One STUPID Mistake that DESTROYED PayTM | Case Study

 

The Rise and Fall of Paytm: A Case Study

The Viral Moment

In 2017, a video of Vijay Shekhar Sharma, the CEO and founder of Paytm, went viral. It captured his excitement as he celebrated Paytm's success, famously stating, "Those who are not with us, will cry." However, seven years later, the scenario has drastically changed. Now, those who are with Paytm are crying. The stock price, which was ₹760 on January 30, plummeted to below ₹380 in recent days. Let's delve into the journey of Paytm to understand this dramatic turnaround.

Early Journey and Demonetization Boost

Paytm began its journey in 2010 as a mobile recharge platform. Over time, it added more features, and by January 2014, it launched the Paytm Wallet, allowing online payments. By 2015, users could pay for metro recharges, electricity, gas, and water bills.

The real surge in Paytm’s popularity came after November 8, 2016, when demonetization was announced. The next day's newspapers featured front-page ads from Paytm, congratulating Prime Minister Narendra Modi and promoting the use of Paytm. This led to questions about Paytm's possible links with the government, as the ad appeared suspiciously soon after the demonetization announcement. Despite the controversy, Paytm’s customer base grew from 125 million to approximately 185 million within three months.

Expansion and Controversies

Paytm capitalized on the demonetization wave, hiring over 10,000 agents to distribute QR codes to local vendors, encouraging widespread adoption. However, controversies soon followed. In 2015, Alibaba, a Chinese company, invested $680 million, acquiring a 40% stake in Paytm. This led to criticism, especially during the 2017 Doklam standoff, as people accused Paytm of harboring hidden Chinese influences despite its patriotic marketing.

In 2018, CobraPost's undercover operation exposed Ajay Shekhar Sharma, Paytm’s Vice President, admitting to spreading political propaganda through the app and sharing user data with the government during the J&K stone-pelting incidents. Despite these controversies, Paytm continued to grow rapidly.

Launch of Paytm Payments Bank

In 2017, Paytm launched Paytm Payments Bank, offering banking services like account creation and deposits, but with limitations compared to commercial banks. Unlike commercial banks, payments banks have a deposit limit of ₹200,000 and cannot offer credit card or loan services.

RBI’s Crackdown

The real trouble began when the Reserve Bank of India (RBI) imposed operational restrictions on Paytm Payments Bank on January 31, 2024. Citing 'persistent non-compliance,' the RBI restricted the bank from accepting new deposits and onboarding new customers after February 29, 2024. Nodal accounts were to be closed by March 15, 2024.

This decision was not abrupt. The RBI had been issuing warnings to Paytm for years. In June 2018, an audit revealed non-compliance with anti-money laundering regulations and improper KYC (Know Your Customer) processes. Paytm was temporarily barred from onboarding new customers until January 2019, when restrictions were lifted.

In October 2021, Paytm was fined ₹10 million for submitting incorrect documents during its license application. Further issues led to another fine of ₹50 million in October 2023. Despite these warnings and penalties, Paytm failed to rectify its practices, leading to the severe actions by the RBI in 2024.

Consequences and Future Prospects

The restrictions led to a massive withdrawal of investments, causing Paytm’s stock to crash. Despite reassurances from Vijay Shekhar Sharma, the trust in Paytm was severely damaged. The company, which had consistently reported losses, now faced an uncertain future. In FY 2021, Paytm reported a loss of ₹16 billion, reducing to ₹1.7 billion in FY 2023, with hopes of turning a profit in FY 2024 now dashed.

Internally, Paytm employees faced uncertainty. Economic Times reported potential changes in Paytm’s business model, possibly shifting to a third-party payments app. Analysts suggest that selling Paytm’s wallet business to another company might be a solution. However, any such sale would require RBI's approval.

Conclusion

Paytm's story is a cautionary tale of rapid growth marred by regulatory non-compliance and controversies. It highlights the importance of adhering to regulations and maintaining customer trust in the financial sector. The future of Paytm now hinges on its ability to rebuild trust and comply with regulatory requirements.