• By Alex David
  • Wed, 13 Aug 2025 09:11 AM (IST)
  • Source:JND

Indian fintech leader Paytm has made history, receiving "in-principle" approval from the Reserve Bank of India (RBI) to operate as an online merchant payment services provider. This milestone follows Chinese investor Ant Group's exit and marks a fresh chapter for Paytm after two years of licensing hurdles and regulatory scrutiny - giving it a license that enables it to expand into India's fast-growing digital payments ecosystem, challenging rivals like PhonePe and Google Pay and taking back ground from them in the process.

Details of RBI Approval

Background to the Licence

  • The RBI initially denied Paytm’s payment aggregator licence in November 2022 due to noncompliance with investment rules concerning countries sharing a land border with India.
  • Without the licence, Paytm was barred from onboarding new online merchants, though it claimed this had “no material impact” on its business at the time.

Current Approval Terms

  • The “in-principle” approval applies only to online payment services and does not extend beyond that scope.
  • Paytm must complete a system audit and cybersecurity review within six months. Failure to submit the report will void the approval.
  • The licence allows Paytm to enable merchants to accept multiple payment methods, including cards, net banking, and UPI.

Business Impact

Aspect

Details

Merchant Onboarding

Restrictions imposed in 2022 are now lifted

Value Chain Control

Reduces reliance on partner banks like Axis, HDFC, SBI, and Yes Bank

UPI Market Share (June)

6.9% of transactions, 5.6% of transaction value

UPI Volume

1.27 billion transactions worth ₹1.34 trillion (~$15B)

Paytm's new development further solidifies their position in online payments, complementing offline solutions like QR codes and sound boxes while supporting its credit and lending services.

Investor and Market Context

  • The approval follows Ant Group’s complete exit from Paytm — selling its remaining 5.8% stake for $454 million last week.
  • Ant had previously sold its 10.3% stake to founder Vijay Shekhar Sharma through a no-cash transaction that totalled $628 Million.
  • Paytm's shares have increased 13.25% year-to-date in 2025, closing at Rs1,118.50 ($13) just prior to an RBI announcement.

Financial Performance

  • Q1 FY2026 Net Income: ₹1.23 billion (~$14M) — a turnaround from last year’s loss.
  • Revenue Growth: Up 28% year-on-year to $224 million.
  • Contribution Margin: Improved to 60% from 50% a year ago.

Paytm's strong financial results and renewed regulatory clearance indicate it is building back up investor trust after experiencing extensive setbacks.

Conclusion

Paytm's RBI approval as an online payment aggregator represents a critical turning point for its fintech, enabling merchant services expansion while decreasing partner bank dependency and building shareholder confidence. Furthermore, with increased financial performance and shareholder trust this move positions Paytm to compete more effectively against industry leaders PhonePe and Google Pay; providing it passes its mandatory system audit successfully then its growth could resume in India's highly competitive digital payments market.