RBI restrictions on Paytm Bank: Merchants, users mull platform change

Cite challenges like settlement, change in platform fee

Merchants and users of Paytm Payments Bank are reconsidering their decision to stay with the company after the Reserve Bank of India’s (RBI’s) restrictions on the platform came.

A message from the company’s founder and chief executive officer, Vijay Shekhar Sharma, on messaging platform X did not help clarify matters for users of Paytm services.

In a post addressed to every Paytmer, Sharma said: “Your favourite app is working, will keep working beyond February 29 as usual. For every challenge, there is a solution and we are sincerely committed to serve our nation in full compliance. India will keep winning global accolades in payment innovation and inclusion in financial services -- with PaytmKaro as the biggest champion of it.”

The regulator has debarred the payments bank from accepting any deposits, credit transactions, wallets, top-ups in any customer accounts after February 29. 

The platform’s users (merchants) Business Standard spoke to did not share the same sentiment. Many said potential disruption on the platform such as challenges with settlements, changes in platform fees, and a potential downtime might push them to explore other options. 

“On a daily basis, we do transactions worth Rs 10,000-15,000 on Paytm Payments Bank. However, given the circumstances due to the RBI diktat such as the termination of nodal accounts of One97 Communications and Paytm Payments Services, there is concern that we will have to pay extra fees once these accounts are shifted to other banks. If it leads to challenges with settling transactions, one has to look at other service providers,” said Uday Salunke, a Pune-based mobile-phone retailer.

Paytm Payments Bank has more than 300 million wallets and 30 million bank accounts, according to the company’s website.

As part of regulatory action against the payments bank, the regulator said the nodal accounts of One97 Communications and Paytm Payments Services were to be terminated by February 29. 

To address concern on nodal account termination, Paytm executives said the companies were in the process of moving these accounts to other banks. The company is talking to banks on commercial and technological terms to move the nodal accounts.

“We maintain multiple nodal accounts with large commercial banks and not just Paytm Payments Bank for various businesses. We are currently in discussion, both commercially and technologically, with banks. There are some obligations looking at the velocity of operations in those accounts, as to which bank can offer us the best experience,” said Bhavish Gupta, president and chief operating officer (COO), Paytm.

A nodal account is a bank account opened by intermediaries and it is utilised to hold funds on behalf of customers and vendors. 

Other merchants have concern similar to Salunke’s. 

Manoj Kamble (name changed), who runs a restaurant on the outskirts of Nashik, said he recorded daily transactions worth Rs 5,000-6,000. 

“There is a lot of confusion on what services will stop, and which ones will continue. I am a regular user of the app, but there is a lack of clarity on the impact of the regulator’s order on merchants like me. My soundbox is still working, but if processing payments faces hiccups, I may have to take on board a different service,” he added.

Merchants said they were comfortable working with existing services providers. That said, a change in the terms of fees, scope of payments, and a change in banking partners will disrupt the way they processed payments until now.

Impact on users

Individual users continued to be confused on which services will continue and whether they should move to another player. Many customers using Paytm Payments Bank’s wallet said they had started withdrawing their money after the RBI order. 

In an FAQ for users the company said the directives from the RBI were on Paytm Payments Bank and not Paytm. Paytm has been informed this does not impact user deposits in their savings accounts, wallets, FASTags, and National Common Mobility Card accounts, where they can continue to use the existing balances.

“I used the wallet on the Paytm Payments Bank since it was convenient to use and did not have any downtime, and payments were always instant. I was motivated to use the wallet since my bank’s server is down most of the time for Unified Payments Interface (UPI) transactions. Now that the wallet will be unusable, I will go for alternative wallets,” said Priyank Rana, a Mumbai-based marketing professional. 

Others say there is confusion if they can continue to use their UPI accounts on the Paytm app.

“I am not sure if I can continue using the UPI facility since my number is linked there,” Abhishek Mule, an IT professional said. 

“I have been relying on Paytm Payments Bank for most of my financial transactions and now I am left with no choice but to look for alternative payment banks to manage my money,” said another user. 

FASTags…

In a note, Paytm said the RBI order did not affect the deposits of users in their FASTags.

“Paytm has been informed that this does not impact user deposits in their savings accounts, Wallets, FASTags, and NCMC accounts, where they can continue to use the existing balances,” the company said. 

However, RBI in its order said no further top-ups would be allowed in FASTags after February 29 this year.