Paytm Under ED Lens, Fintech Giant's Regulatory Struggles Still On?

Fintech giant Paytm is once again under regulatory scrutiny, this time facing a show cause notice from the Enforcement Directorate (ED) for alleged violations under the Foreign Exchange Management Act (FEMA). The ED has accused Paytm's parent company, One97 Communications, of failing to report its foreign investment to the Reserve Bank of India (RBI), leading to questions about the company's compliance with financial regulations.

This development marks yet another challenge for Paytm, which has been navigating a tumultuous regulatory landscape over the past year. From a clampdown on Paytm Payments Bank to multiple inquiries and fines, the company has found itself repeatedly in the crosshairs of authorities. Now, with ED's latest allegations involving foreign investments and transactions worth INR 611 Cr, the fintech leader finds itself in the midst of yet another controversy. TICE put lights on the on-going regulatroy struggles of Paytm.

The ED’s Allegations on Paytm: A Closer Look

The ED's investigation reportedly centers around Paytm’s foreign investments, particularly in Singapore. According to the agency, One97 Communications made investments in the region to establish a step-down subsidiary but failed to inform the RBI about these transactions. Additionally, the company allegedly did not adhere to the central bank’s pricing guidelines while securing foreign direct investment (FDI) from overseas investors.

Two of Paytm’s subsidiaries, Little Internet Private Limited (LIPL) and Nearbuy India Private Limited (NIPL), have also come under scrutiny. The ED claims that Little Internet received FDI without following proper pricing norms set by the RBI, while Nearbuy India failed to report its FDI transactions within the stipulated time. These violations prompted the agency to issue a show cause notice, raising concerns over the company’s compliance practices.

Paytm's Response to ED

Following the ED’s statement, Paytm issued a response, reassuring stakeholders that it is actively working to resolve the matter.

A company spokesperson stated, “We are working towards resolving the matter in accordance with applicable laws and regulatory processes. We remain committed to strengthening processes in adherence and upholding the highest standards of compliance and governance.”

While Paytm maintains its commitment to regulatory compliance, this latest probe adds to the growing list of legal and financial challenges the company has faced in recent months.

A Pattern of Regulatory Troubles

This is not the first time that Paytm has found itself in trouble with regulatory authorities. The fintech company has been under scrutiny since early 2023, particularly due to concerns over its banking and financial operations.

Last year, the ED launched a preliminary inquiry into Paytm Payments Bank following RBI’s restrictions on the entity’s operations. While no major breaches were found, the investigation did uncover violations of Know Your Customer (KYC) norms. The Financial Intelligence Unit-India (FIU-IND) subsequently imposed a fine of INR 5.49 Cr on Paytm Payments Bank for failing to comply with anti-money laundering regulations.

Additionally, in March 2024, eight Paytm officials and directors—both past and present—paid INR 3.3 Cr to settle a case with SEBI regarding compliance issues. More recently, Paytm’s wealthtech subsidiary was also penalized, paying INR 45.50 Lakh to settle a case related to violations of SEBI’s technical glitch framework norms.

These recurring compliance issues have raised concerns among investors and regulators, prompting speculation about the fintech giant’s governance standards.

Financial Challenges Amid Regulatory Uncertainty

Despite these setbacks, Paytm has continued to push forward with its business operations. However, the financial numbers paint a mixed picture. In the December quarter of the financial year 2024-25 (Q3 FY25), Paytm reported a consolidated net loss of INR 208.5 Cr, a slight improvement from INR 221.7 Cr in the same period the previous year. Revenue from operations, however, saw a steep decline, dropping 36% to INR 1,827.8 Cr from INR 2,850.5 Cr in Q3 FY24.

Amid regulatory scrutiny, Paytm has also been making strategic business moves. Recently, the company partnered with AI search engine Perplexity to enhance real-time financial assistance for users. Additionally, the Indian government signed a deal with Paytm to boost innovation in the fintech and manufacturing sectors. These developments suggest that despite ongoing challenges, the company remains focused on its long-term growth strategy.

Investor Sentiment: Can Paytm Regain Trust?

Paytm’s stock has been experiencing fluctuations in response to these regulatory issues. On March 3, its shares closed 1.38% higher at INR 726.20 apiece on the BSE. However, investor confidence remains shaky, given the frequent run-ins with regulatory authorities.

While Paytm remains a key player in India’s fintech landscape, the company must work to restore investor trust by strengthening its compliance framework and addressing regulatory concerns proactively. The latest ED probe adds to its growing list of challenges, and how it navigates this storm will determine its future in India’s evolving digital finance ecosystem.

As Paytm continues to battle regulatory headwinds, the question remains—can the fintech giant finally put an end to its compliance woes and emerge stronger, or will it face further hurdles on its path to stability?