Paytm’s Shares Fall 20% After Company Scales Back On Small Loans Below Rs. 50,000

Paytm’s stock had been crawling up over the last few quarters after falling to a lifetime low earlier in the year, but it’s given up most of those gains in a single day.

Paytm’s shares have fallen 20% in trade after the company told exchanges that it would offer fewer small BNPL (Buy Now Pay Later) loans following directives from the Reserve Bank. Paytm’s shares fell 20% to Rs. 650 per share soon after markets opened. This is Paytm’s worst day on the stock markets since it had listed in what is still the worst-performing large IPO anywhere in the world.

Paytm had today announced that in consultation with its lending partners, it would scale back on loans worth less than Rs. 50,000, and instead expand into higher ticket size loans. Paytm said that its postpaid loans could fall to half, but added that it would not have any impact on margins or revenue — postpaid had the lowest take rate and hence revenue impact would be minimal, the company claimed.

But that doesn’t seem to have prevented brokerages from taking a dim view of the situation. Goldman Sachs downgraded Paytm to “neutral” from the earlier rating of “buy,” and also cut its price target substantially to Rs. 840 from Rs. 1,250 earlier. Jefferies cut its price target for Paytm shares from Rs. 1,050 to Rs. 1,300, and Bernstein cut its price target on Paytm from Rs. 1,100 to Rs. 950. These downgrades, along with consumer sentiment, appear to have pummeled Paytm’s stock, and sent it crashing 20%.

There’s good reason for Paytm’s investors to be worried. Paytm has millions of people from all backgrounds as its users, and that’s perhaps its biggest strength — based on their transaction histories, Paytm can issue small third-party personal loans to these customers. But if Paytm is forced to cut back on its sub Rs. 50,000 loans, its ability to use its distribution and data to issue loans would be curtailed. In the larger loans segment, the company faces competition from traditional lenders, which dents much of its lending USP.

And lending is how Paytm intends to make most of its money. Paytm makes very little money from UPI transactions and even merchant payment outlets, but instead had been relying on using customer data and insights to build a formidable lending machine. Regulators are now concerned about these small-ticket loans, which has forced the company to cut back on what could’ve been its most lucrative segment. And with the company’s stock getting hammered 20% because of the move, Paytm’s long-suffering stockholders might find that the road to the company ever making any money on their investments has gotten even rockier.