Impact of Paytm Payment Bank's regulatory crisis on PR Strategy for the startup sector

The startup sector has long been a sunrise sector in India. It's the 3rd largest startup ecosystem in the world after the US with Silicon Valley and New York, the latter tied with London.

Government policy support with schemes like the 'Fund of Funds for Startups', 'Startup India Seed Fund Scheme' and the 'Credit Guarantee Scheme'.

The evolution of startups in India: the Governance challenge 

As startups grow and the emphasis now shifts from valuation numbers to revenue and value generation, PR strategy needs to evolve with it.

Recently, there have been regulatory crackdowns on storied unicorns such as Paytm and Byjus. While RBI stated that the Paytm Payments Bank was barred from offering any banking services from the 29th of February, because of compliance violations, the Byjus crisis emerged from financial mismanagement of loans ( 1.2 billion owed to creditors), and delay in filing accounts which prompted auditor Deloitte to quit. The promoter, Byjus Raveendran is also locked in a battle with investors who want him gone.

What does this mean for the perception and reputation management of India's startup sector? Startups are expected to contribute 5 to 10% of India's GDP by 2030 per Inc's startup ecosystem report for 2023. A slowdown here can impact the Indian government's declared objective to be a 5 trillion dollar economy by 2025.

After a decade of intense startup activity, as funding slowed down in 2022, communicators are also shifting their approach to communication for startups. Now, more than ever, it's not just after cornering the market with users. Value, sustainable growth and revenue generation are key, and equally, if not more so, governance.

And with growth come other pressures.

Sanadh Srivastava, co-founder of GrowthStart, warns that funders can have a 'fund and dump' approach that drives promoters to chase scale-up and user metrics rather than value creation, "The moment the doors are opened to investment, somehow the focus shifts from stability, from long-term vision to giving the investors their exit.

And then once you hop onto the investor train, you just go on and on. You forget about your long-term vision and you forget the examples of brands like Zoho, who have taken zero funding and have been completely bootstrapped. Zoho’s operating revenue rose 30% in FY23, which is huge. 8700 crores of revenue is humongous for a bootstrapped company."

Changing perception about Startups 

Nick Braund, founder, Words + Pixels (wordsandpixels.co) concurs, saying, "The image a startup portrays shifted massively over the past 12 months. The focus was always on growth and scale, sometimes at the expense of the truth. This bravado is no longer the measure of success in a new business. Founders are being asked to show value, returns, and profit. The entire way startups were run has had to change and with it, their PR.

With any client, we're ensuring that they're highlighting their value in more ways than mere app downloads. This must be supported by the business's desire to help others by acting both sustainably and purposefully."

Aman Dhall, founder, of CommsCredible, who has previously worked with an insurance sector startup explains that a communicator for a startup needs to be extremely agile, deeply conversant with the business, fast-moving and win the trust of the promoter. They need to work with the founders and educate them about what PR can do. Communicators should try to avoid a situation where they are not able to evolve their strategy as the sector changes.

Dhall added that the regulatory world is grey and not black and white, "When you are trying to disrupt the market with a new product or service, policy takes time to catch up. Communicators need to work harder to accept this uncertainty and evolve with it.

Having said that, I also feel that startups including their in-house comms teams need to take their PR firm along and trust them with the latest developments. Just like you would do with a lawyer."

In Braund's opinion, the essentials of PR engagement need not change much as the expectations from startups evolve, "Startups need to show their revenue and commercials to investors and future partners. That has always been the case when they're growing through VCs and angels. This shouldn't impact PR significantly. We continue to tell their stories of impact, highlighting how a company is disrupting or innovating a space for the better.

Braund, however, adds, "Where PR should evolve is to ensure we can provide this counsel to their clients.  We work exclusively with fast-growing disruptors so know the challenges faced by their peers and can provide that feedback to best aid our clients' growth."

Shifting from funding to value creation narratives: Letting go of the rockstar promoter story 

Startups have given rise to the rockstar promoter narrative. However, as the startups mature, the media starts to take a closer look at their journey.  This can cause the hero narrative o change which can be a difficult adjustment for promoters.

The startup, therefore, is one sector where you need to have a very strong grasp of crafting the right narrative for different stakeholders at different times in the startup journey.

Braund, believes, "Other opportunities that aren't utilised often are data stories where startups can create the news with their insight and news from within the business - such as partnerships and senior hires."

Governance for Startups

The governance of startups, to have good corporate governance as well as communicating that message internally and to multiple stakeholders. T

Srivastava agrees, adding that especially in a crisis, clarity of communication is key, especially when you have a brand that even the BBC described as rockstar.

"Paytm karo has become such a big thing in our lives. And Paytm has directed us towards UPI in a way that no other brand has. And we do give the credit to Paytm. At the same time, ideally, Paytm should cooperate and tell us that hey, you know, we did not do wrong, or we did miss this. 

There should be clarity so that people realise that, hey, you know, they did something wrong. They did miss a couple of things. But it's okay. Right? They can be given a second chance. But because you don't know anything, you don't know if it was 100 things that Paytm missed for the last five years, or it was just one thing that they missed for the last one year. You have varied opinions."

Observers agree that Paytm was a major driver in getting Indians to adopt the habit of scanning QR codes and paying online. Customers and the market alike are watching this development and what it means for them. The argument of policy compliance vs regulation will only become more strident as disruption confronts the need to regulate and ensure customer safety.