One97 Communications, the company that runs Paytm, may have to start preparing for life without its payments bank business post-February 29, 2024 after the Reserve Bank of India refused to grant any leniency that Vijay Shekhar Sharma requested in his meeting with central bank representatives. Paytm’s plan to migrate accounts to other banks may not happen anytime soon because the RBI has refused to intervene in the payment company’s business discussions with banks. A few people with knowledge of the situation claim that the regulator declined to assist Paytm Payments Bank Limited (PPBL) in any way, including moving accounts to different banks or extending the deadline past 29 February, 2024.
A person familiar with the matter said, “Sharma was informed that PPBL has to speak with banks and National Payments Corporation of India (NPCI), which runs the well-known mobile payments platform Unified Payments Interface (UPI), on its own and the RBI will not nudge banks to take this up.”
However, not many banks are eager to enrol PPBL consumers due to the compliance difficulties that the central bank has identified. According to a Moneycontrol story from February 5, the majority of the leading banks that regularly collaborate with fintechs expressed reluctance to embark on the initiative without RBI approval.
Approximately 20 percent, or 60 lakh, of the over 3 crore merchants on Paytm’s platform utilise PPBL as their settlement account. Additionally, PPBL is the sponsor bank for the majority of UPI addresses on the Paytm app. This bank is officially known as the payment service provider (PSP bank), and it appears as “@ paytm” in the virtual payment address (VPA).
Paytm must now transfer all of these accounts to outside banks by February 29 in order for UPI payments to function properly. Over 90% of the gross merchandise value (GMV) on Paytm is made up of UPI.
“Not only has RBI declined to consider Paytm demands at this time, but it is also doubtful that the regulator would see Sharma again for more talks in the near future. A second individual with knowledge of the situation stated that “PPBL was given ample time to comply and failed to do so even after multiple warnings, according to the regulator.”
The sources claim that before the central bank decided to take these extreme measures because it discovered that PPBL assertions were never reflected in its actions, PPBL officials met with RBI twice in January 2024 alone.
Sharma’s luck was not good on February 6 in Delhi. Around 4:30 p.m., the founder of Paytm met with Nirmala Sitharaman, the Minister of Finance. Attending the meeting was the finance secretary as well. The finance minister reportedly informed him that the regulator was looking into the situation. The sources further stated that the RBI had been looking into the issue for 1.5 years and had been patient in its investigation before acting, therefore they were unable to intervene. Ten minutes was all that the meeting lasted.
The PPBL savings accounts cannot be moved because, in accordance with current requirements, each 60 lakh savings account must undergo a new Know Your Customer (KYC) process, which is a difficult undertaking for any bank. The regulator has been pointing up KYC problems at PPBL for more than four years, which has complicated things.
According to a third person who was engaged in the talks between Paytm and the banks, it would take any PSP bank at least three months to ensure that these had @apl, @ybl, @okicici, or @oksbi addresses, even after moving the @ paytm UPI handles.
Given that Paytm is by far the biggest beneficiary bank in the UPI ecosystem, this is quite significant. The bank with more incoming transactions than outgoing transactions, or more credits than debits, is considered a beneficiary bank. Maintaining the existing quo might seriously upset the offline “scan and pay” technique, which has gained a lot of traction in the previous three years.
The QR code will alter in tandem with any modifications to the VPA. Paytm has deployed over one billion soundbox devices for merchants, many of which have @paytm handles on them. The business will now need to modify the QR codes on these devices. But before that can occur, it has to locate a bank that is prepared to make this payment.
It is improbable that the NPCI will contact the regulator on behalf of Paytm given that RBI has declined to make any concessions.
Backup Plan for Paytm
Banks are likely to be prepared to be PSP banks, even though they might not be interested in the savings accounts of PPBL where there are KYC concerns. However, the @ paytm still presents a respectable economic potential. According to fintech officials at these banks’ UPI section, changing the PSP bank integration is the main issue here as well. At this scale, of about 4 crore, it will take three months.
In this case, Paytm’s best course of action would be to persuade both merchants and consumers to start the process of linking their UPI to an existing bank account within the Paytm app.
It is possible to add many bank accounts at once to any UPI app. In order to fulfil its almost two-year prohibition on onboarding new clients, Paytm collaborates with other banks as PSPs. Thus, it is rather easy for a consumer to add or link another bank account to their Paytm app as their UPI bank; they will receive @ ybl, @ apl, @oksbi, and so on.
However, Paytm’s trustworthiness and brand image have taken the worst impact. It’s probable that most customers and businesses use two UPI applications. A senior banker involved in talks with Paytm on the subject stated, “They would prefer to switch their allegiance to another app like Google Pay or PhonePe, rather than switching the bank account within the Paytm app.”
With its vast army of on-the-ground salesmen, Paytm might be able to reduce the damage and weather this crisis long enough to see another day if they could persuade both merchants and customers to do so.