Risks in the E-Payments Industry (Paytm)

By Ankur Sengupta and Srijani Bhattacharyya, PGDRM Batch July’20-21

Brief about the company

• Paytm is an Indian financial technology company founded by Vijay Shekhar Sharma began its journey in 2010 in e-commerce transactions.​​
• Initially, services like DTH and mobile recharge were available on the platform. But later options like landline bill payments, postpaid mobile bill payments, etc. were added to the platform. ​
• Paytm Wallet was launched in January of 2014 and was picked up by Uber and Indian Railways as an online payment option on their platforms. ​
• As of 2020, the company is considered to have an evaluation of approximately 16 billion US Dollars.

Money making canvas

Overview of the risks

Strategic

Risk Indicators​

• Failure of tie-ups/ Alliances​
• Competition​
• Geopolitics​
• Reputational​

Examples

• Business processes not aligned to business goals and objectives​
• Lack of adequate market research and insights​
• Inappropriate business alliances​
• Failure to meet revenue and expense targets​
• Ineffective products​
• Inappropriate response to changing business dynamics & competition​
• Lack of innovation and disruptive ideas​

​

Cybersecurity

Risk Indicator​

• E-Transaction​
• Platform / Application Design ​
• Network & Infrastructure Security​
• Data Governance, Integrity and Security​

Examples

• Cyber security lapses, IT systems not aligned to business objectives​
• Software assets are not monitored appropriately​
• Unauthorized changes to the applications and systems​
• Absence of IT Policies and Procedures​
• Inadequate business continuity/disaster recovery plan​
• Unauthorized/excessive user access to the IT systems​
• Poor Data-center controls​
• Weak/unsecured network perimeter of the organization​

Fraud

Risk Indicators​

• Unauthorized transactions​
• Siphoning of funds​
• Cyber frauds​
• Accounting Frauds​

Examples​

• Unauthorized transactions in customer accounts​
• Misappropriation of customer funds​
• Over / under-reporting of customers / users​
• Accounting Fraud, Abuse / Misuse of sensitive personal information​
• Identity Theft​
• Pharming ​
• Phishing ​

Operational​

Risk Indicators​

• Time-Outs​
• Bugs​
• Execution time​

Examples​

• Transaction fraud​
• Account takeover​
• Fake accounts​
• Mule accounts for anti-money laundering.​
• Return/order cancellation fraud, where customers abuse your return policy.​
• Merchant fraud is when merchants are frauding customers.​

Overview of Risks

Compliance​

Risk Indicators​

• Non-compliance to RBI’s regulations / directions​
• Data Privacy Norms​
• Safety of Data

Examples​

• KYC non-compliances​
• Inappropriate Consumer Grievance Redressal​
• AML non-compliances​
• Non-compliance to RBI Master Circular on Cyber Security Framework​
• Non-compliance to minimum Net-worth requirements​
• Other non-compliances to RBI guidelines​

Financial​

Risk Indicators​

• Unbilled / under billing of Fees, Commission, Delivery charges, etc.​
• Unreconciled balances with third parties​
• Wrong reporting of financial transaction

Examples​

• Payments made to merchants, not recovered from customers​
• Unbilled fees / commission / delivery charges​
• Excessive cashbacks / discounts offered to customers​
• Unreconciled balances with third parties​
• Errors in exception pricing (fees and waivers)​
• Under-billing to customers​
• Unenforced price contracts​
• Delay in price changes​

Third-Party​

Risk Indicators

• Selection of inappropriate vendors​
• Non-compliances / control gaps in vendor managed processes​
• IT failures at Vendors​

Examples​

• Improper due diligence​
• Non-compliances to Regulatory and Statutory obligations by third parties​
• Dependency on a single vendor for critical business processes​
• Improper/unfavorable legal contracts with third parties​
• Over/underpayment to third parties​
• Inadequate ongoing monitoring of third parties​
• Absence of inappropriate BCP ​
• Non-compliances to agreed policies, procedures, and SLAs by third parties

References

• https://www.rsm.global/india/sites/default/files/media/RSM%20India/Publications/2019/rsm_india_white_paper_risk_management_in_e_wallet_companies.pdf​​
• https://complyadvantage.com/knowledgebase/aml-ewallets/​
• https://cloud.paytm.com/solutions/risk/​
• https://www2.deloitte.com/content/dam/Deloitte/uk/Documents/audit/deloitte-uk-mobile-payments-opportunities-audit-advisory.pdf​
• https://www.feedough.com/paytm-business-model-how-paytm-makes-money/​
• https://cdacmohali.in/paytm-business-model/​
• https://www.denis-oakley.com/paytm-business-model-canvas/​

Get the research study here: Risks in E-Payment(Paytm)