The Reserve Bank of India (RBI) has granted the approval for Paytm to shift its UPI-based payments operations from Paytm Payments Bank to several other banks, including Axis Bank.
The move, aimed at ensuring regulatory compliance and business continuity, aligns Paytm with other fintech companies providing payment services via UPI.
The Friday approval comes as a breather to Paytm, especially considering the earlier directive from the RBI to cease banking services through Paytm Payments Bank after March 15.
The RBI has instructed Paytm to halt the onboarding of new users until the migration of existing accounts to other banks is finalised.
In order to sustain merchant payments, which enables businesses to receive payments from customers via the platform, One 97 Communications, the parent company of Paytm, has been directed to establish settlement accounts with one or two banks.
Paytm has already indicated its ongoing efforts to migrate accounts to Axis Bank from its affiliated payments bank to ensure business continuity.
In a statement on Friday, the RBI disclosed its directive to the National Payments Corporation of India (NPCI), the UPI platform operator, to review One 97 Communications' application to function as a third-party application provider (TPAP) for the UPI channel. Approval from NPCI would enable the Paytm app to maintain its UPI-based payment services.
"National Payments Corporation of India (NPCI) has been advised by the RBI to examine the request of One97 Communication Ltd (OCL) to become a Third-Party Application Provider (TPAP) for UPI channel for continued UPI operation of the Paytm app, as per the norms," the central bank said.
The RBI has requested NPCI to authorise four to five banks to serve as payment service provider banks for Paytm. These banks must possess the capacity to efficiently handle large volumes of UPI transactions.
RBI said, "For seamless migration of '@paytm' handle to other banks, NPCI may facilitate certification of 4-5 banks as Payment Service Provider (PSP) Banks with demonstrated capabilities to process high volume UPI transactions. This is in line with NPCI norms for minimising concentration risk."
Key financial institutions such as HDFC Bank, Axis Bank, and Yes Bank are potential candidates to serve as payment service providers (PSP) for Paytm. Due to the significant volume of UPI payments handled by Paytm, the regulator aims to mitigate concentration risk by involving multiple banks in facilitating these transactions.
According to NPCI data, in January, Paytm processed 1.4 billion UPI transactions through its application.
The RBI reiterated that Paytm FASTag and National Common Mobility Card (NCMC) services will no longer be available after March 15.
It advised users of Paytm wallet to seek alternative options, as services such as Paytm food wallets and prepaid wallets will cease operations starting March 16.
"The migration of UPI handles as above is applicable only to such customers and merchants who have a UPI handle ‘@Paytm’. For others who have a UPI address or handle other than ‘@Paytm’, no action is required to be taken by them," RBI said.
The RBI's directive issued on Friday marks the conclusion of Paytm's banking and mobile wallet operations, aligning it with other fintech players such as Google Pay, Amazon Pay, and PhonePe, all of which provide payment services via UPI.
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