Tax-free meal benefits: Paytm’s exit from employee benefits market may open door for competitors | India Business News

Paytm crisis: Paytm’s impending exit from the employee benefits market due to regulatory actions against its payments bank and mobile wallet has paved the way for other players like Pluxee (formerly Sodexo), Zaggle, and banks to grow their presence in this sector.
ET quoted a senior fintech executive saying that large corporations are seeking alternative options for meal benefits due to the upcoming halt in services for 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. In recent months, the company has already begun partnerships with notable entities such as IT company Wipro, staffing solutions provider Quess Corp, private sector lender Axis Bank, and more.
Raj Narayanam, Executive Chairman of Zaggle Prepaid Ocean Services, noted, “In the meal benefit space, we have seen a massive uptick in demand and given the situation with competition, we have made steady inroads by adding new clients.”

He did not reveal the specific companies that transitioned from Paytm to Zaggle after January 31 when the Reserve Bank of India announced restrictions on Paytm Payments Bank.
Zaggle collaborates with banks such as Kotak Mahindra Bank, Yes Bank, ICICI Bank, and IndusInd Bank to provide prepaid payment services to its corporate clients. In addition to meal vouchers and employee benefits, Zaggle also offers companies a spending management tool.
During 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. Presently, its market capitalization stands at around Rs 4,200 crore.
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Industry insiders told the financial daily that Pluxee, the employee benefit business recently hived off from Sodexo, is also aiming to capitalise on new opportunities arising from the developments at Paytm Payments Bank.
A Pluxee spokesperson stated that its food wallet business has been experiencing substantial year-on-year growth, pre-dating the Paytm issue. However, they declined to comment on any specific increase in business following January 31.
Queries sent via email to Paytm received no response.
Changing landscape of employee benefits
Disruptions in the employee benefits space have highlighted the significance of tax-free meal benefits under India’s tax regulations. Many companies provide a portion of employees’ salaries as tax-free benefits, loading the funds into prepaid wallets linked to cards for transactions. These cards are restricted to use at merchant outlets selling food and beverages.
Various players, including French majors like Sodexo and Edenred, along with fintech startups like Zeta, have been key players in this domain. However, recent shifts, including Edenred India relinquishing its licence and Zeta selling its meal benefit business to Sodexo, have reshaped the competitive landscape.
HDFC Bank provides Foodplus meal cards, and ICICI Bank offers its meal cards. Sodexo recently spun off its meal benefits business as Pluxee. In recent years, Paytm has become a dominant fintech player in this sector.
The fintech executive mentioned earlier stated, “Paytm with its superior wallet offering and acceptance across the country had managed to grab a large market share in this business and was second competing with Sodexo, but now the leader board is set to get disrupted; Zaggle is trying to grab that space.”
Paytm provided the option for corporations to create sub-wallets for various expenses such as food, fuel, and similar items. Leveraging the popularity of the app and its extensive network of merchants, employees found it convenient to access and use funds easily.
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Employee benefits industry: Margins, market size and compliance
The employee benefit industry presents an attractive opportunity for payment players, although profit margins in this segment are notably slim. To generate profits in this sector, companies often require ancillary services to supplement revenue. For Paytm, this niche business represented a small fraction of its broader fintech offerings, aiding its penetration into enterprises. Zaggle provides comprehensive spend management solutions, while Sodexo maintains diversified business interests spanning facilities management.
According to industry estimates, the current market size of this industry is approximately Rs 1 lakh crore in disbursements, benefiting roughly 15-18 million consumers. Some large companies make significant disbursements annually.
An executive was quoted anonymously saying that one of the largest financial services companies in the country disburses around Rs 1,500 crore every year to its employees, primarily for meal benefits.
The most critical aspect of this business is ensuring proper KYC of the final user, who is the employee, and guaranteeing that the funds are used at the appropriate places.
Raj Narayanam of Zaggle mentioned that tracking very small value payments based on merchant codes becomes challenging when using QR code-based payments. However, compliance is better managed through prepaid cards.
A senior HR executive at a large corporation stated that moving forward, most large companies will choose to engage with multiple vendors to mitigate the risk of disruption.
This person further added that banks are also advocating for sincere KYC of the final user of the wallet and clear understanding of its usage.