Paytm Payments Bank may see topline boost from interoperability rule: Morgan Stanley

Brokerage firm Morgan Stanley said the new guidelines from NCPI could generate additional revenue and potentially result in higher charges for wallet loading for Paytm Payments Bank.

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Brokerage firm Morgan Stanley said the new guidelines from NCPI could generate additional revenue and potentially result in higher charges for wallet loading for Paytm Payments Bank.

Morgan Stanley said digital payments firm One 97 Communications (OCL), which operates under the Paytm brand is expected to benefit as the interchange fees paid to Paytm Payments Bank decrease, implying a reduction in revenue for it. However, Morgan is waiting for further information to determine the net impact.

On March 24, National Payments Council of India (NPCI) declared complete interoperability of KYC wallets (PPIs) and set the interchange for utilising PPIs on UPI at a maximum of 1.1 percent of the transaction value (for amounts exceeding Rs 2,000). This will take effect from April 1, and the precise interchange will be determined by the merchant category and corresponding caps.

This suggests that Paytm Payments Bank (which is 49 percent owned by OCL) could generate additional revenue when Paytm’s full KYC wallet customers use their wallets to transact on merchants acquired by other service providers. The amount of revenue gained will depend on the usage of Paytm wallets on non-Paytm QRs/online merchants and their respective merchant discount rates (MDR).

“If well-received by Paytm wallet users or merchants, this benefit could be significant, given that Paytm Payments Bank is the largest issuer of KYC wallets with over 100 million users. However, the cost of wallet loading service charges that Paytm Payments Bank must pay to the remitter bank will be 15 basis points (for transactions above Rs 2,000 that are done through UPI), as opposed to zero presently”, Morgan said in its latest report.

The brokerage firm kept the ‘equal weight’ rating on the stock and increased the target price to Rs 695 a share.

OCL has stated that the interchange paid to Paytm Payments Bank will be lower in line with the lower standardised interchange. However, this also implies a reduction in revenue for Paytm Payments Bank.

“As of now, it is difficult for us to quantify the potential impact given limited available data as well as lack of clarity on potential Paytm wallet adoption at other merchants,” the Morgan report said.