Group, big companies are building fintech businesses in-house. According to Bernstein, these efforts may get a big boost with the Paytm acquisition.
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