Did the Monetary Policy Silently hit Paytm Plans?

On 08-December, when the monetary policy was announced, one of the stock to fall was One97 Communications, the company that owns and operates the Paytm platform. The RBI policy maintained status quo on repo rates, reverse repo rates and also maintained the accommodative stance of the monetary policy. There was really not much for Paytm to be really worried about.

The one announcement in the Statement of Regulatory and Development changes was the increase in the UPI limit from Rs.2 lakhs to Rs.5 lakhs. This should actually have been positive for Paytm. The problem was in a passing statement made by the RBI governor, Shaktikanta Das in his post-policy address. He had referred to bringing out a discussion paper to lower the burden of digital payment charges.

It was this statement in the RBI governor’s speech that actually spooked the stock of Paytm. Of course, the stock has already been under pressure since listing, but this just added fuel to the fire. The market interpretation was that any reduction in digital payment charges would automatically impact Paytm since it owns the largest digital payment ecosystem in India. But this interpretation of the market may have been slightly flawed.

Check - Paytm IPO - Listing Day 1 Performance

Firstly, the revenue model of Paytm is not a variable model that charges on a per transaction basis. Hence the reduction in digital payment charges would have minimal impact on Paytm. Incidentally, Paytm gets most of its revenues from the merchants on the point of sale (POS) instruments rather than on each transaction that is processed. Hence reduction of digital transaction charges should have minimal impact.

Secondly, Paytm already follows one of the lowest cost models among digital ecosystems. For example, Paytm has already introduced zero fee charge on small merchants below a threshold size and for all transactions processed through UPI or via RuPay cards. Hence, the reduction of UPI charges and digital payment charges, if it does happen, would hardly make any significant dent on the revenues of Paytm.