Global: RBI Facilitates New Banking Partnerships for Paytm Amidst Business Restrictions

RBI Facilitates New Banking Partnerships for Paytm Amidst Business Restrictions
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In response to the business restrictions imposed on Paytm Payments Bank, the Reserve Bank of India (RBI) has urged the National Payments Corporation of India (NPCI) to consider One97 Communications’ application to become a Third-Party Application Provider (TPAP) for the Unified Payments Interface (UPI) channel.

The primary objective of this move is to ensure the uninterrupted operation of the Paytm app following the RBI’s restrictions on Paytm Payments Bank, as announced in a press release on Friday (Feb. 23).

Given that Paytm Payments Bank will be unable to accept additional credits into customer accounts and wallets after March 15, 2024, the RBI deems it necessary to take additional measures. The goal is to facilitate seamless digital payments via the UPI channel, specifically using the ‘@paytm’ handle operated by Paytm Payments Bank. Moreover, the RBI aims to minimize concentration risk in the UPI system by encouraging the involvement of multiple payment app providers.

If NPCI grants TPAP status to One97 Communications, the ‘@paytm’ handles will be transitioned from Paytm Payments Bank to other banks to prevent any disruption, as outlined in the RBI press release.

To execute this transition, NPCI has the authority to designate four or five banks as payment service provider (PSP) banks that have demonstrated proficiency in processing high-volume UPI transactions.

This initiative aligns with NPCI norms, focusing on minimizing concentration risk within the UPI system.

The RBI had previously directed Paytm Payments Bank to cease banking activities after February 29, prohibiting new deposits, credit transactions, and top-ups on customer accounts, wallets, cards, or prepaid instruments.

Following an audit that revealed compliance issues, the banking regulator issued the directive and restricted Paytm Payments Bank from accepting new customers until an audit in 2022.

In response to the regulatory actions, Paytm expressed its commitment to sustaining its digital wallet business by establishing new banking relationships. Paytm CEO Vijay Shekhar Sharma assured users through a post on X (formerly Twitter) on February 1, stating, “Your favorite app is working, will keep working beyond 29 February as usual.”

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