Indian fintech Paytm wins a major regulatory battle days after key investor exit

The Indian fintech powerhouse Paytm has achieved a significant milestone by obtaining approval from the Reserve Bank of India (RBI) to function as a payment services provider for online merchants. This announcement comes shortly after a major investor, Ant Group, divested its entire stake in the company, marking a notable turnaround for the firm following months of regulatory challenges. On Tuesday, One97 Communications, Paytm's parent company, revealed in a stock exchange filing that the RBI granted 'in-principle' approval for Paytm's Payment Services unit to act as an online payment aggregator. This development is particularly important as it comes over two years after Paytm was initially denied a similar license in November 2022 due to issues surrounding foreign investments from bordering nations. Previously unable to onboard new online merchants due to the license denial, Paytm maintained that this restriction had minimal impact on its operations. However, at the annual general meeting last September, CEO Vijay Shekhar Sharma expressed a commitment to reapply for the payment aggregator license. This recent approval also follows a year during which the RBI restricted Paytm Payments Bank from accepting new deposits and conducting credit transactions. In response, Paytm adapted by collaborating with banks like Axis, HDFC, State Bank of India, and Yes Bank to facilitate payment processing for its users. With the newly acquired license, Paytm can now provide services that allow online merchants to accept various payment options, including cards, net banking, and the government-supported Unified Payments Interface (UPI). This approval also lifts previous restrictions on onboarding online merchants imposed by the RBI. Interestingly, this regulatory breakthrough comes just a week after Ant Group sold its remaining 5.8% stake in One97 Communications for $454 million. This follows an earlier transaction in 2023 where Ant Financial sold a 10.3% stake to Sharma in a no-cash deal. As part of the new approval, Paytm must conduct a system audit, including a cybersecurity assessment, and submit findings to the RBI within six months; otherwise, the approval will expire. Notably, the license is strictly for online payment services. Analysts suggest that this development will empower Paytm to have greater control over its value chain, enhancing its ability to offer a comprehensive suite of services to customers and reducing dependency on banking partners. Currently, Paytm ranks as the third most utilized UPI payment platform in India, trailing only behind PhonePe and Google Pay, which collectively dominate the market. Despite these challenges, Paytm reported a net income of ₹1.23 billion (approximately $14 million) for the first quarter of its financial year 2026, reflecting a strong recovery from a loss during the same period last year. With revenue growing by 28% year-over-year to $224 million, the company's improving contribution margin signals a positive shift in market confidence, as evidenced by a 13.25% increase in its stock price year-to-date in 2025.