RBI asks NPCI to consider Paytm’s third-party provider request

The Reserve Bank of India (RBI) has asked the National Payments Corporation of India (NPCI) to examine Paytm parent One97 Communications’ request to be a third-party application provider.

If approved, this would allow Paytm to continue processing payments via Unified Payment Interface (UPI). However, it will need a set of newly identified banks to back the app.

“In the event of NPCI granting TPAP status to One97 Communications, it may be stipulated that ‘@paytm’ handles must be migrated in a seamless manner from Paytm Payments Bank to a set of newly identified banks to avoid any disruption,” RBI said in the notification.

It further stated that no new users will be added by the third-party application until all the existing users are migrated satisfactorily to a new handle.

“The RBI’s move is on expected lines. With the TPAP license, Paytm will become exactly the same as Google Pay or PhonePe. Like any other TPAP they require a license from NPCI. They will have to work with multiple sponsor banks,” says Ranadurjay Talukdar, Partner and Payments Sector Leader, EY India.

The central bank has asked NPCI to facilitate the certification of four-to-five banks who must demonstrate capabilities to process high volume transactions, in line with NPCI norms to minimise concentration risks.

According to reports, Axis Bank, HDFC Bank and YES Bank have applied for TPAP application for Paytm’s UPI business.

“For the merchants using PayTM QR Codes, OCL may open the settlement accounts with one or more PSP Banks (other than Paytm Payments Bank),” the notification said.

Further, RBI has clarified that the migration of UPI handles is applicable only to such customers and merchants who have a ‘@Paytm’  UPI handle. No action is required for customers who have a UPI address or handle other than ‘@Paytm’.

Customers of Paytm Payments Bank must make alternative arrangements with other banks before the March 15 deadline.

However, RBI has asked the holders of FASTag and National Common Mobility Cards (NCMC) issued by Paytm Payments Bank to make alternative arrangements before March 15 to avoid any inconvenience. Hence, these users must migrate to other banks.

“All the above actions are undertaken in the sole interest of protecting the customers and payment system from any possible disruptions and are without any prejudice to the regulatory or supervisory actions initiated by RBI against Paytm Payments Bank,” the notification said.

On January 31, RBI asked Paytm’s payments bank unit to shut many of its operations owing to persistent non-compliances and continued material supervisory concerns. While RBI has not disclosed the specific reasons for its measures, media reports say that the payments bank came under the RBI scanner for know your customer irregularities.

“I do not think having a payments bank was a significant enough differentiator. If One97 Communications is able to quickly become a TPAP and all arrangements are put in place, I see limited disruption for consumers in the long-run,” added Talukdar.  Currently Paytm’s UPI market share stands at 13%. PhonePe and Google Pay are the two largest players in the segment.