The regulator's order for Indian digital payments firm Paytm to halt a large part of its business by the end of this month serves as a warning to some companies in the country's fast-growing financial technology sector as scrutiny increases, analysts say.
India's central bank, the Reserve Bank of India (RBI), recently ordered Paytm's payment bank to cease its business by February 29, citing “persistent non-compliance”. It caused the company's share price to plummet.
Paytm Payments Bank is behind many of the features that the app offers, including its digital wallet.
“I think this signals that the RBI is going to just tighten oversight and scrutiny,” says Barnik Maitra, strategy consultant and former managing partner at consultancies Arthur D Little and McKinsey.
“There will be very little patience for players who are breaking laws and compliance norms which everyone in the industry, including larger players, are expected to adhere to.”
India's financial technology sector has grown rapidly. There are more than 9,000 FinTech start-ups in the country today – the third highest number globally.
The sector is projected to reach $70 billion in annual revenue by 2030 in the country, McKinsey India and Elevation Capital said in a report. It said that FinTech companies account for 70 per cent of digital payment transactions in India.
As the industry expands, regulators are trying to balance regulation with allowing innovation.
However, some companies have frequently fallen foul of RBI guidelines, Mr Maitra says.
“In general, the RBI has been tightening its stance towards FinTech, particularly when it comes to either lending or even taking deposits,” he says.
“The RBI is a conservative regulator. They are fine with allowing experimentation for a certain period of time within well-defined guardrails – but I think there will be a crackdown on repeat offenders.”
FinTech companies are sitting up and taking notice, but they are also concerned that any overregulation could have negative consequences for the sector's development.
“The recent RBI action against Paytm will prompt other companies in the FinTech sector to be more vigilant regarding regulatory directives and compliance,” says Gaurav Goel, founder and director of Fynocrat Technologies, a FinTech start-up.
“We believe that the era of taking regulatory and compliance matters lightly has passed. Nevertheless, such actions may have repercussions on innovation within the FinTech sector, particularly for companies and start-ups operating in heavily regulated environments.”
Akshar Shah, founder and chief executive at Fixerra, says the situation with Paytm “raises significant concerns for the FinTech sector in India”.
However, it also “underscores the importance of fostering a culture of compliance and accountability within FinTech organisations”, he adds.
It is not the first time that there has been a crackdown.
In 2022, the RBI announced new digital lending regulations which barred the practice of loading nonbank prepaid payment instruments via credit lines. This impacted several FinTech firms and forced them to overhaul their operations.
Companies like Paytm, over the years, have capitalised on being pioneers in a new sector – and regulators had to try to keep pace, analysts say.
“All wallet and aggregator platforms came about and flourished in an environment where there was a glut of consumers who wanted to transact online, but couldn’t as the regulatory oversight required to issue credit cards, or to on-board users into the formal banking system was too onerous, defeating unit cost economics,” says Utkarsh Sinha, managing director at Bexley Advisors, a boutique investment bank.
“Wallets filled the gap perfectly. Regulators at the time adapted quickly and tried to mainstream these innovations.”
The market has become increasingly competitive, with Paytm competing with Google and Walmart-owned PhonePe, and the sector has attracted billions of dollars from investors.
Paytm listed on the stock exchanges in India to great fanfare in 2021. However, its share price slumped and never recovered to its issue price, with analysts citing overvaluation.
“The [latest] woes specific to Paytm Payments Bank stem from an era of excess equity capital and valuations, where there was a glut of money chasing customer acquisition, often at the cost of regulatory compliance,” says Mr Sinha.
Following the RBI's notice that Paytm would have to stop a large part of its operations in a matter of weeks, the company said it is intent on being fully compliant with the central bank regulations.
“For every challenge, there is a solution and we are sincerely committed to serve our nation in full compliance,” Paytm founder and managing director Vijay Shekhar Sharma wrote on the social media platform X.
The RBI has suggested that the action against Paytm is being taken after it issued several warnings to the company.
“There is no worry about the entire system; it is an issue with a specific institution,” said RBI governor Shaktikanta Das on Thursday.
“The regulations are in place. It is not a case of regulatory deficiency. It is an issue of compliance with various parameters,” he said.
Ultimately, however, the sector stands to benefit, analysts say.
“This tussle between the companies testing their limits and the regulator reining them in is healthy for the ecosystem, a part of the natural order that helps find a balance and create new operating paradigms,” says Mr Sinha.
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India cancels school-leaving examinations
Other workplace saving schemes
- The UAE government announced a retirement savings plan for private and free zone sector employees in 2023.
- Dubai’s savings retirement scheme for foreign employees working in the emirate’s government and public sector came into effect in 2022.
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- Lunate, an Abu Dhabi-based investment manager, has launched a fund that will allow UAE private companies to offer employees investment returns on end-of-service benefits.
How to apply for a drone permit
- Individuals must register on UAE Drone app or website using their UAE Pass
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Day 1, Dubai Test: At a glance
Moment of the day Sadeera Samarawickrama set pulses racing with his strokeplay on his introduction to Test cricket. It reached a feverish peak when he stepped down the wicket and launched Yasir Shah, who many regard as the world’s leading spinner, back over his head for six. No matter that he was out soon after: it felt as though the future had arrived.
Stat of the day - 5 The last time Sri Lanka played a Test in Dubai – they won here in 2013 – they had four players in their XI who were known as wicketkeepers. This time they have gone one better. Each of Dinesh Chandimal, Kaushal Silva, Samarawickrama, Kusal Mendis, and Niroshan Dickwella – the nominated gloveman here – can keep wicket.
The verdict Sri Lanka want to make history by becoming the first team to beat Pakistan in a full Test series in the UAE. They could not have made a better start, first by winning the toss, then by scoring freely on an easy-paced pitch. The fact Yasir Shah found some turn on Day 1, too, will have interested their own spin bowlers.
KILLING OF QASSEM SULEIMANI
Dust and sand storms compared
Sand storm
- Particle size: Larger, heavier sand grains
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- Duration: Short-lived, typically localised
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- Source: Open desert areas with strong winds
Dust storm
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TO ALL THE BOYS: ALWAYS AND FOREVER
Directed by: Michael Fimognari
Starring: Lana Condor and Noah Centineo
Two stars
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PULITZER PRIZE 2020 WINNERS
JOURNALISM
Public Service
Anchorage Daily News in collaboration with ProPublica
Breaking News Reporting
Staff of The Courier-Journal, Louisville, Ky.
Investigative Reporting
Brian M. Rosenthal of The New York Times
Explanatory Reporting
Staff of The Washington Post
Local Reporting
Staff of The Baltimore Sun
National Reporting
T. Christian Miller, Megan Rose and Robert Faturechi of ProPublica
and
Dominic Gates, Steve Miletich, Mike Baker and Lewis Kamb of The Seattle Times
International Reporting
Staff of The New York Times
Feature Writing
Ben Taub of The New Yorker
Commentary
Nikole Hannah-Jones of The New York Times
Criticism
Christopher Knight of the Los Angeles Times
Editorial Writing
Jeffery Gerritt of the Palestine (Tx.) Herald-Press
Editorial Cartooning
Barry Blitt, contributor, The New Yorker
Breaking News Photography
Photography Staff of Reuters
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Channi Anand, Mukhtar Khan and Dar Yasin of the Associated Press
Audio Reporting
Staff of This American Life with Molly O’Toole of the Los Angeles Times and Emily Green, freelancer, Vice News for “The Out Crowd”
LETTERS AND DRAMA
Fiction
"The Nickel Boys" by Colson Whitehead (Doubleday)
Drama
"A Strange Loop" by Michael R. Jackson
History
"Sweet Taste of Liberty: A True Story of Slavery and Restitution in America" by W. Caleb McDaniel (Oxford University Press)
Biography
"Sontag: Her Life and Work" by Benjamin Moser (Ecco/HarperCollins)
Poetry
"The Tradition" by Jericho Brown (Copper Canyon Press)
General Nonfiction
"The Undying: Pain, Vulnerability, Mortality, Medicine, Art, Time, Dreams, Data, Exhaustion, Cancer, and Care" by Anne Boyer (Farrar, Straus and Giroux)
and
"The End of the Myth: From the Frontier to the Border Wall in the Mind of America" by Greg Grandin (Metropolitan Books)
Music
"The Central Park Five" by Anthony Davis, premiered by Long Beach Opera on June 15, 2019
Special Citation
Ida B. Wells
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Badla
Rating: 2.5/5
Produced by: Red Chillies, Azure Entertainment
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Cast: Amitabh Bachchan, Taapsee Pannu, Amrita Singh, Tony Luke
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1.30pm Handicap (PA) Dh 50,000 (Dirt) 1,400m
Winner AF Almomayaz, Hugo Lebouc (jockey), Ali Rashid Al Raihe (trainer)
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Winner Karaginsky, Tadhg O’Shea, Satish Seemar.
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Winner Sadeedd, Ryan Curatolo, Nicholas Bachalard.
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Winner Blue Sovereign, Clement Lecoeuvre, Erwan Charpy.
3.30pm Handicap (TB) Dh 76,000 (D) 1,800m
Winner Tailor’s Row, Royston Ffrench, Salem bin Ghadayer.
4pm Maiden (TB) Dh 60,000 (D) 1,600m
Winner Bladesmith, Tadhg O’Shea, Satish Seemar.
4.30pm Handicap (TB) Dh 68,000 (D) 1,000m
Winner Shanaghai City, Fabrice Veron, Rashed Bouresly.
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THE DETAILS
Kaala
Dir: Pa. Ranjith
Starring: Rajinikanth, Huma Qureshi, Easwari Rao, Nana Patekar
Rating: 1.5/5
MATCH INFO
Uefa Champions League, last-16 second leg
Paris Saint-Germain (1) v Borussia Dortmund (2)
Kick-off: Midnight, Thursday, March 12
Stadium: Parc des Princes
Live: On beIN Sports HD
