Not A Payments Bank For sure! Will Paytm UPI IDs Work? RBI Tells A Way

Amidst widespread speculation and mounting tension among the masses regarding the fate of their Paytm Wallets and UPI IDs, the Reserve Bank of India (RBI) has proposed a middle ground to address concerns.

The Reserve Bank of India has introduced additional measures to ensure smooth digital transactions through the unified payments interface (UPI). These measures specifically concern users with current @paytm UPI handles. Users with UPI addresses other than @paytm need not take any action.

While the new advisory offers a semblance of relief for users, it presents a grave concern for Paytm Payments Bank. It proposes a drastic shift, suggesting the bank relinquish its status as a banking entity and transition into a mere third-party application provider.

In January, the central bank directed Paytm Payments Bank, an affiliate of One 97 Communications (OCL), commonly known as Paytm, to cease accepting new deposits in its accounts or wallets starting from February 29. This deadline was later extended to March 15.

Action against Paytm Payments Bank Ltd under Section 35A of the Banking Regulation Act, 1949 – Additional Stepshttps://t.co/SZLuRK3uVU

— ReserveBankOfIndia (@RBI) February 23, 2024

If you want to to know more about the fintech startup Paytm and its foundation, read here "Sharma Ji Ki Biography: The Paytm Journey of Vijay Shehkhar Sharma"

What is the new RBI Advisory for Paytm?

The RBI has instructed the National Payments Corporation of India (NPCI) to review Paytm's request to become a third-party application provider (TPAP) for the UPI channel, in line with regulations, to ensure the continued operation of the Paytm app with UPI.

It has also mandated the seamless migration of all '@paytm' handles from Paytm Payments Bank to a new set of identified banks to prevent any disruptions. No new users should be added by the TPAP until all existing users are satisfactorily migrated to a new handle.

For the smooth transition, the RBI has urged NPCI to facilitate the certification of four to five banks as Payment Service Provider (PSP) Banks, capable of handling high-volume UPI transactions.

Merchants using Paytm QR codes may notice settlement accounts being opened with PSP banks other than Paytm's if Paytm decides to proceed in this direction.

You can also read the previous RBI advisory about on-going Paytm issue to know All About Paytm's Banking Services, UPI, Wallet And FASTag

Paytm's New Banking Partner

Earlier this month, Paytm transferred its nodal account to Axis Bank (by establishing an escrow account) to continue merchant settlements seamlessly as before. It clarified then that its QR codes, soundbox, and card machines would remain operational beyond the RBI's March 15 deadline.

The RBI extended the deadline to March 15 to give customers, including merchants, "a little more time" to make alternative arrangements. 

The collaboration announcement with Axis bank also helped Paytm to register some improvement in its shares. You can read about it here -  Paytm Share Surge After Axis Bank Backing! What's Behind The Momentum? 

RBI's FAQs Regarding the Paytm Situation:

The RBI stated that no further deposits, credit transactions, or top-ups would be permitted in any customer accounts, prepaid instruments, wallets, FASTags, National Common Mobility Cards, etc., after March 15, 2024.

Customers can withdraw or utilize funds from their Paytm Payments Bank accounts and wallets until the funds are depleted, but they cannot add fresh funds after March 15.

The regulator also advised customers receiving salaries, transfers, or government subsidies into these accounts to make alternate arrangements by mid-March.

Merchants using Paytm's QR codes for accepting payments can continue to do so if these QR codes are associated with accounts other than those held by Paytm Payments Bank.

Paytm Payments Bank holds nearly a fifth share of India's toll collections through FASTag. The RBI clarified that these FASTags cannot be recharged or topped up after March 15.

Paytm Reacts on RBI Advisory

Soon after the RBI advisory was issues, Paytm clarified that Paytm app users will be able to continue using UPI even after March 15.

"This comes after the Central Bank’s clarification for merchant partners that Paytm QR, Soundbox and Card machines will continue to work as always even beyond March 15," said Paytm in a press statement,

This ensures continued seamless mobile payments for UPI users on Paytm using ‘@paytm’ handle. The regulator has advised National Payments Corporation of India (NPCI)  to validate the request of One97 Communication Ltd (OCL) to become a Third-Party Application Provider (TPAP) for UPI channel for continued UPI operation of the Paytm app. It further said, to ensure seamless migration of ‘@paytm’ handles to other banks, NPCI has been directed to assign 4-5 banks as Payment Service Provider (PSP) Banks to process high-volume UPI transactions. 

What is Paytm Issue?

On January 31, the Reserve Bank of India placed restrictions on Paytm Payments Bank, which included ceasing the acceptance of new deposits and credit transactions due to cited non-compliance. In response, the RBI directed Paytm to permit customers to withdraw or transfer funds to other bank accounts up to the available balance in their account/wallet. Additionally, Paytm soundboxes and POS terminals associated with bank accounts or wallets will no longer receive any credits after March 15.

You can read about more about Paytm here. 

To know more about the complete issue about Paytm Wallet and Paytm Payments Bank and what startups and investors can learn from it, watch the video below: