(I flooded this thread with several of my posts already. But couldn’t help adding one more, due to the benefits of thinking in the open.)
This is the follow-up to my earlier assessment when there was much negativity about Paytm. My conclusions were mainly positive:
- The current crisis is temporary in nature.
- Paytm Payments Bank was the weakness, not strength. This weakness is going away.
- Execution skills is the real strength, which stays with the company.
Now, the negativity tide seems to be turning around. Tracking the situation brings in new perspectives.
I came across reports of Paytm management’s dealings with Ramesh Abhishek who is being investigated by CBI and ED. To be fair, Paytm was not the only company in question here. But Paytm Payments Bank’s role in relation with this, may imply that the management is/was bent on growth at any cost (GAAC), including providing kickbacks where required. This could partially explain, rather negatively, the execution skills alluded above.
Banker Tamal Bandyopadhyay, mentions the following in his column, which seems to confirm the GAAC mindset:
On many occasions, PPBL has allegedly submitted false compliance reports, fooling the regulator.
These are disturbing indeed. Is GAAC a strength or weakness for a fintech? I think it is a strength in the short term, but definitely weakness in the long term. The breakneck growth and eventual steep fall of Paytm Payments Bank is the striking proof.
At this juncture, as an investor with the long term mindset, the following are the key trackables:
WHAT MANAGEMENT DOES FROM HERE
For now, the management seems to have realized this lesson that GAAC does not help in the long run. Management now says that Paytm will make compliance as its top most priority.
Accordingly, they formed Group Advisory Committee on Compliance and Regulatory Matters. We can assume that they’re doing what they’re saying, at least for now.
In my opinion, this is a step in the right direction. We can assume that the likelihood of compliance is high in the future.
COMPLIANCE VS GROWTH
On the other hand, if this committee’s approval is required for each and every decision, which we in the tech circles deride as Committee-Driven Development, it could become the bottleneck for the company.
In my experience, the culture of agility is key for tech companies for innovation and growth. Having a compliance committee in itself is not a negative, actually positive. But the growth of Paytm is highly dependent on how this committee works without impacting the agility of the company.
REGULATORY EVOLUTION
Yet another aspect to keep in mind is: Regulation. It is double-edged. It could set things right, but it could also stifle innovation and ease of doing business.
RBI must have envisioned Payment Banks as tiny where the number of customers and transactions would be very small. In case of Paytm Payments Bank, I don’t think RBI had foreseen a payment bank becoming this big and significant so fast w.r.t number of customers and transactions.
It will be interesting to see how regulations evolve with respect to fintechs.
In the meantime,
- one would hope that Paytm management does not take shortcuts that could endanger the future of the company in the long term, once again
- another hope is whatever mitigation plan they have should not impede innovation and growth.
Disclosure: Invested. I always consider myself as a novice investor. No recommendations here. I welcome opposing views.
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