Prioritizing compliance over technology is the initial focus for Paytm's CEO.

Vijay Shekhar Sharma, the Founder and CEO of One97 Communications, the parent company of fintech giant Paytm, has emphasized a shift in focus towards compliance rather than technology in response to the Reserve Bank of India's (RBI) recent restrictions. Following the RBI's decision to prohibit Paytm Payments Bank from accepting fresh deposits and conducting transactions starting February 29, 2024, Sharma expressed the importance of making compliance and risk integral to the business for its sustainable growth.

During an interaction with analysts, Sharma acknowledged that compliance is now the foremost consideration, adopting a "compliance first, technology second" approach. Paytm's stock experienced a 20% decline to Rs 609 per share on the Bombay Stock Exchange in the wake of the regulatory restrictions.

The RBI, citing "persistent non-compliance" and "material supervisory concerns," imposed restrictions on Paytm Payments Bank, preventing further deposits, credit transactions, or top-ups after February 29. As a response strategy, Sharma outlined plans to collaborate with other banks instead of Paytm Payments Bank, viewing the setback as a temporary impediment.

Sharma expects a financial impact on Paytm's annual EBITDA (earnings before interest, taxes, depreciation, and amortization) in the range of Rs 300 to Rs 500 crore following the central bank's directive. The pause in new loan origination due to operational adjustments will contribute to this impact, affecting Paytm's lending activities.

Bhavesh Gupta, President and Chief Operating Officer at Paytm, clarified that the lending business is not directly linked to Paytm Payments Bank, but adjustments are required for merchant repayments currently routed through the bank. Gupta acknowledged the disruption and outlined proactive measures to relocate settlement accounts for affected merchants.

Paytm is actively addressing operational challenges such as migrating the Virtual Payment Address (VPA) of Paytm Payments Bank users to other banks. Gupta explained the necessity of altering the Paytm Quick Response (QR) code's VPA linked to the bank, a substantial undertaking involving discussions with various banks.

Despite the challenges, Gupta clarified that no data sharing occurred between Paytm and Paytm Payments Bank, with all customer data residing exclusively within the payments bank. Analysts foresee significant repercussions for Paytm, especially in segments like wallet GMV (Gross Merchandise Value) and Fastag GMV, where Paytm holds a substantial market share. The company is navigating these challenges, aiming to resume normal operations in the coming days or quarters.