The inevitable woes of Vijay Shekhar Sharma

If Sharma had his way, this isn’t how things would have gone. But the Reserve Bank of India (RBI) had enough and there was only so much it was willing to tolerate. And Sharma had pushed the boundaries so far such that it could cripple India’s financial ecosystem

In February, this column argued it is too early to write off Vijay Shekhar Sharma, the founder of PayTM. Much water has passed under the bridge since then. The way things are it appears clear Sharma cannot continue that way he has. The latest salvos were fired yesterday (March 1). The RBI compelled PayTM’s parent company One97 to say it will terminate relations with PayTM Payments Bank (PPBL). A few hours later, the Financial Intelligence Unit-India (FIU-ID) imposed a penalty of ₹5.49 crore on PPBL. It stands accused of money laundering.

(Bloomberg)

If Sharma had his way, this isn’t how things would have gone. But the Reserve Bank of India (RBI) had enough and there was only so much it was willing to tolerate. And Sharma had pushed the boundaries so far such that it could cripple India’s financial ecosystem.

RBI’s grouse begins with how the company is structured. As a customer, the PayTM wallet is operated by Paytm Payments Bank. Then, there is One97 Communications, a listed entity, which owns the Payments Bank. This is where the confusion begins as well.

When a customer signs up for the wallet operated by the Bank, the financial services company that is One97 Communication does all the hard work. This includes completing the process of onboarding a customer. To do this, it must comple the mandatory Know Your Customer (KYC) formalities. But what was unclear is: How does the data flow? RBI’s rules have it that a customer’s data must stay with the bank and cannot go out to any other entity. But One97 and Sharma did not adhere to that. Instead, it shared that with PPBL On auditing, the trail points to money laundering at PPBL.

Despite multiple warnings from the regulatory body, and with Sharma promising to clean up his act, he would go back to do the opposite. Those in senior roles at the central bank agreed that Sharma is a “schizophrenic” and that the RBI ought to have acted earlier. There is merit in what they say.

The former head at one of India’s largest banks who now sits on the board of NSE said Sharma has been thick-skinned, obdurate, and carried an attitude that smelt of, ‘What applies to the world doesn’t apply to me.’ “It’s okay when you’re a young fintech. But not the body language a fully grown business can wear.” He used to monitor frauds in real time. That is where he could see of the ₹30,000 crore of fraudulent transactions on UPI in 2023, 90% happened via PayTM. It was inevitable then that the RBI step in.

A former employee at PayTM saw the problem differently. “What most people don’t understand is how complex India is.” When asked for perspective, he describes how payment frauds happened. People would pretend to pay a merchant by capturing the name on a QR code. Having done that, they would simply share a screen that mimicked the PayTM screen and showed the merchant the amount due has been credited to their account. It would be a while before the merchant figured something is the matter and raise a flag. But the damage would be done and PayTM would have to bear the brunt.

To get around this, the company thought up the audio sound box that merchants now have. This gives a voice confirmation as well if money has been credited to their account. Since then, he claims, the number of frauds of gone down dramatically. While there is merit in this argument, it does not absolve PayTM of breaking rules.

Then there are there are those have worked with Sharma closely and have an altogether different narrative. One agreed to come on the record—the Toronto-based Aditya Mhatre. “I’m at work on my start-up. But if Vijay calls and asks me to join the place, I’ll drop everything and join him,” he said over the phone. And why would he do that? “The willpower Vijay possesses, the confidence he has and devotion he instills in people is fanatical,” says Mhatre.

Is Sharma’s confidence cockiness? Yes. And it comes his “proximity to power”, a banker said. What’s changed now? Sharma can be sacrificed is how the powerful see it. He did not respond to requests for comments. Perhaps, it is time to write Sharma off—for now.

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