Can Vijay Shekhar Sharma reinvent Paytm once again?

Worse, the stock is off 85% its issue price of  ₹2,080-2,150 per share in November 2021—a stark evidence of the company’s long-term underperformance. At close of trading on Friday, 16 May, the share price of Paytm’s parent company, One 97 Communications Ltd, was ₹343.90 apiece.

The stock price decline is bad enough, but the more important question is: can Paytm survive?

Although Paytm’s brand remains popular with customers and merchants, the company is at risk of being stuck in a negative cycle of network effects.

Paytm has lost market share on the Unified Payments Interface platform for three successive months. It accounted for just 8.4% of UPI transactions in April, down from 11.8% in January. Paytm’s rivals PhonePe and Google Pay control more than 86% of the market. 

Paytm’s trajectory is unsustainable. And competition is only intensifying, with firms including Walmart-owned Flipkart, Reliance group and Adani group—all of which have far greater resources than Paytm—expanding into payments.

The revenue and margin hit from the payments bank closure will become clear only in the coming quarters, but Jefferies and other analysts estimate it will be substantial. In particular, lending—which offers the fattest margins—may suffer.

Yet to make a profit, Paytm can ill-afford restrictions on its ability to offer loans.

Many of Paytm’s senior leaders have resigned since RBI moved against the firm. Paytm’s chief operating officer and chief business officers were the latest to quit. The company claims that the exits were part of “a restructuring initiative, signalling a reinvigorated approach" under its founder and chief executive Vijay Shekhar Sharma. 

Still, the departures of so many leaders only adds to the growing suspicion that Paytm is being seen as a proverbial sinking ship.

Put together, these factors point to a company in serious trouble. What makes recent events even more galling for investors is that RBI had warned Paytm’s payment bank about its governance and disclosure practices several times before it finally acted this year.

Despite this long list of business missteps and governance lapses, there’s no sign that the Paytm board is considering replacing the CEO.

Sharma had inventively steered One97 Communications from its founding avatar in the early 2000s as an online directory into a pioneering digital financial services company. In the process he became one of India’s wealthiest digital entrepreneurs. 

In 2016, a few weeks after the government’s demonetisation of ₹500 and ₹1,000 currency bills forced Paytm to transform its business and image overnight, Sharma said in an interview with Mint that he wanted “Paytm to be a verb, more than a noun".

He meant that he wanted Paytm to become synonymous with online payments, the way Google and Uber have defined online search and cab rides. 

When Paytm’s valuation hit $16 billion in 2019, it seemed possible: “Paytm Karo" had indeed become a catchphrase for online payments.

But, amid India’s technology shift from digital wallets to UPI, Paytm has long been overtaken by PhonePe and Google Pay. 

Paytm raised $1.1 billion in its initial public offering in 2021—India’s largest IPO at the time—adding to the $3.6 billion it had received in funding from SoftBank Group Corp.’s Vision Fund, Warren Buffett’s Berkshire Hathaway Inc., Alibaba’s financial affiliate Ant Group Co., and other private market investors. 

Paytm had implied an IPO valuation of $19 billion, but its market capitalisation dropped drastically after its shares crashed on debut. Paytm’s current market capitalisation is a mere $2.5 billion. 

Once considered an iconic startup, Paytm is now more apt to be seen as a cautionary tale of a newage company whose fundamental weaknesses were masked temporarily by the charisma of its founder—at great cost to investors.

Much less emulate Google or Uber, Sharma must now somehow reinvent Paytm to avoid irrelevance.