Paytm may seek third-party payment app status for UPI integration, says report

Talks on the same have commenced with the National Payments Corporation of India (NPCI), the entity overseeing the UPI ecosystem in the country, it added.

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VPA Changes for Paytm Users

Following the RBI’s regulatory directive, the Paytm app will transition to a third-party app, integrating UPI through other lenders. At present, Paytm UPI users have virtual payment addresses (VPAs) ending in @paytm. Starting March 1, this might transition to handles associated with other banks.

To address this, Paytm plans to collaborate with three or more banks to issue new VPAs to its customers, with HDFC Bank, Axis Bank, and Yes Bank being potential contenders. Paytm Payments Bank (PPBL) is also in discussions to transfer the nodal accounts of Paytm merchants to other lenders, pending detailed FAQs from the regulator.

This move aligns Paytm with other third-party payment apps such as PhonePe, Google Pay, and Amazon Pay, among the 22 TPAPs operating on UPI. Notably, competitors such as PhonePe have witnessed a 15-20 percent increase in their user base in the week following the RBI notice to Paytm, as per the report.

Challenges and Coordination

The shift in payment addresses for customers is a backend process, distinct from the front-end changes required for merchants. Coordination among banks, NPCI, and Paytm is crucial for a smooth transition.*

One complication is that Paytm’s reliance on the technology backend of third-party lenders raises concerns about potential stress during high payment volumes.

Also despite efforts by Paytm founder-CEO Vijay Shekhar Sharma, including meetings with RBI officials and the finance minister, no extension or relaxation has been granted, as the matter remains a regulatory and compliance issue under the purview of the central bank.

The Paytm Saga so far…

Paytm founder-CEO Vijay Shekhar Sharma is facing a severe crisis as his brainchild and India’s beloved unicorn success story, PPBL navigates stringent directives issued by the RBI. The directions are to cease further deposits, credit transactions, and top-ups on customer accounts after February 29, raising concerns about the bank’s future viability.

According to the National Payments Corporation of India (NPCI), PPBL led UPI transactions in December, with 283.5 crore received and 41 crore remitted. In the same month, the PPBL app recorded 144.25 crore transactions amounting to ₹16,569.49 crore.

The RBI cracked the whip over irregularities in know-your-customer norms, compliance issues and related party transactions. The intervention stems from concerns about money laundering and questionable transactions involving crores of rupees. Non-KYC-compliant accounts and instances of single PANs used for multiple accounts raised red flags.

As per a Reuters report, PPBL came under RBI scrutiny as hundreds of thousands of accounts were found to be created without proper identification. The RBI alerted the Enforcement Directorate (ED) and other government agencies regarding the irregularities in PPBL accounts.

Responding to the developments, Paytm’s founder-CEO reassured users about the app’s functionality beyond February 29. In a post on February 2nd, he appreciated the support and commitment of Paytm users, emphasising the company’s dedication to serving the nation in full compliance with a focus on payment innovation and financial inclusion.

In multiple statements, the company said Paytm’s management continues ongoing discussions with the RBI to comply with directives.

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Published: 10 Feb 2024, 11:50 AM IST