The Paytm Saga.

Read qualitative analysis of the problem and recommendations!

Today let's underunderstand what is the issue at Paytm, how severe is the problem and what are the next steps. I checked many news article and blogs on Paytm and no one has done this precise analysis and any meaningful recommendations.

Is Paytm has genuine problem?

Regulator today has became smart, active and extremely vigilant. They have raised the issue of duplicate customers in Payments bank and fund diversion.

Apprently these issues looks true. Regulators today are also mature and raising it internally, levying small fees and not creating any noise. They are also not hesitant to revoke the licence if the genuine issue persists.

It was my first iPhone, IPhone 5 and Paytm mall offer of INR 5000.00 was bringing the cost of the phone to 28,000 INR.

But if you apply that voucher code and order was not completed, it expired. This prompt customer to create another account and retry the coupon. In the process each customer might end up having two or more Paytm accounts.

When regulator says there are multiple accounts for one user it looks like the dedupe checks are based on email id and not on Aadhaar and PAN card.

How severe is the problem?

Paytm payments bank is low margin business. Today Paytm payments bank revenue contribution today is 10-20 percent to revenues (not profits).

The issue now revolves only around payments bank and no issues to other services like loan initiation for Hero finance/HDFC, movie ticket booking, bus, hotel and flight booking.

After spending 2 and half years in Vietnam when I came back, my Paytm money wallet was made inavtive.

I am happily using Paytm without the wallet, without a Paytm payments bank account.

What is the problem?

The issue is now building perception and trust. The noise has reached all tea shops and vendors even though no one has faced any issue as of today.

The problem is regular bruise from the regulator. Any sensible large merchant will be hesitant to partner if this continues in future.

If no corrective action is taken, it run a risk of complete loss of the payments bank. A licence is a licence and could allow them to run business for long term.

I presume the dedupe process on Paytm mall was replicated into Paytm payments bank considering it will be pre-paid instrument. Where in a e-commerce company duplicate customers are ok, but in finance, banks need to have only one account for each customer.

Timeline of regulatory issues:

11 Mar 2022: New customer on-boarding was stopped.

27 Jul 2022: Paytm mall data of 3.4 million customers was leaked where company denied the news.

Following an audit RBI barred Paytm payments bank from on-boarding new customers.

12 Oct 2023: RBI imposes ?5.39-cr monetary penalty on Paytm Payments Bank.

16 Feb 2024: RBI restricts complete operation of Paytm Payments Bank.

02 Mar 2024: INR 5.5-cr fine on Paytm Payments Bank for breach of anti-money laundering rules by PMLA.

I guess the issue was happened by replicating on boarding process of earlier Paytm/Paytm mall. There are use cases for a customer to hold multiple wallet. But it must have been identified later and product owners must have allowed it further as it must be helping get a better valuation.

The valuation is directly proportional ?to no. of customers on the platform. That is the sole reason Facebook, Twitter, Instagram allow large number of duplicate customers.

Recommendations:

1. Initiate change to remove all duplicate accounts. Run SQL query on DB group by PAN CARD/Aadhaar and keep only one account for each customer. Couple of left joins and you are sorted. Communicate account closure and have one customer for one person.

2. Underwrite and check if any customer has manipulated to get multiple loans. You may look at merge/close 10 small loans to one loan which is sustainable. This seems must be with the services as Paytm payments bank is not processing the loans. (must be done if it is true)

3. Stop cross border payment functions: We heard you have enabled easy payment processing for Netflix, Apple and even hex videos. Nitin Kamath in one interview told they had the option to start investing in overseas (in the lines of IndMoney) but refrained as it might create unnecessary audit and troubles. I am sure Zerodha will start overseas investment options when it would be made available through gift city facilities.

4. On-board right investors who can add value: On-board right investors who can add value and not from our neighbours of North/south border who are retail giants. You could bring Citibank, Llyods, Fiserv as investors who can bring decade long banking expertise.

5. Communicate to merchants and customers through Amitabh ji/Tendulkar who are known for building trust.

6. Hire payments experts from industry, consult from Verinite and don't hire product owners, onboarding consultants from Jabong, Flipkart. All Startups are not same. Fintech is different. You need seasoned payments professionals.

7. All Paytm payments bank employees must go through ALM, banking 101 and ?data security courses again. Take these steps and reach out to the regulators!!

8. If you like me, wait and see if they are making right corrective steps and then you can look at Paytm stock if you have a 3-year visibility. Reader must do your own due diligence before taking any decision.

9. Last but not least, revamp your dedupe check on sourcing platform as it has serious flaws as it seems.

10. Smart way of handling it is changing the defination, change account no to walllet. There are perfect use-case for a customer to have more than one wallet. Many be fore each store they will keep one wallet. But each wallet will be mapped to a customer id and account no.

Customer ID must be KYC validated(might need re-kyc) and cumulative balances of all wallets will be displayed at account level.

To summarise Paytm need to have one account for one customer, re-kyc, clearly define payee and payer account and to avoid unwanted troubles avoid businesses/investors who can bring trouble and reachout to regulators for a consideration.

Regards:

Paytm scanner is the best in class. Heard Paytm hired from IITs, smart associates and they must find a way out. Have cutting edge technology solutions.

Paytm is also good at presuming things. Heard Paytm started wfh from 7th March for Covid.

Then please presume the regulations and act before fines.

Dear reader, these facts mentioned are from what we read and hear from media, reports and it might not be entirely correct. Do like and share if you like my analysis.