Can VSS Keep Paytm in the Black?

Paytm reported its first-ever quarterly profit. But sustaining this momentum will require more than cost cuts

- Mansi Verma

In 2017, the Indian government made FASTag toll payment mandatory for all new vehicles. Paytm, already eyeing dominance in digital finance, quickly seized the moment. The fintech company's banking arm, Paytm Payments Bank Ltd (PPBL), jumped in and by 2020 had become the country's top FASTag issuer, with three million tags. But behind the scenes, things were less straightforward. "Two teams, issuer and acquirer, ran the whole FASTag tech and product back-end," said a person with direct knowledge of the matter, requesting anonymity. "Oddly, the teams weren't a part of PPBL. They were under One97 Communications, the parent company."

This corporate structure of Paytm Payments Bank, which depended heavily on infrastructure from One97 Communications, raised red flags at the Reserve Bank of India (RBI), India's central bank, particularly around governance and data security, according to people familiar with the matter.

In January 2024, the RBI took unprecedented action, directing the bank to cease all banking activity from 29 February onward.

Beyond concerns about data handling and the intermingling of financial and non-financial operations, the regulator cited multiple lapses, including submission of false information, non-disclosure of related-party transactions, a high number of dormant accounts, cybersecurity deficiencies, and serious non-compliance with know your customer (KYC) and anti-money laundering norms.

Following the crackdown, key services went dark overnight, and revenue slumped even as fixed costs remained the same. In the June quarter (Q1) of 2024-25, Paytm reported that its net loss had widened 135% over the previous year to ₹840 crore, while revenue fell 36% to ₹1,502 crore.

"You can lose revenue in a week, but you can't cut costs that quickly," Sachin Dixit, who leads Internet Equity Research at brokerage JM Financial, told Mint.