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HomeTop StoriesTax-Free Meal Benefits: Paytm's Exit from Employee Benefits Market Could Open Opportunities...

Tax-Free Meal Benefits: Paytm’s Exit from Employee Benefits Market Could Open Opportunities for Competitors

The impending exit of Paytm from the employee benefits market due to regulatory actions against its payments bank and mobile wallet has created opportunities for other players like Pluxee (formerly Sodexo), Zaggle, and banks to expand their presence in this sector.

According to a senior fintech executive quoted by ET, large corporations are seeking alternative options for meal benefits due to the upcoming cessation of services by Paytm Payments Bank and its wallet after March 15.

Zaggle, a listed startup, aims to onboard 100-150 new corporate clients by the end of the next financial year. The company has already formed partnerships with notable entities such as IT company Wipro, staffing solutions provider Quess Corp, private sector lender Axis Bank, and others.

Raj Narayanam, Executive Chairman of Zaggle Prepaid Ocean Services, highlighted a significant increase in demand in the meal benefit space. However, specific companies transitioning from Paytm to Zaggle after January 31, when the Reserve Bank of India announced restrictions on Paytm Payments Bank, were not disclosed.

Zaggle collaborates with banks like Kotak Mahindra Bank, Yes Bank, ICICI Bank, and IndusInd Bank to provide prepaid payment services to its corporate clients. Besides meal vouchers and employee benefits, Zaggle also offers companies a spending management tool.

In the first nine months of the current fiscal year, the company recorded a net profit of Rs 24.8 crore on operational revenue of Rs 502 crore, with a market capitalization of approximately Rs 4,200 crore.

Pluxee, the employee benefit business recently separated from Sodexo, is also looking to capitalize on opportunities arising from developments at Paytm Payments Bank, as per industry insiders. Pluxee’s food wallet business has been experiencing substantial year-on-year growth, although they declined to comment on any specific increase in business following January 31.

Disruptions in the employee benefits space have underscored the importance of tax-free meal benefits under India’s tax regulations. Various players, including French majors like Sodexo and Edenred, along with fintech startups like Zeta, have been significant players in this domain. Recent shifts, such as Edenred India relinquishing its license and Zeta selling its meal benefit business to Sodexo, have reshaped the competitive landscape.

HDFC Bank and ICICI Bank also offer meal cards, while Sodexo spun off its meal benefits business as Pluxee. Paytm, with its extensive network of merchants, had become a dominant player in this sector before the regulatory actions.

The employee benefits industry presents an attractive opportunity for payment players, although profit margins are slim. Compliance with KYC regulations and ensuring proper usage of funds are crucial aspects of this business.

Moving forward, large corporations are likely to engage with multiple vendors to mitigate the risk of disruption. Banks are also advocating for sincere KYC of the final user of the wallet and a clear understanding of its usage.