Thinkpad: Reality Bites

Happy Holi! Hope you are enjoying the long weekend, if not the early summer heat.

It was a brutal week for homegrown payments firm Paytm and its founder Vijay Shekhar Sharma.

Late last week, the Reserve Bank of India had stopped Paytm Payments Bank from accepting new customers because of lapses in KYC compliance. This week, Bloomberg reported that there were issues with data access being given to entities that shouldn’t have it. Sharma vehemently denied this. Even if you discount this, the issues are serious enough. Besides, this is not the first time Paytm Payments Bank has been caught in the regulatory crosshairs.

The news pushed down the Paytm (One97 Communications Ltd.) stock to fresh lows. From its issue price, the stock is down some 70%. At least one analyst believes there is more to go.

There is a bigger reality check in the Paytm story.

First, payments are not a great money-making business, a fact that has been pointed out by many. Second, the idea of cross-selling on the basis of data is no new-age brain wave. Effectively, you are, as Macquarie's Suresh Ganapathy puts it, a digital direct sales agent. Third, if lending is your endgame, then you’re just one of many banks and non-banks. And no, you're not likely to beat the banks at that game.

Now, the believers will tell us we are hopelessly outdated, we don’t get it, etc, etc. We do get some parts of it. We get that these companies are providing convenience and a far better user experience. But beyond that, what are they offering which justifies their lofty private market multiples? Except for the greater fool theory...

What’s the ‘Truth About Fintech’? We intend to explore this idea in greater detail in the coming week and we’d love to hear from you.

Elsewhere, reality has come home to bite Amazon, the Future Group, and its lenders. Most definitely its lenders.

Over the last two weeks or so, the Reliance group, to overcome delays in closing a deal with Future Group entities, has gone ahead and swept out the business from under the nose of Future Group, its lenders, and Amazon.

Who knew, who didn't is a matter of conjecture and debate. But Future Group expressed shock, at least on paper. Amazon and the lenders issued public notices to protect their interests. It’s too late, folks. The business is gone. The story can quite easily be titled ‘The Wild Wild West Of Indian Business’.

It’s a mess, one lender told BloombergQuint’s Vishwanath Nair. But at least, as far as the lenders are concerned, they only have themselves to blame. If only they had acted in time…. Wait, how many times have we heard that in recent years?

The big macro story of the week was the lift-off in interest rates by the U.S. Federal Reserve. The Fed Funds Rate was raised by 25 basis points with median projections showing rates at 1.9% by year-end. The rate hikes and projections were as per market expectation, so there was no adverse reaction. Besides, Fed Chair Jerome Powell painted a picture of an economy strong enough to withstand higher rates, which helped.

The Bank of England also raised rates again this week.

In India, headline inflation came in at 6.07% for February. There are key spending categories that continue to show significant price rises. We’ve spoken about food and edible oil along with fuel. Now, items of clothing and footwear are also seeing high inflation because cotton prices have soared. The cost of your new summer wardrobe will make you sweat, writes Pallavi Nahata. Inflation in the education category also saw a spike, perhaps as schools reopened.

The good news is that as the week ended, there were some reports of a breakthrough in talks between Russia and Ukraine, which helped oil prices cool. This was quickly denied by Russia though, and crude prices rose again.

Still, many people, at least in the markets, believe the conflict is tiring itself out. Let’s hope that’s the case.

Till next week.