After Paytm Payments Bank was barred from onboarding new customers by the Reserve Bank of India (RBI) due to certain material supervisory concerns observed in the bank, experts feel that this issue may hit the brand image of the bank and Paytm.
The bank has also been reportedly directed to appoint an IT audit firm to conduct a comprehensive audit of its IT system. RBI will set the audit guidelines for the Paytm Payments Bank.
Experts point out that post the RBI move, the whole issue has turned very murky. “Paytm is a joint venture between Paytm and VSS. In this euphoria of valuation, new-age companies believe anything can be done. We are dealing with public money here and having the right kind of controls and policies become really important. Now there is also the other angle of data being leaked to our neighbor. This is high risk and I do not think a public company in the financial sector should get embroiled in it. There have been precedents like Yes Bank but they had the white knight in SBI. I do not think we can expect that here. What was needed was a secure back end. I hope this is an eyeopener for the new-age companies which can concentrate on the business rather than the valuations. If the business is strong, the valuations will follow. I hope every startup learns a lesson here,” said Sathya Pramod, CEO, Kayess Square Consulting Private Limited.
Market analysts believe that there are continuous directives and guidelines from RBI to ensure greater GRC governance, risk, compliance for fintech and payment banks like Paytm Payments Bank. This is to ensure that through an audit the payment banks are following proper process on the onboarding and eKYC workflows.
“Going digital actually improves the overall GRC and audit since data and workflow processes are completely automated. So, in this case it is very important for Paytm to conduct the IT audit and publish the findings to help answer all the central bank questions. It is too early to gauge the impact of this to brand and reputation. But banking and fintechs are all based on trust as a service and there could be customer and investor fears over the RBI directives. RBI wants to ensure investor protection and wants payment banks and fintechs to comply with rules and regulations. This will ensure order and stability in the financial ecosystem considering the large number of accounts that Paytm bank has. This focus on GRC by the RBI will also reduce the amount of frauds that take place in India specifically on payment transactions and eKYC compliance,” pointed out Sudin Baraokar, a global IT and innovation advisor.
Experts point out that in its bid to expand the reach of financial institutions to the farthest consumer segment, the RBI instituted novel institutions such as a payment bank. Concomitantly, RBI has also made sure that they have a strong grip on the regulatory framework and compliance.
“The current incident at Paytm Payments Bank indicates that RBI is not only aware but equally vigilant on the operational risks of banking institutions. It sends a strong signal to any of the new fangled payment banks that RBI is watching closely. Should there be any lapses, the payment bank will not only receive a rap on their knuckles but also potentially be exposed to reputation risk,” said Alok Shende of Mumbai based Ascentius Consulting.
Banking experts also point out that the cup of woes for Paytm continues to be overflowing. “Paytm were in for bashing by investors for a poor listing post their big bang IPO. Now this run-in with the RBI. The Paytm Payments Bank can take solace from the fact that a similar fiat was issued against the venerable HDFC Bank to stop credit card and digital business generating activities a year back. However, this helped HDFC to come out stronger with checks and balances in place. In the short term, brand Paytm will get impacted. But if they can learn the lessons and put the checks and balances in place and stick to the core business, they will be able to come out stronger. It was Paytm only who revolutionised India’s payment system. And it is here to stay,” observed Dr Sugant R, dean, School of Management and School of Economics and Commerce, CMR University, Bangalore.
