Paytm Payments Bank, RBI controversy: How will it impact the customers

Reserve bank of India (RBI) has extended the deadline for Paytm Payments Bank Ltd to curb its operations by 15 days, and the new deadline now stands at March 15, 2024. Earlier it has issued an order that bars Paytm Payments Bank from fresh deposits after February 29, 2024. The company, part of One97 Communications, is a leader in Indian fintech and faces challenges of regulatory scrutiny and customer uncertainity. The organisation also announced that it will set up a three-member advisory committee to strengthen the governance matters.

Here’s a comprehensive breakdown to understand the issue with Paytm Payments Bank Ltd (PPBL) after RBI’s decision:

 

What happened?

On January 31, RBI imposed restrictions on PPBL under section 35A of Banking Regulation Act, 1949. RBI has directed PPBL to stop onboarding of new customers with immediate effect.

What is restricted for PPBL?

It is not allowed to take deposits, credit transactions, top ups in any customer accounts, wallets, FASTags, etc. after February 29, 2024.

What is allowed for PPBL?

Customers can use the money that is already deposited in their PPBL accounts and wallets even after February 29, 2024.

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What happened with the Nodal accounts of PPBL?

RBI said in the notification that the Nodal Accounts of One 97 Communications Ltd and Paytm Payments Services Ltd are to be terminated at the earliest, most probably before the cutoff date i.e. February 29.

What are Nodal Accounts?

Nodal Account is a type of bank account that is opened by businesses and is used to hold the funds on behalf of its customers & vendors. It was introduced by the RBI to ensure that any business or intermediary does not withhold illegal money from the customers.

What is Paytm Payments Bank?

Paytm Payments Bank is a Payments bank that was opened in 2017 and is headquartered in Noida. 

What are Payments Banks and how are they different from traditional Banks?

They are almost similar to traditional banks and can facilitate most of the services like taking deposits and issuing debit cards but without the risks of credit. Also payments banks cannot have deposits of more than one lakh rupees. 

Why did RBI barred PPBL?

RBI said in the press release that PPBL is barred after “Comprehensive System Audit report and subsequent compliance validation report of the external auditors revealed persistent non-compliances and continued material supervisory concerns in the bank, warranting further supervisory action.”

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What will be the impact on Paytm?

Paytm has to transfer its operations from PPBL to other banks and this will have an impact of Rs 300-500 crore as per the press conference held by Paytm after the RBI’s decision came.

The soundbox business will also be impacted because most merchants will migrate to other bank accounts for the UPI facility and many organisations are coming up with their own soundboxes. 

How will it impact customers?

Customers will not lose any money that is deposited in the PPBL accounts but anyone who uses PPBL for UPI transactions will have to look a different bank’s account to continue with the service post the cutoff date.

Who founded Paytm?

Vijay Shekhar Sharma founded Paytm in 2010. The CEO of the organisation hails from a small village in Aligarh city. 

 

Who owns Paytm?

Vijay Shekhar Sharma directly owns 51 per cent of the organisation and 49 per cent is owned by One 97 communications Limited through paid-up share capital.

What is Paytm app?

Paytm is a fintech organisation that facilitates digital payment services through UPI and digital wallet to the users. 

It provides services like “Online Recharge, DTH, Data Card & Metro Card Recharge and Mobile Bill Payment,” according to its website.

Along with it one can book tickets for flight, train, bus as well as for movies, shows and events with the app.

How does the Paytm app work?

As it is a service provider it works as a mediator between different banks for the transactions. 
 

It also provides a digital wallet facility that a user can use just like a bank account but it is generally used for the seamless transfer of money within two paytm wallets. It provides more efficiency as different bank servers are not involved.
 

Paytm also allows users to transfer money from one account to another through UPI.

How did the Paytm app operate before PPBL?

Paytm initially started operations as just a digital payments app and for that it tied up with various banks. Paytm has recently in its press release stated that it is exploring the option to tie with the banks to facilitate the digital transaction facility.

What is the Fintech sector?

Fintech is derived from two words: Finance and Technology. This sector involves providing digital financial services such as transactions facility, insurance, mobile banking, trading, cryptocurrency etc. 
 

Paytm and demonetisation

After demonetisation Paytm came up as the poster boy of digital payment service in India with the slogan of ‘Paytm Karo’. The company has increased its user base by 130 million between October 2016 to November 2017 from 140 million to 270 million.

Who are some other major players in India’s fintech landscape?

There are various competitors of Paytm in the Fintech market such as Gpay owned by Google aka Alphabet, Phonepe owned by Sameer Nigam, BharatPe founded in 2018 by Ashneer Grover and Shashvat Nakrani.

Beyond these, there is Mukesh Ambani’s Jiopay among other banking apps that facilitate the services to their account holders.

Is Paytm selling its app to the competitors?

Paytm has denied any such claims and reports regarding the discussion of selling its wallet business.

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Earlier several media organisations have reported that paytm is in talks with Jio Financial Services and HDFC Bank to sell its wallet business.