Paytm's regulatory progress highlight easing of regulatory overhang, showcase bounce back: Global brokerages

Mumbai (Maharashtra) [India], August 29 : The recent government approval for One 97 Communications for downstream investment in its payments arm and wholly owned subsidiary, Paytm Payments Services Limited (PPSL), has sparked renewed optimism among global brokerage firms.
The approval is expected to facilitate Paytm's recovery and growth trajectory as it navigates to its next phase of operations.
Global brokerages such as Citi, UBS, and Ventura Securities noted in their research reports that the approval removes regulatory overhangs and positions the company for a strong recovery as it enters its next phase. Further, these firms added that the development puts the company back on its growth path and viewed it as a crucial step towards future expansion.
On August 27, Paytm announced via an exchange filing that it had secured approval from the Ministry of Finance for its downstream investment into PPSL.
The company stated, "With this approval in place, PPSL will proceed to resubmit its PA application. In the meantime, PPSL will continue to provide online payment aggregation services to existing partners," the company said in its exchange filing. "We remain committed to a compliance-first approach and upholding the highest regulatory standards. As a homegrown Indian company, Paytm is focused on contributing to and advancing the Indian financial ecosystem."
This approval is seen as a step towards the resumption of new online merchant acquisitions, which had been on hold since November 2022 due to regulatory restrictions.
Citi Research highlighted that the approval removes ownership-related concerns, with the company now required to secure the payment aggregator license from the RBI before resuming new online merchant acquisitions.
UBS also echoed the sentiment and stated that the regulatory approval clears a significant hurdle for the company and boosts market confidence and a crucial step towards obtaining the necessary license.
Morgan Stanley says, "We believe it reduces regulatory overhang incrementally. We will track the RBI's response to next steps." Citing its robust business model and advanced technology as pivotal strengths, Brokerages are bullish on Paytm's potential.
Ventura Securities highlights the company's expansive merchant base and emphasized that this creates a strong ecosystem for recurring revenue streams.
"Despite RBI stricture on associate Paytm Payment Bank (PPBL), we believe that Paytm's business model is robust and technology is gold standard. Paytm's pan-India merchant base of 40.7 mn and 78 mn monthly transacting users (MTUs) presents a strong ecosystem for recurring revenue streams." Says Ventura
"With UPI emerging as the favoured digital payments medium and Paytm originated soundbox (+POS) becoming an essential toolkit for payments, Paytm is well placed to benefit from the tailwind associated with this," Ventura added.
They pointed to the growing adoption of Unified Payments Interface (UPI) and the significance of Paytm's originated soundbox and point-of-sale (POS) systems, which have become essential tools for digital payments.