The repercussions of the Reserve Bank of India’s (RBI) ban on Paytm Payments Bank are becoming increasingly evident, with a significant hit to Paytm’s UPI market share. Recent insights obtained by Moneycontrol from banking sources reveal that Paytm‘s UPI market share plummeted to 11% in February 2024, down from the 11.8% it held in January, right before regulatory actions were implemented.
Over the last 10 months, Paytm’s share in India’s UPI market declined by 2.3 per cent points, indicating a turbulent period for the fintech company.
On January 31, 2024, RBI imposed a ban on the banking services offered by Paytm Payments Bank Limited (PPBL), originally set to take effect from February 29, but later postponed to March 15, 2024.
Paytm Struggles to Maintain UPI Presence
It’s noteworthy that in April 2023, Paytm Paytm commanded an impressive 13.3% share of India’s UPI market, marking a robust presence in the digital payment arena. However, in the subsequent nine months, there was a gradual decline in its market presence. The descent began in May, as Paytm’s market share dipped to 13%, followed by a further decrease to 12.8% in June 2023. The downward trend persisted, reaching 12.1% by the end of November 2023.
In January 2024, Paytm UPI market share was 11.8%, indicating a 1.5% point drop over the course of nine months. The trend reportedly continued into February, with Paytm’s UPI share standing at just 11%. Surprisingly, the drop of almost a percentage point within a single month between January and February 2024 occurred despite the fact that the UPI business itself was not directly impacted by the restrictions imposed on the bank by the RBI.
One significant factor contributing to the decline in Paytm’s UPI share is the intense competition within India’s digital payments sector. With major players like Google Pay and PhonePe dominating the market, users are increasingly exploring alternative platforms. The trend of users diversifying their usage patterns is apparent, with Google Pay’s consistent increase in market share from 35% in April 2023 to 36.4% in January 2024, signalling its successful attraction of users. Similarly, Cred, a relative newcomer, has experienced notable growth, rising from 0.5% to 0.9% during the same period.
Additionally, the persistent challenges faced by Paytm Payments Bank, including regulatory notices by RBI, raid by the Enforcement Directorate (ED), and operational changes, have likely contributed to an erosion of user trust. Concerns about the platform’s stability and reliability may prompt users to consider alternative UPI platforms that appear more resilient and trustworthy.
Paytm Challenges
Starting on March 15, 2024, Paytm is set to undergo a pivotal shift in its operational role, transitioning from a standalone payments bank app to a third-party application provider (TPAP). This strategic realignment aligns Paytm with industry counterparts like PhonePe and Google Pay.
The observed decline in Paytm’s share in India’s UPI market doesn’t come as a surprise to the company or industry analysts. According to insights shared by a source with MoneyControl, the anticipated drop in Paytm’s market share post-March 15, 2024, is expected to be significant due to the temporary suspension of onboarding new customers until the TPAP backend becomes operational.
To navigate this transition effectively, Paytm has secured strategic partnerships with Axis Bank, Yes Bank, and HDFC Bank as its payment service provider (PSP) banks in the TPAP service. PSP banks play a crucial role in establishing the connection between UPI apps and the broader banking network. It’s worth noting that Paytm had previously relied on Paytm Payments Bank Limited (PPBL) for this integral function.
Therefore, the collaboration with new PSP banks stands out as a noteworthy and strategic adjustment, a responsive measure aimed at addressing the challenges brought about by the RBI ban.
However, troubles for Paytm’s parent, One97 Communications, seem to be far from over, as the Financial Intelligence Unit-India (FIU-IND) has recently imposed a penalty of Rs 5.49 crore on Paytm Payments Bank for violating money laundering norms. The imposition of this penalty adds to the series of issues the fintech company has been confronting, further impacting its market performance. Paytm shares declined 5.45% in the last five days, trading at ₹412.35 on Monday, March 4, 2024.
