Shares of One97 Communications, the parent company of the payments giant Paytm, took a significant hit on Friday, January 24, 2025. The stock price fell by as much as 9%, touching a day’s low of ₹773.90. This decline comes amid reports that Paytm is one of eight payment gateways under investigation by the Enforcement Directorate (ED) in connection with a massive cryptocurrency scam.
The ED’s probe is focused on the role of these payment gateways in facilitating transactions tied to the HPZ Token, a cryptocurrency scam allegedly orchestrated by a network of Chinese nationals. Razorpay, PayU, and Easebuzz are among the other platforms being scrutinized. Over the past two years, the ED has frozen about ₹500 crore across various virtual accounts linked to this scam, which saw the accused running one of India’s largest cryptocurrency frauds.
At the time of writing, Paytm’s shares were trading at ₹827.85, marking a 2.49% decline on the Bombay Stock Exchange (BSE). The drop in share price follows a clarification request from the BSE, where One97 Communications was asked to respond to the media reports regarding its involvement in the investigation.
According to a report in the Times of India, the scam revolved around a mobile app called HPZ Token, which encouraged users to invest in cryptocurrency mining, including Bitcoin. The accused allegedly used this platform to collect over ₹2,200 crore from individuals across 20 states in India. Investors were promised high returns through cryptocurrency mining, with the option to invest in Bitcoin mining. However, the proceeds of these investments were remitted out of India, and a portion was frozen by the ED as part of their investigation.
The key issue in the scam was the use of payment gateways to process large-scale transactions, typically involving bulk payments. These transactions would remain with the payment platforms for a brief period, which the ED claims gave the accused time to divert the funds abroad. In total, the ED froze approximately ₹500 crore that passed through the accounts of these payment processors before the funds were sent to the beneficiaries.
This latest investigation marks a significant development in the ongoing crackdown on cryptocurrency-related scams in India. The ED has been particularly active in targeting illegal cryptocurrency operations, especially those involving foreign nationals and large-scale financial frauds. The involvement of major payment gateways such as Paytm in this investigation raises questions about the role of fintech companies in monitoring and controlling illicit financial activities.
In addition to the legal challenges, Paytm is also grappling with disappointing financial results. In its Q3 FY25 earnings report, the company disclosed a narrowing of its consolidated loss to ₹208.5 crore, compared to a loss of ₹221.7 crore during the same period in the previous year. While the loss has shrunk, Paytm’s revenue from operations saw a steep decline of 35.8%, dropping to ₹1,827.8 crore in Q3 FY25 from ₹2,850.5 crore in the same quarter of the previous year.
However, there is a glimmer of hope for Paytm as its revenue improved on a quarter-on-quarter basis, rising by 10%. Despite this positive quarter-on-quarter growth, the overall decline in year-over-year revenue underscores the challenges facing the company as it seeks to recover from its early financial struggles post-IPO. The company’s involvement in the cryptocurrency scam investigation could further weigh on its reputation and financial performance in the coming months.
Paytm’s troubles are not unique, as many other fintech companies are facing similar scrutiny amid the cryptocurrency scam investigation. The case has highlighted the vulnerabilities in the financial ecosystem, where large sums of money can be funneled through payment processors with little oversight. This raises broader concerns about the regulatory framework surrounding fintech and cryptocurrency operations in India, where authorities have been increasingly cautious about digital currencies.
As the investigation progresses, Paytm and its counterparts will likely face increased scrutiny from regulators and investors alike. While the company has not yet been implicated directly in the scam, its involvement in the case is likely to affect its reputation, especially in the fintech space. The ongoing legal battle, combined with a volatile financial environment, means Paytm’s path to recovery may be far from smooth.
