Indian digital payments company Paytm has agreed to sell its stake in Japanese payments firm PayPay to SoftBank for $279.20 million, marking a significant divestment of non-core assets as the company navigates regulatory challenges in its home market.

The sale of Paytm's stake in PayPay, which it acquired through partnership rights in 2018, is the latest in a series of restructuring moves by the Indian firm. In August, Paytm sold its entertainment ticketing unit to Zomato for $246 million, as part of efforts to focus on its core digital payments business.

PayPay, controlled by SoftBank and Yahoo Japan parent Z Holdings, is a leading payments app in Japan. The stake sale will significantly boost Paytm's cash reserves, which are expected to exceed $1.40 billion. This influx of capital will be crucial as Paytm attempts to recover market share in India's fiercely competitive digital payments market.

In January, Paytm's banking affiliate was severely restricted by regulators, leading to an exodus of customers to rival services. However, shares in Paytm have nearly tripled since June, following the Indian payments regulator's decision to allow the company to resume adding customers to its flagship UPI service. In September, Paytm reported its first quarterly profit, although this was largely attributed to proceeds from asset sales rather than operational improvements.

In a statement, Paytm expressed gratitude to Masayoshi Son, SoftBank's founder, and the PayPay team for the opportunity to collaborate on mobile payment innovations in Japan. The company reaffirmed its commitment to supporting PayPay's product and technology innovations, including the introduction of new AI-powered features to accelerate PayPay's vision in Japan.

Saturday's deal marks the end of Paytm's relationship with SoftBank, which divested its remaining shares in June after being an early backer through its Vision Fund. According to people close to both companies, the Japanese group's exit reflects a broader shift away from India's consumer technology sector.

The sale of Paytm's stake in PayPay has significant implications for the Indian digital payments landscape. With bolstered cash reserves, Paytm is well-positioned to invest in its core business and regain market share in a highly competitive market. The deal also underscores the importance of strategic partnerships and divestments in the fintech sector, as companies adapt to shifting regulatory environments and market trends.

As Paytm looks to the future, the company's ability to navigate India's complex regulatory landscape and capitalize on emerging opportunities will be crucial to its long-term success. With its latest divestment, Paytm has taken a significant step towards strengthening its position in the Indian digital payments market, while also acknowledging the importance of strategic partnerships and collaborations in the global fintech ecosystem.