More trouble for Paytm as fresh checks begin

India’s largest securities depository is conducting an inspection of the customer verification process followed by Paytm Money, the wealth management entity run by One 97 Communications, people in the know told ET.

Central Depository Services India (CDSL) is the latest to ramp up checks on the know-your-customer (KYC) process followed by various entities of One 97, after the Reserve Bank of India’s January 31 directive.


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RBI asked Paytm Payments Bank to stop banking services from the end of this month. This order, though, does not have any direct impact on Paytm Money, which operates independently.

CDSL and the other securities depository, National Securities Depository (NSDL), conduct regular audits of these platforms through their agencies to ensure all systems around anti-money laundering and KYC are in place, industry insiders said. “Their KYC norms in this sector are more stringent than banking; in fact, every customer KYC is audited by a third party,” the founder of a broking startup said on the condition of anonymity.

“In case of investment platforms, the rules around KYC are more strictly followed and there are regular audits on the user base as well. Violations attract penalties here and there,” a top executive at another stockbroking company said, also asking not to be named.

Responding to ET’s queries, a spokesperson for One 97 said Paytm Money offers users a CDSL demat account, which is a regulated business. Under the rules of the Securities and Exchange Board of India (Sebi), CDSL performs multiple audits and reviews routinely, which is a normal process, the spokesperson said, adding, “We have maintained the highest compliance standards to Sebi regulations and guidelines, and will continue to do so.”

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CDSL did not respond to ET’s queries.

Stringent KYC rules

Customer verification is a very critical element of the wealth management industry. Senior executives at wealthtech startups told ET that the depositories, which hold shares owned by investors in a dematerialised format, run constant checks on stockbrokers to ensure only verified users are availing of services.

Paytm Money Print GFXETtech

“Most new demat accounts are audited by a third party and the depositories keep track of every account,” said one of the startup founders on the condition of anonymity. Exchanges also check the documents submitted by the customer after the broker does a preliminary check, he added. Only then can someone start trading.

Markets regulator Sebi allows centralised KYC, the founder of another wealthtech firm pointed out. Here, the customer goes through the KYC process with a certain market-regulated participant, which is then accepted across the board.

According to the Prevention of Money Laundering Act and Sebi’s KYC Registration Agency regulations, depositories mandate KYC of every customer that needs to be undertaken by the broker. The KYC registry of market participants is handled by CDSL Ventures.

Paytm’s Play



Bengaluru-based Paytm Money focuses on stock markets and mutual fund (MF) investments, and is a major player in the direct MFs space, where schemes are offered without the involvement of a third party distributor.

However, Paytm Money has lagged in the stockbroking sweepstakes. According to data from the National Stock Exchange, Paytm Money’s active trading client base is 760,000. The number of systematic investment plans (SIPs) run through the platform is around 860,000. Rival Groww has nearly 7.6 million clients and Zerodha, 6.7 million customers.

In case of MFs, data till November last year show that Groww processed around 5.4 million SIPs, followed by ETMoney at around 1.05 million.

ETMoney is run by Times Internet, a part of the Times of India Group that publishes The Economic Times.

Despite severe competition in terms of market share, Paytm Money reported a net profit in the previous financial year. Data sourced through Tracxn show the wealthtech platform closed FY23 with a net profit of Rs 42.8 crore on revenue of Rs 132.8 crore.

Paytm Money’s associate entity, Paytm Payments Bank, is staring at an uncertain future, with severe regulatory action in recent times. RBI ordered the bank to stop offering most of its banking services after February 29 and asked users to transfer funds to other entities. Paytm is looking at an impact of Rs 300-500 crore on its annual earnings as a result of this.

Read our detailed coverage on the Paytm crisis:

William Murphy

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