How Paytm lost its bank and rebuilt a profitable business

Paytm lost its payments bank to an RBI order in 2024, then went from a Rs 840 crore quarterly loss to a Rs 225 crore profit. What changed, and what is fragile.

In January 2024 the Reserve Bank of India (RBI) ordered Paytm Payments Bank to stop taking new deposits and top-ups. For a company whose wallet, FASTag and UPI flows leaned on that bank, it looked like an existential blow. Two quarters later Paytm reported a net loss of Rs 840 crore. For the quarter ended September 2026 it reported a net profit of Rs 225 crore, according to figures published on 26 October 2026 and reported by Inc42. This case study walks through how that happened, which decisions did the work, and which parts of the recovery are weaker than the headline suggests.

The short version

The RBI order of 31 January 2024 hit Paytm Payments Bank, a separate bank linked to Paytm's parent, One 97 Communications. Paytm's wallet, FASTag and part of its UPI and settlement flows depended on it. Paytm moved fast on the plumbing. It opened a nodal account with Axis Bank, and the National Payments Corporation of India (NPCI) approved it as a third-party UPI app working with four banks, in a decision reported on 14 March 2024. The financial damage was real: a Rs 550 crore loss in the March 2024 quarter and a Rs 840 crore loss in the June 2024 quarter, with operating revenue down about a third from the March quarter. Recovery came from an asset-light lending model, merchant subscriptions and devices, cost cuts and one-off asset sales. Paytm reported its first full-year profit in FY26 (Rs 552 crore), though a large part of the pre-tax result came from interest on cash rather than from operations. The key risk today: payments are a thin-margin business, and profit still leans on other income and on partner lenders.

Background

Paytm began as a mobile wallet and grew into a broad "super app": payments, merchant devices, lending distribution, insurance and broking. To see why one regulatory order mattered so much, you need three terms.

Payments bank. A restricted kind of bank that can take deposits and run payments but cannot lend. Paytm Payments Bank (PPBL) was a separate legal entity, not Paytm itself, but the two shared customers, branding and technology. Nodal account. An escrow-style account that holds merchants' money between a customer paying and the merchant being settled. Think of it as the counter at which every till in a shop settles up each evening. Third-party application provider (TPAP). A UPI app that does not run the partner bank itself. The app is the front door and partner banks move the money.

Paytm's wallet, its FASTag toll tags and part of its UPI traffic ran through PPBL. That was the weak point.

According to the Medianama summary of the RBI order, the regulator had already barred PPBL from onboarding new customers in March 2022. External audits then found what the RBI called "persistent non-compliance and continued material supervisory concerns". Neither the RBI nor PPBL published further detail. Media outlets reported specific allegations such as KYC lapses and links with promoter group companies, but those are reports, not confirmed findings, and this article does not treat them as established.

Earlier friction

The 2024 order was not Paytm's first brush with regulators. The same Medianama summary lists a penalty in 2021, a 2022 merchant onboarding ban, a 2023 fine over KYC and cybersecurity, and a 2024 ban on issuing new FASTags. The January order was the escalation that cut deepest.

Where things stand today

The latest figures are for the quarter ended 30 September 2026 (Q2 FY27), published on 26 October 2026 and reported by Inc42. They are the company's own numbers as reported by the press. Measure · Q2 FY27 · ChangeNet profit · Rs 225 crore · Rs 21 crore a year earlier Operating revenue · Rs 2,648 crore · Up 28% year on year EBITDA · Rs 270 crore · Up 90% year on year Merchant GMV · Rs 7.1 lakh crore · Up 26% year on year Monthly transacting users · 8.5 crore · Up 1 crore year on year Subscription-paying merchants · 1.64 crore · Up 27 lakh year on year Financial services distribution revenue · Rs 912 crore · Up 49% year on year A few definitions. GMV (gross merchandise value) is the total value of payments passing through. EBITDA is operating profit before interest, tax, depreciation and amortisation. Monthly transacting users (MTUs) count people who made at least one payment in the month. Inc42 describes the 1 crore rise in MTUs as the largest year-on-year jump in nearly three years.

Two more details matter. Payment processing charges, Paytm's largest expense, were Rs 805 crore, up 28%. Other income was Rs 182 crore, a big number next to a net profit of Rs 225 crore. Software, cloud and data-centre costs rose 59% to Rs 211 crore, which Inc42 attributes to higher AI usage.

For the full year, Inc42 reports FY26 operating revenue of Rs 8,437 crore (up 22%) and a net profit of Rs 552 crore, the first full-year profit, against a loss of Rs 663 crore in FY25. The same piece notes a cash balance of Rs 13,315 crore at the end of FY26.

The chart below joins five quarters from the sources opened for this study. It skips the quarters between them, so the line joins points that are not consecutive.

To see how the quarter's money moves, it helps to put the main lines side by side. Payment processing charges are the largest cost, and other income is large next to the profit.

What happened

January to March 2024: the order and the scramble

On 31 January 2024 the RBI directed PPBL to stop accepting deposits, credit transactions and top-ups after 29 February 2024. The order covered customer accounts, prepaid instruments, wallets, FASTags and National Common Mobility Cards, and it barred fund transfers, bill payments and UPI through the bank. The nodal accounts of Paytm and Paytm Payments Services were to be closed. Transactions started on or before 29 February were to be settled by 15 March 2024. Customers could still withdraw or use balances they already held.

Paytm's first task was to keep merchants getting paid. It opened a nodal account with Axis Bank in February, as multiple outlets reported. In a decision reported on 14 March 2024, the NPCI approved One 97 Communications as a TPAP under a multi-bank model, with Axis Bank, HDFC Bank, State Bank of India and Yes Bank as partner banks. Yes Bank took the merchant acquiring role and the @paytm handle was to be redirected to it. By mid-April, Paytm said all four banks were operational and began moving @paytm handle users across.

On lending, press reports at the time said Paytm paused new loan sanctioning briefly while it fixed operational issues, then restarted merchant lending with a small set of partners. Importantly, Paytm's loans were mostly made by partner banks and non-bank lenders, not by PPBL, so the order did not directly bar loan distribution.

May to July 2024: the numbers show the cost

Paytm reported results on 22 May 2024, as covered by Business Today. The March 2024 quarter loss was Rs 550 crore, and Paytm wrote down the carrying value of its PPBL investment. It put the steady-state annual direct hit to EBITDA from the embargo on PPBL products such as the wallet and FASTag at Rs 500 crore. It guided to Q1 FY25 revenue of Rs 1,500 to 1,600 crore and EBITDA before ESOP (employee stock option costs) of minus Rs 500 to 600 crore, and said it expected "meaningful improvement" from the September 2024 quarter.

The June 2024 quarter, reported on 19 July 2024 by Entrackr, landed inside that guidance but was painful. Revenue from operations was Rs 1,501.6 crore, down 33.8% from Rs 2,267.1 crore in the previous quarter. The net loss was Rs 840 crore, against Rs 358.4 crore a year earlier. Marketing and promotion spending was Rs 221.4 crore, up 72%, as the company worked to win back users and merchants. Entrackr's reading was that Paytm spent Rs 1.65 for every rupee of operating income.

The strategic decisions

Business Today's account of the May 2024 results lists the main choices:

1. Move to distribution-only lending. Paytm shifted to a model in which partner lenders put up the capital and manage collections. Paytm earns fees for finding and servicing borrowers. 2. Pause, then selectively restart. Some payments and loan distribution businesses were paused and restarted as regulatory clarity grew. 3. Rebuild UPI on four banks rather than relying on one. 4. Cut people costs. The company planned annualised savings of Rs 400 to 500 crore in people costs while still investing in the merchant sales team and in risk and compliance. 5. Add products around the core. Management flagged embedded insurance and wealth distribution.

Outside the core, Paytm sold assets. TechCrunch reported that it sold its entertainment ticketing business to Zomato in August 2024 for about $246 million and that its Singapore subsidiary sold its PayPay stake to SoftBank for about $279 million in December 2024. TechCrunch said Paytm's cash reserves rose to $1.46 billion and that its first quarterly profit, reported in September 2024, came mostly from asset sales rather than operations.

Why it worked (or did not)

What worked.

Separating the licence from the franchise. The RBI action was against a bank, not against Paytm's apps. Because the NPCI allowed Paytm to continue as a TPAP, the part of the business customers touched every day, the QR code on the counter and the app on the phone, kept running. Spreading UPI across four banks removed a single point of failure.

Selling devices and subscriptions, not just transactions. Inc42 reports that subscription-paying merchants reached 1.64 crore by September 2026, up 27 lakh in a year, and that the AI Soundbox, the speaker that announces payments, is deployed at 1.51 crore merchant locations (from Inc42's FY26 piece). A monthly device charge is steadier than a fee on each payment, so a subscribing merchant is a stickier customer.

Asset-light lending. By acting as the front door for partner lenders, Paytm kept fee income and left most of the credit risk with the partners. Inc42 reports financial services distribution revenue of Rs 2,594 crore in FY26, up 52% and over 30% of the top line. In Q2 FY27 it was Rs 912 crore, up 49%. More than half of merchant loan disbursements went to repeat borrowers, Inc42 says.

Costs. Inc42 notes that indirect expenses were 46% of revenue in Q2 FY27 against 52% a year earlier. Cost discipline plus higher revenue is what moved the company from loss to profit.

A cash cushion. The asset sales gave Paytm room to absorb the loss quarters without raising fresh money.

What did not work, or worked only partly.

Trust took time to come back. Marketing spend jumped in the first quarter after the shock. Paytm's own May 2024 guidance expected net additions of subscription merchants to recover only by the December 2024 quarter, and the 1 crore year-on-year jump in MTUs that Inc42 calls the largest in nearly three years came only in September 2026.

The early profits were flattered. TechCrunch pointed out that the September 2024 quarter's profit leaned on asset sales. Even FY26's Rs 552 crore profit needs care: Inc42 says other income was Rs 854 crore, about 47% above the profit before tax of Rs 582 crore, mostly interest and treasury returns on the cash pile. By simple subtraction, the year would have shown a pre-tax loss of roughly Rs 270 crore without it. That is this article's inference from published figures, not a statement by Paytm.

Payments are thin-margin. Payment processing charges were Rs 2,573 crore in FY26, about 55% of payment services revenue (Inc42). That leaves little room.

Current limitations

Dependence on interest income. Other income of Rs 182 crore in Q2 FY27 is large relative to the Rs 225 crore profit. If interest rates fall or the cash is spent, profit shrinks. UPI economics. Management flagged declining UPI incentives as a near-term challenge, Inc42 reports. The incentive Paytm receives under the government's payments incentive scheme (PIDF) fell from Rs 74 crore in Q2 FY26 to Rs 12 crore in Q2 FY27. Operating revenue excluding it still rose 33%, so the business is growing without it, but it shows how much of payments economics rests on policy. Lender guarantees. Partner lenders have sought protection. Inc42 reports revised default loss guarantees (DLG), under which Paytm promises to cover a portion of losses, for several partners, including up to Rs 150 crore for Piramal and KSF. The article's wording on the earlier figures is garbled, so this study does not state them. The point stands: although Paytm calls its model asset-light, guarantees mean it carries part of the credit risk. Regulatory history. Paytm has faced several RBI actions since 2021. The best protection is a clean compliance record, which takes years to show. Rising technology cost. Software, cloud and data-centre expenses rose 59% year on year in Q2 FY27. Gaps in disclosure. Total loan disbursements, merchant device counts and the FY24 full-year loss were not in the sources opened for this study, so this article does not use them.

What is coming next

UPI merchant fees. Paytm said it expects an uplift of about 2.5 basis points in its payment processing margin from changes to UPI merchant discount rates, according to Inc42. A basis point is one hundredth of a percentage point. Inc42 gave no date, and this article treats it as a company expectation, not a confirmed rule change. Investment in cloud and AI. Paytm's board approved an additional Rs 500 crore investment in Paytm Cloud Technologies over the next 12 months, and that unit approved Rs 500 crore for Paytm Singapore. The pages opened do not say what the money will fund. Next results. The December 2026 quarter results will test the trend. Q1 FY27 was Rs 220 crore and Q2 FY27 was Rs 225 crore, a nearly flat sequence. The date was not announced in the sources opened. Forecasts. Any forecast of Paytm's FY27 growth is analyst opinion. The sources opened for this study contain no further dated guidance.

Use the simulator below to test how sensitive a quarter's profit is to revenue and cost. Move the sliders to see what happens if revenue grows slower or costs rise faster, and what the result looks like without other income.

Other income is mostly interest on the cash pile, so it moves with interest rates. The next simulator works out the yield that Rs 182 crore a quarter implies on the Rs 13,315 crore cash balance reported at the end of FY26, and shows what a lower yield would do to profit.

At the defaults, a yield of 5.5 per cent on Rs 13,315 crore gives about Rs 183 crore of other income a quarter, and an approximate profit before tax of Rs 300 crore, which is above the reported Rs 225 crore net profit because this ignores tax and other items. Each percentage point off the yield takes about Rs 33 crore a quarter out of profit.

What other companies can learn

1. Do not let one licence, one bank or one partner carry the whole business. Paytm's fastest fix was to add partner banks to its UPI setup. Companies that rely on a single partner should map what happens if that partner is restricted. 2. Separate the customer relationship from the regulated entity. Paytm's apps survived because the NPCI would let them work with other banks. Keep the product portable. 3. Move credit risk to those licensed to carry it, but be honest about guarantees. Partner lenders offer scale, but they ask for loss guarantees when conditions tighten. 4. Recurring revenue beats per-transaction fees. Device subscriptions gave Paytm revenue that did not depend on every payment. 5. Cash buys time, not a business model. The asset sales funded the repair, but profit that depends on interest income has to be replaced by operating profit. 6. Compliance is a product feature. Several RBI actions over three years show the cost of treating it as paperwork.

Key takeaways

- The RBI's January 2024 order hit Paytm Payments Bank, not Paytm's apps, and the NPCI's March 2024 approval let the UPI business continue through four partner banks. - The shock was costly: net losses of Rs 550 crore and Rs 840 crore in the next two quarters, with quarterly operating revenue falling about a third. - For September 2026 Paytm reported a Rs 225 crore quarterly profit on Rs 2,648 crore of operating revenue, with 8.5 crore monthly transacting users. - The recovery rests on asset-light lending, merchant subscriptions and cost control, but other income and policy-linked incentives make the profit more fragile than the headline. - The next test is whether profit grows from operations rather than from interest on the cash balance.

Sources

- [Inc42: Paytm Q2 profit skyrockets over 10X YoY to Rs 225 Cr, revenue up 28%](https://inc42.com/buzz/paytm-q2-profit-skyrockets-over-10x-yoy-to-₹225-cr-revenue-up-28/) - [Inc42: Paytm's profitability milestone comes with caveats](https://inc42.com/features/paytms-profitability-milestone-comes-with-caveats/) - [Medianama: RBI order against Paytm Payments Bank](https://www.medianama.com/2024/02/223-rbi-order-paytm-payments-bank/) - [Medianama: NPCI approval for Paytm UPI](https://www.medianama.com/2024/03/223-paytm-npci-approval-upi/) - [Business Today: Paytm Q4 results takeaways, May 2024](https://www.businesstoday.in/amp/markets/company-stock/story/paytm-q4-results-takeaways-pbbl-hit-q1-sales-estimate-focus-areas-recovery-path-more-430473-2024-05-22) - [Entrackr: Paytm reports Rs 1,501.6 Cr revenue and Rs 840 Cr loss in Q1 FY25](https://entrackr.com/2024/07/paytm-reports-rs-1501-6-cr-revenue-and-rs-840-cr-loss-in-q1-fy25) - [TechCrunch: Paytm sells PayPay stake to SoftBank for $279.2 million](https://techcrunch.com/2024/12/06/paytm-sells-paypay-stake-to-softbank-for-279-2-million)

Tags: Paytm RBI UPI Case study Fintech