The rules should have little or no impact on Paytm’s business and could help in removing one of the major obstacles on the company’s stock: Goldman Sachs
The revenue model for Paytm’s BNPL business model will likely not be affected by the new rules: Goldman Sachs
The most important recent regulatory developments, like the publication of the RBI’s Payments Vision 2025 report, are positive or neutral for Paytm the brokerage stated.
The broker Goldman Sachs has said that the announcement guidelines of Reserve Bank of India’s (RBI’s) guidelines for digital lending will eliminate a major regulatory hazard from Paytm and other fintech companies. business practices for financial services align with the guidelines that have been released.
“We believe that these guidelines will result in a small, if not no, effect on Paytm’s operations or model of monetization, and will aid in the removal of one of the biggest obstacles on the stock.” Goldman Sachs said.
The report also pointed out that the other important regulatory developments in the area such as the linking of UPI to credit card, as well as the release the RBI’s Payments VIsion 2025, are generally positive or neutral for Paytm.
Goldman Sachs also said that the model for revenue of Paytm’s buy now pay later (BNPL) business is likely to remain unaffected by the new regulations.
Paytm’s BNPL profits are distributed in three areas: convenience fee paid by the consumer and late payment fees from customers and an amount called the Merchant Discount Rate (MDR) that merchants pay.
Although the parts of the late fee as well as convenience fees are compliant with the central bank’s latest guidelines However, the MDR monetisation mechanism is not controlled under the recently issued guidelines, Goldman Sachs said. Therefore, it doesn’t anticipate any income impact for PaymentM’s BNPL product.
“However we are aware that, as per the RBI’s guidelines that repayments and disbursements must be made only between the account at the bank of the person who is borrowing and the regulated entity We would like to see more clarification on the operational aspects , such as the possibility of allowing nodal bank accounts are permitted,” it added.
In the meantime, the brokerage continues to remain bullish about Paytm stock due to the strong growth in its operating metrics , and its projected growth over the coming five years. The stock has a Buy rating on the stock and the target cost in the range of INR 1,000.
On Thursday stocks of One97 Communications, the parent company of Paytm was closed 0.19 percent lower in 825.50. 825.50 in the BSE.
On Wednesday this week, the RBI published its regulatory framework which is based on suggestions of the working committee, to address issues related to the rapidly evolving digital lending system.
In accordance with new guidelines for newly issued guidelines for entities that are regulated (REs) along with lending service provider (LSPs) the loan repayments and disbursements have to be made through the accounts at the banks that belong to the borrower as well as the RE with no pool account belonging to the LSP or any other third-party. The new guidelines also prohibit automatic increases in credit limits without the explicit consent from the borrower.
The new guidelines were released to stop the increasing instances of charging excessive rates of interest to customers and illegal recovery practices used by lenders who are digital. In one instance the victim was sexually harassedfor not paying in time, and another was killed by suicide after being harassed by loan sharks.
In the Newsexposer report that India’s fintech market is addressable and is predicted to reach $1.3 trillion in 2025. Of this, lending technology is expected to make up 47% or $616 billion and is expected to become the biggest market for fintech firms in the space.