Paytm shares extend gains to 11% in 2 sessions

Shares of One 97 Communications which operates Paytm jumped 5% on Monday to hit the day's high of Rs 389.20, extending gains to nearly 11% in two sessions following approval from National Payments Corporation of India (NPCI) to Paytm to participate in UPI as a third-party application provider (TPAP) under the multi-bank model.

Following this development, US brokerage firm Morgan Stanley reiterated its Equal Weight stance for a price target of Rs 555. Calling it positive for the company, Morgan said that it was in line with its expectations, though it still awaits clarity on the potential impact on Paytm’s businesses during February. The impact of Paytm Payment Bank's business moving to other banks is also to be seen, this brokerage said.

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Four banks viz. Axis Bank, HDFC Bank, State Bank of India and YES Bank will act as PSP (Payment System Provider) banks to One 97 Communications. YES Bank will also be acting as a merchant acquiring bank for existing and new UPI merchants and its '@Paytm' handle will be redirected to YES Bank, a company filing said on Thursday.

The above move will enable existing users and merchants to continue to do UPI transactions and AutoPay mandates.

Paytm has also been advised by NPCI to complete the migration for all existing handles and mandates to new PSP banks at the earliest.

The TPAP approval removes the last remaining regulatory challenge for ensuring a smooth transition of customers and merchants, Jefferies said.

"Given it may lose access to banking license, Paytm's business model will now become similar to pure payment service providers like PhonePe, Google Pay, Pine Labs, etc. It is likely to push for deeper engagement with banks and regulated entities," the brokerage said, adding that in case of no incremental regulatory clampdown, there could be multiple scenarios for the business depending on user/merchant retention.

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