Paytm Wins Regulatory Battle After Investor Exit

Paytm Secures Payment Services Provider License from RBI

India’s leading financial technology company, Paytm, has finally obtained approval from the nation’s central bank to function as a payment services provider for online businesses. This crucial regulatory advancement arrives shortly after a complete divestment of its stake by a Chinese investor, following a period marked by challenges and intense oversight.

RBI Grants In-Principle Approval

The Reserve Bank of India (RBI) issued an “in-principle” authorization to Paytm’s Payment Services division, allowing it to operate as an online payment aggregator. This announcement, made by One97 Communications in a filing to Indian stock exchanges (PDF), represents a significant step forward.

The initial denial of this license occurred in November 2022, stemming from concerns regarding compliance with regulations concerning investments originating from countries sharing a land border with India.

Impact of Previous Restrictions

Prior to this approval, Paytm faced limitations in onboarding new online merchants. The company previously indicated that these restrictions had a negligible effect on its business and revenue streams.

However, Vijay Shekhar Sharma, founder and CEO of One97 Communications, expressed his commitment to reapplying for the payment aggregator license during last September’s annual general meeting.

Navigating Earlier RBI Restrictions

This development follows a previous directive from the RBI in the prior year, which prohibited Paytm Payments Bank from accepting new deposits or processing credit transactions. Paytm proactively addressed this by establishing partnerships with Axis Bank, HDFC Bank, State Bank of India, and Yes Bank.

These collaborations enabled these banks to serve as payment system providers for Paytm’s customers and merchants engaged in online transactions and automated payments.

Expanded Capabilities with New License

The newly granted license empowers Paytm to function as a service provider for online merchants, facilitating the acceptance of diverse payment options. These include credit and debit cards, net banking, and the government-supported Unified Payments Interface (UPI).

Furthermore, the license removes the restrictions on onboarding online merchants that were imposed by the central bank in 2022.

Ant Group’s Exit

The approval coincides with the recent exit of China’s Ant Group, which sold its remaining 5.8% direct stake in One97 Communications for $454 million through block trades. This follows an earlier sale of a 10.3% stake in 2023 to Sharma in a deal that did not involve any cash exchange.

Compliance Requirements

Paytm is now obligated to conduct a comprehensive “system audit,” encompassing a cybersecurity assessment, and submit the findings to the RBI within six months. Failure to comply will result in the revocation of the approval, as stipulated in the RBI’s accompanying letter within the company’s stock exchange filing.

It’s important to note that the license is specifically limited to online payment services and does not extend to other areas.

Strategic Implications

According to fintech investor Osborne Saldanha, this latest development will allow Paytm to exert greater control over its entire value chain, from offline sound boxes to the online payment gateway, and lessen its dependence on other banking partners.

Paytm’s Market Position

Currently, Paytm ranks as the third most utilized UPI payments platform in India, trailing behind Walmart-owned PhonePe and Google Pay. In June, the platform processed 6.9% of the total 18.4 billion UPI transactions and accounted for 5.6% of the total transaction value, as reported by the National Payments Corporation of India (NPCI).

Specifically, Paytm facilitated 1.27 billion UPI transactions totaling ₹1.34 trillion (approximately $15 billion).

Diverse Business Offerings

Despite being behind PhonePe and Google Pay in the UPI market – with the two giants handling over 82% of all UPI transactions in June – Paytm provides a comprehensive range of businesses and services designed to attract both consumers and merchants.

These offerings include offline merchant payment solutions with integrated hardware, software, and service components, alongside a growing credit and lending division.

Financial Performance

Paytm reported a net income of ₹1.23 billion (approximately $14 million) for the first quarter of its financial year 2026, which concluded in June. This marks a significant improvement from a loss recorded during the same period last year.

The results exceeded analyst expectations, which had predicted a loss of ₹1.27 billion (approximately $14.5 million). Revenue increased by 28% year-over-year to $224 million, and the company’s contribution margin rose to 60%, up from 50% the previous year.

Market Confidence Restored

In addition to its recent financial gains, Paytm’s shares have increased by 13.25% year-to-date in 2025, indicating a resurgence of market confidence after a period of regulatory hurdles. The stock closed at ₹1,118.50 (approximately $13) on Wednesday, just prior to the regulatory approval announcement.

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