Paytm owner One97 Communications Limited has received a third party licence from the Indian government which will enable it to continue with its consumer-focused digital payments platform, despite the winding down of its banking affiliate.
According to the National Payments Corporation of India, leading lenders like Axis Bank Ltd, HDFC Bank Ltd, State Bank of India Ltd, and Yes Bank Ltd will facilitate peer-to-peer or UPI payments for Paytm.
Paytm has been operating under a licence associated with its affiliate, Paytm Payments Bank, which it does not have direct control over. The bank has been managing its digital wallets and processing payments traffic.
However, due to regulatory orders mandating the cessation of accepting new deposits, the bank is required to cease its operations after Friday.
The action comes as a result of ongoing breaches of regulatory rules.
Since Paytm Payments Bank is no longer in operation, Paytm had to find alternative banking partners to handle the responsibilities previously managed by its main affiliate.
Last month, a deal facilitated by Ant Group Co, a major backer of Paytm, enabled the company to replace Paytm Payments Bank with Axis Bank for its merchant payments settlement operations.
With these new partnerships, Paytm is transforming into a payments platform similar to its competitors such as PhonePe, owned by Walmart Inc, and Google's GPay, relying on the networks of other banks.
Yes Bank will serve as the "merchant acquiring bank for existing and new UPI merchants" for Paytm, according to NPCI.
The company has assured users of uninterrupted service despite the restrictions placed on Paytm Payments Bank.
Paytm boasts a user base comprising hundreds of millions of consumers and merchants across India who rely on its platform for money transfers and purchases.
In the wake of the regulatory crackdown against the fintech firm, its founder Vijay Shekhar Sharma had to resign from the bank's board and step down as part-time non-executive chairman.
As of Friday, Paytm Payments Bank faces imminent closure unless regulatory restrictions are lifted. Regulators are even considering revoking its operating licence, which would effectively lead to its shutdown.
In February, UPI facilitated transactions totalling Rs 18.28 trillion ($221 billion).
While companies don't profit directly from UPI transactions, it offers them access to a vast consumer base for cross-selling services like insurance and mutual funds.
The Unified Payments Interface, supported by the central government, facilitates instant money transfers by seamlessly connecting banks with fintech applications like Paytm.
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