In a sign of relief, Paytm has received approval from a government panel overseeing investments linked to China to inject ₹500 million ($6 million) into its key subsidiary, Paytm Payment Services. This decision marks a crucial step for Paytm, which has faced multiple regulatory and operational challenges over the past few years. The approval still requires final clearance from the finance ministry, but it effectively removes the primary obstacle preventing Paytm Payment Services from resuming normal operations.

The $6 million investment, if finalized, will act as a much-needed lifeline for Paytm Payment Services, which contributes a significant 25% of the company’s overall revenue. This subsidiary has been facing operational hurdles due to the lack of this investment approval. The delay stemmed from the Indian government’s heightened scrutiny of Chinese businesses following a border clash in 2020. Paytm had a 9.88% stake held by China’s Ant Group, raising concerns from Indian authorities regarding potential national security risks and financial stability implications.

Paytm, a once high-flying Indian fintech giant, is currently facing a period of turbulence. The company has been grappling with a series of challenges, including a regulatory freeze on a crucial investment in its core payments subsidiary due to its Chinese stakeholder, the shutdown of its payments bank unit for compliance failures, and a decline in market share against its competitors.

For nearly two years, Paytm has been stuck in approval limbo. Without the ability to infuse the $6 million investment, Paytm Payment Services faced the very real possibility of shutting down its core payment services business. The situation was further compounded by a freeze on onboarding new customers, significantly impacting Paytm’s growth potential, as well as the shutdown of Paytm Payments Bank earlier this year owing to persistent compliance issues. This decision led to a dramatic decline in Paytm’s stock value.

The potential acquisition of a “payment aggregator” license from the Reserve Bank of India (RBI) holds further significance for Paytm’s future. This license is imperative for Paytm to function as a full-fledged payments player in the Indian market, removing a major regulatory bottleneck and allows the company to pursue further approvals, such as the payment aggregator license. It would allow Paytm to not only process payments but also onboard merchants and offer them a wider range of financial services, as well as enhance its market position, and onboard new customers. Furthermore, the new capital injection is expected to stabilize revenue streams and potentially increase profitability by allowing the subsidiary to operate at full capacity and attract new customers.

Currently, the Indian fintech major operates under a less comprehensive framework. Without the payment aggregator license, Paytm’s ability to compete effectively in the dynamic Indian fintech landscape is hampered. The recent approval brings Paytm closer to acquiring this license, but the final decision rests with the RBI.