Paytm Achieves Significant Regulatory Breakthrough After Key Investor Departure

Paytm, a prominent fintech player in India, has finally secured the long-anticipated approval from the Reserve Bank of India to operate as a payment services provider for online merchants. This development comes right after a Chinese investor divested its full stake, marking a crucial regulatory achievement following a lengthy period of scrutiny and challenges.

On Tuesday, the Reserve Bank of India granted “in-principle” authorization for Paytm’s Payment Services division to work as an online payment aggregator, as revealed by One97 Communications, its parent company, in a filing (PDF) to Indian stock exchanges. This authorization is particularly noteworthy as it follows more than two years after Paytm was initially denied the license in November 2022 due to non-compliance with Indian regulations regarding investments from adjacent nations.

Without this license, Paytm was barred from onboarding new online merchants. The company previously claimed that this restriction had “no material impact” on its operations or revenue. However, during its annual general meeting last September, CEO Vijay Shekhar Sharma expressed intentions to reapply for the payment aggregator license.

This approval also follows a year after the RBI restricted Paytm Payments Bank from accepting new deposits and facilitating credit transactions. To counteract this setback, Paytm quickly formed partnerships with banks like Axis, HDFC, State Bank of India, and Yes Bank, allowing them to serve as payment system providers for its clientele involved in online transactions and autopay services.

With the newly granted license, Paytm can now facilitate payment methods for online merchants, including cards, net banking, and the government-backed Unified Payments Interface (UPI). Additionally, this approval lifts the onboarding restrictions on online merchants that were imposed by the central bank in 2022.

This development follows just a week after China’s Ant Group completely divested its remaining 5.8% stake in One97 Communications for $454 million through block transactions. Earlier in 2023, Ant Financial had also sold a 10.3% stake—valued at $628 million—in a cashless deal with Sharma.

Paytm is now required to conduct a “system audit,” which includes assessing cybersecurity measures, and must submit the findings to the Reserve Bank of India within six months. If not completed, the approval could become invalid, as stated in the RBI letter that accompanied the company’s stock exchange filing. This license is restricted solely to online payment services.

This recent progression is expected to allow Paytm to gain more control over its entire value chain, from offline sound boxes to the online payment gateway, thus decreasing its reliance on other banking partners, according to fintech investor Osborne Saldanha, who spoke with TechCrunch.

Currently, Paytm is the third most prominent UPI payments platform, following PhonePe, owned by Walmart, and Google Pay. The fintech accounted for 6.9% of the total 18.4 billion UPI transactions in June, managing 5.6% of the transaction value, according to the National Payments Corporation of India (NPCI). Overall, Paytm handled 1.27 billion UPI transactions valued at ₹1.34 trillion (approximately $15 billion).

Though Paytm trails behind PhonePe and Google Pay in the UPI landscape—where these two giants control over 82% of all UPI transactions as of June—the company provides a diverse array of services and products to appeal to both consumers and merchants. This includes offline merchant payment solutions that integrate hardware, software, and service layers, alongside an expanding credit and lending business.

Paytm reported (PDF) a net profit of ₹1.23 billion (about $14 million) for the first quarter of its fiscal year 2026, which concluded in June—a notable rebound from a loss in the same period last year. These results surpassed expectations, as analysts had predicted a loss of ₹1.27 billion (roughly $14.5 million). Revenue rose by 28% year-over-year to $224 million, while the company’s contribution margin improved to 60%, up from 50% the previous year.

In addition to its recent financial successes, Paytm’s shares have increased by 13.25% year-to-date in 2025, reflecting a gradual recovery of market confidence after over a year of regulatory hurdles. The stock closed at ₹1,118.50 (around $13) on Wednesday, just prior to the announcement of regulatory approval.