"Indian Alipay" Paytm forced to "slim down" under regulatory crackdown, Walmart and others expected to benefit

According to Zhitong Finance, "Indian Alipay" Paytm has warned of layoffs and stated that it will reduce non-core assets. The company recently announced its first-ever decline in sales, reflecting the impact of regulatory investigations that have cut into most of this Indian financial technology pioneer's business. Paytm, once a model of India's emerging entrepreneurial economy, saw its net losses expand several times in the first quarter of this year, reaching INR 5.5 billion (USD 66.1 million). The parent company of this payment platform, One 97 Communications Ltd., reported a 2.6% decline in revenue to INR 22.7 billion, marking the first decline since its listing in 2021. The company's stock price fell by 2% at one point.

Founded in 2010 by the then-prominent Indian entrepreneur Vijay Shekhar Sharma, Paytm was ordered by Indian financial regulators in January to shut down one of its key bank subsidiaries, and is currently working on recovery efforts. These restrictions have damaged Paytm's reputation and sparked speculation that its customers may switch to competitors like PhonePe under Walmart (WMT.US).

On Wednesday, Paytm stated that it achieved profitability before deducting interest, taxes, depreciation, and amortization, as well as excluding employee incentive factors. The company warned that its second-quarter revenue for the period ending in June will further decline to INR 15-16 billion, but expects "meaningful improvement" thereafter. In a statement, the company mentioned plans to streamline its organizational structure, reduce staff costs, and "streamline" non-core businesses to achieve this goal.

Paytm is also competing with financial services provided by Amazon (AMZN.US), Google under Alphabet (GOOGL.US), and Jio Financial Services Ltd. under billionaire Mukesh Ambani. Paytm is trying to leave regulatory issues behind.

Since the Indian government ordered Paytm Payments Bank Ltd. (PPBL) to halt its key operations due to violations, Paytm's stock price has halved. PPBL, a bank subsidiary not controlled by Paytm, is part of founder and CEO Sharma's financial technology empire Afterwards, Sharma quickly took action and established new partnerships with some of India's top banks such as Axis Bank Ltd., HDFC Bank Ltd., and State Bank of India Ltd. to stabilize the situation. These alliances will help Paytm provide instant transfer services to customers by connecting banks with Paytm's financial technology applications. Paytm previously used its banking affiliates to operate its digital wallet and payment traffic. The company also leverages partner banks for clearing commercial transactions.

Bloomberg analyst Nathan Naidu stated, "Due to the long-term development of the payment business and strong user acquisition channels, Paytm is expected to achieve strong sales and profit margin rebound in the fiscal year 2026. In the past, Paytm was deeply mired in regulatory issues. Its market share in the Indian digital payment market, although not as dominant as Walmart's PhonePe and Google Pay, may remain stable, helping it achieve its goal of 500 million users. With new licenses for the payment business, regulatory issues should ease. The payment business is the company's main source of revenue, and the profit margin of this sector will expand due to system optimization and integrated products. Loans, insurance, and advertising may boost sales for this Ant Group-backed company."

Paytm stated on Wednesday that in the first quarter, the company lost about 4 million transaction users per month. The bank issued loans worth 57.76 billion rupees, a significant decrease from 155.35 billion rupees in the previous three months. Sharma wrote in a letter to shareholders, "We expect that our revenue and profitability will be affected in the short term due to the business interruption in the fourth quarter. This includes the steady-state impact caused by the suspension of PPBL wallets. In the last quarter, we also suspended some other payment and loan products. I am pleased to inform you that many of these products have been restarted or are in the process of being restarted."