Regulatory Clampdown on Paytm Leads to Market Shift, Benefits Competitors

The recent regulatory clampdown on Paytm, triggered by the Reserve Bank of India’s decision to halt Paytm Payments Bank operations post-February, is causing a significant market shift. This move is favoring competitors like PhonePe and Google Pay.

A parliamentary panel has emphasized the need to support domestic fintech players to challenge PhonePe and Google Pay’s current duopoly, which controls over 83% of India’s digital payments market. According to the panel report, PhonePe commands a 46.91% market share, while Google Pay holds 36.39%. However, indigenous BHIM UPI’s market share by volume remains at a mere 0.22%.

The National Payments Corporation of India aims to limit individual companies’ market share in the Unified Payments Interface (UPI) system to 30%. But Paytm’s recent troubles complicate this objective. With the potential exodus of Paytm customers, PhonePe and Google Pay may struggle to adhere to the 30% cap unless they halt new user additions, impacting their market growth.

The sudden stoppage of Paytm’s services has prompted over 42 percent of Kirana stores, heavily reliant on Paytm’s QR code for digital payments, to transition swiftly to alternative platforms. BharatPe has seen a surge of 100 percent in merchant sign-ups across tier-1, tier-2, and tier-3 cities, experiencing notable growth rates in both metros and smaller towns.

“Post the recent regulatory changes and diktats, Paytm now faces a serious risk of customer exodus, jeopardizing its monetization and business model,” stated Macquarie Research. They anticipate a sharp revenue decline, particularly in payment and distribution business revenues. The migration within RBI’s February 29 deadline will be challenging, requiring KYC to be done again.

The market shift due to Paytm’s regulatory issues underscores the need for diversification and support for indigenous fintech players to foster a competitive environment in India’s digital payments landscape.