RBI's moratorium on Yes Bank disrupts digital payments, PhonePe hit hardest

With the Reserve Bank of India (RBI) placing YES Bank under moratorium, digital payments associated with the bank have been affected. And PhonePe, the Walmart-owned payments platform, seems to have been hit hardest.

On Friday, Sahil Kini, co-founder of application program interface (API) infrastructure company Setu, tweeted that digital payments such as  National Electronic Funds Transfer (NEFT), Real Time Gross Settlement (RTGS), Immediate Payment Service (IMPS) and Unified Payments Interface (UPI) that depend on YES Bank at the backend were not going through.

The ease of UPI, which was developed by National Payments Council of India (NPCI), comes from the fact that it lets account holders of banks send or receive money from their smartphones without going through net banking. Third party apps partner with banks to enable the money transfers.

"Yes Bank's infrastructure was the most battle-tested. But now all access to it  has been shut down. So people are unable to transact money, their money is stuck, or they can't settle money with the bank due to payment facilitation problems,” said Nikhil Kumar, another co-founder at Setu.

PhonePe’s problem

Since YES Bank is PhonePe’s exclusive UPI partner, the latter’s users have been affected the most. "PhonePe is actively looking for new partners and the service is expected to be up and running in the next couple of hours,” a source said on Friday. 

“The moratorium caught the company by surprise. PhonePe had partnered with YES Bank, because it had a more progressive infrastructure. PhonePe is closely working with NPCI and RBI to solve the issue. It affects the overall UPI ecosystem. The number of overall UPI transactions are down by at least 50 per cent,” the source added.

Sameer Nigam, PhonePe’s chief executive officer and founder, tweeted, “The entire team has been working all night to get the services back up as soon as possible. We hope to be live in a few hours.” 

The Bengaluru-based payments platform and Google Pay account for about 70 per cent of the UPI app market, according to industry sources. However, Google Pay, which has at least four banks as its partners, has been largely unaffected by the YES Bank moratorium.

Digital transactions through YES Bank

In quarter ended Sept 2019

UPI

1 billion UPI transactions

40 per cent Market share of nearly 

264.8 per cent Annual increase 

IMPS

60 million Transactions processed

80 per cent Annual Growth

Aadhaar-enabled Payment System

103 million Transactions

189 per cent Annual increase

With 200 million registered users and 20 million daily active users, PhonePe sees as many as 500 million monthly transactions.

"The NPCI had anticipated such a situation. No third-party app provider should have more than 33 per cent of the market share — something it was considering, but there was an implementation delay," said Narendra Yadav, senior vice-president, Paytm Payments Bank.

The proposal to limit a third party app’s market share to 33 per cent was being considered by NPCI last year, but was put on the back-burner. According to sources, the NPCI has not yet found a way to resolve the electronic payments issues related to the YES Bank moratorium.

“The RBI’s objective seems to be to ensure too many withdrawals don't happen. Payments are a tiny part of that. RBI should have allowed it,” said Setu's Kumar.

Fintech impact

Other fintech operators which rely on YES Bank to settle their transactions have also been experiencing issues. “The impact on Flipkart and Myntra is limited to PhonePe (which are also owned by Walmart). These firms have multiple payment partners and have already set up contingency plans,” said an e-commerce industry executive, who did not wish to be quoted. RazorPay, another big player in the UPI payments space, said its payment gateway was unaffected. “While our auxiliary services are facing some minor disruptions, we are working with other banks and authorities to resolve the issues at the earliest,” said Harshil Mathur, CEO and co-founder of RazorPay.

“We will temporarily withhold payouts to merchants with YES Bank accounts. This is to ensure that no merchant’s funds get blocked. We have provided our merchants the option to change their registered bank from YES Bank to another account,” said Sampad Swain, CEO and Co-founder of payments gateway Instamojo.

Food delivery firm Swiggy, which also partners with YES Bank, did not see any impact on its services as most of its transactions take place through multiple payment partners such as Google Pay, Amazon Pay and Paytm. It also uses payment instruments such as credit and debit cards and food cards.

Samreen Ahmad contributed to this story