MUMBAI: In one of its most far-reaching regulatory actions in recent years, Reserve Bank of India (RBI) has asked Paytm Payments Bank to stop accepting money in any customer account, including wallets and other prepaid instruments such as FASTags, NCMC (national common mobility cards used in Metro and other transport), or any other instrument from March 1.
RBI has also asked the bank to stop operating unit services under Bharat Bill Pay or fund transfers under any name after February 29. However, the order will not impact Paytm’s functionality as a third-party app, enabling bank account-to-account payments through UPI.
RBI attributed its action to persistent non-compliance and continued material supervisory concerns warranting further supervisory action. The regulator, in a press release, said that after it barred Paytm Payments Bank from onboarding new customers in March 2022, it continued to be non-compliant.
RBI has ordered the nodal accounts of One97 Communications and Paytm Payments Services to be terminated as soon as possible and not operate after February 29, 2024. “Settlement of all pipeline transactions and nodal accounts (in respect of all transactions initiated on or before February 29, 2024) shall be completed by March 15, 2024 and no further transactions shall be permitted thereafter,” RBI said. However, any interest, cashback or refunds may be credited to customers anytime.
One97 Communications owns the Paytm brand and the app. It holds a 49% stake in Paytm Payments Bank, which operates the wallet and bank accounts. Paytm has so far not commented on the regulatory action.
Given Paytm’s disproportionate share of the digital payments market, many expect a scramble for new service providers after February 29. Paytm has 16% share of FASTag transactions. Hundreds of companies use Paytm food wallet for voucher payments. Paytm has also deployed over 3.5 crore QR stickers with vendors and in shops nationwide.
“There is a physical challenge and a digital one. Replacing FASTags and QR stickers present a physical challenge while several new digital prepaid accounts may need to be created,” said a bank official.
An industry person described RBI’s action as nuclear, covering almost all aspects of business that a payments bank is permitted to undertake. RBI’s measures ensure that no funds will flow through Paytm Payments Bank for transactions from March.
Another banker pointed out that RBI’s statement did not provide a way out or mention that the measures would remain in force until the regulator is satisfied.
“Unlike commercial banks, in the case of payments banks, there is no fear of a run as these entities do not lock their funds in loans, and all their money is in government securities and bank deposits,” said a banker. The RBI statement said outflows from any accounts would not be hampered.
RBI’s action comes days after an arm of the National Highways Authority of India barred Paytm Payments Bank from issuing fresh FASTags for non-compliance of its rules. Before NHAI’s ban, RBI had penalised Paytm Payments Bank Rs 5.4 crore for inadequate customer due diligence.
Paytm had seen explosive growth among customers and merchants after demonetisation in 2016 when regulators relaxed norms to enable faster onboarding by digital service providers. There was, however, wariness in some quarters because of the strategic stake by Chinese billionaire Jack Ma’s ANT Financial.
RBI has also asked the bank to stop operating unit services under Bharat Bill Pay or fund transfers under any name after February 29. However, the order will not impact Paytm’s functionality as a third-party app, enabling bank account-to-account payments through UPI.
RBI attributed its action to persistent non-compliance and continued material supervisory concerns warranting further supervisory action. The regulator, in a press release, said that after it barred Paytm Payments Bank from onboarding new customers in March 2022, it continued to be non-compliant.
RBI has ordered the nodal accounts of One97 Communications and Paytm Payments Services to be terminated as soon as possible and not operate after February 29, 2024. “Settlement of all pipeline transactions and nodal accounts (in respect of all transactions initiated on or before February 29, 2024) shall be completed by March 15, 2024 and no further transactions shall be permitted thereafter,” RBI said. However, any interest, cashback or refunds may be credited to customers anytime.
One97 Communications owns the Paytm brand and the app. It holds a 49% stake in Paytm Payments Bank, which operates the wallet and bank accounts. Paytm has so far not commented on the regulatory action.
Given Paytm’s disproportionate share of the digital payments market, many expect a scramble for new service providers after February 29. Paytm has 16% share of FASTag transactions. Hundreds of companies use Paytm food wallet for voucher payments. Paytm has also deployed over 3.5 crore QR stickers with vendors and in shops nationwide.
“There is a physical challenge and a digital one. Replacing FASTags and QR stickers present a physical challenge while several new digital prepaid accounts may need to be created,” said a bank official.
An industry person described RBI’s action as nuclear, covering almost all aspects of business that a payments bank is permitted to undertake. RBI’s measures ensure that no funds will flow through Paytm Payments Bank for transactions from March.
Another banker pointed out that RBI’s statement did not provide a way out or mention that the measures would remain in force until the regulator is satisfied.
“Unlike commercial banks, in the case of payments banks, there is no fear of a run as these entities do not lock their funds in loans, and all their money is in government securities and bank deposits,” said a banker. The RBI statement said outflows from any accounts would not be hampered.
RBI’s action comes days after an arm of the National Highways Authority of India barred Paytm Payments Bank from issuing fresh FASTags for non-compliance of its rules. Before NHAI’s ban, RBI had penalised Paytm Payments Bank Rs 5.4 crore for inadequate customer due diligence.
Paytm had seen explosive growth among customers and merchants after demonetisation in 2016 when regulators relaxed norms to enable faster onboarding by digital service providers. There was, however, wariness in some quarters because of the strategic stake by Chinese billionaire Jack Ma’s ANT Financial.
