IGI Logo

Below the key takeaways on RBI barring paytm from accepting deposits starting Feb 28 by Mr. Shivaji Thapliyal, Yes Securities

No top-up on Paytm Wallet could potentially erode ~30% of Payments revenue

*  The Paytm Wallet is housed within the Paytm Payments Bank and hence, the stoppage of top-ups onto the Wallet is material for the listed parent company.

*  At some point over the next few weeks after the ban takes effect (on 29th February), the residual balances in client Wallets would be exhausted, following which Wallet transactions, which are MDR fee-generating, would not be possible.

*  We are not aware of any specific disclosure by Paytm of the share of the Wallet’s fees in One 97’s payments revenue but we think it should still be material. The Paytm Wallet is a primary MDR fee-generating instrument for which the MDR has been in the 0.9-1% ballpark, as a percentage of transaction value.

*  However, we do note, from Mobikwik’s DRHP, that the GMV (transaction value) of Payment Payments Bank Wallet was USD 19.13bn in FY23. Assuming an average MDR of 95 bps, we calculate a fee income of Rs 14.54bn generated by the Wallet, which would account for 30% of Payments business revenue and 18% of company revenue in FY23.

No top-up on Fastag can also have a material impact on Payments revenue

*  Paytm Payments Bank is the third largest player in the Fastag eco-system behind IDFC First Bank and ICICI Bank and has accounted for ~19% and ~13% market share by volume on the issuer and acquirer side, respectively, at certain points in time.

*  Based on our discussions with another bank in the past, we are aware that take rates on Fastag can vary between 1-2% on the issuer side.

*  Hence, the impact due to no top-up onto Fastag is not likely to be trivial in nature.

Ban on banking services such as fund transfer via AEPS, etc could impact Remittance business

*  Paytm Payments Bank is a meaningful player in the domestic remittance market. The impact on the Remittance business, however, may not be particularly needle-moving in the overall scheme of things.

Actionable Recommendation

*  We have NEVER assigned a BUY rating on Paytm and we cover it since listing, when we had assigned a SELL rating on it. We, currently, have a less-than-bullish ADD rating on the stock.

*  RBI Press Release: The original RBI document on its action on Paytm Payments Bank can be accessed at this link.

Above views are of the author and not of the website kindly read disclaimer