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After Airtel, Paytm Payments Bank Gets Into Trouble With RBI

After Airtel, Paytm Payments Bank Gets Into Trouble With RBI

Paytm Payments Bank stopped enrolling new customers on June 20 following an audit by RBI

Paytm was asked to remove Renu Satti as CEO of Paytm Payments Bank following RBI’s objections about her ability to lead it

RBI noted that Paytm should have better security mechanisms to store customer data

First, it was Airtel and Airtel Payments Bank that was banned from conducting eKYC of customers using Aadhaar. Now, the Reserve Bank of India (RBI) has cracked down on Paytm Payments Bank regarding the same. Airtel Payments Bank was finally permitted to onboard new customers only a month ago after a 10-month ban.

According to media reports, sources close to the situation claimed that Paytm Payments Bank stopped enrolling new customers on June 20 following an audit by the RBI, which made certain observations about the process the company follows in acquiring new customers and its adherence to know-your-customer (KYC) norms.

“The RBI has directed Paytm Payments Bank to stop onboarding of new customers with immediate effect,” said sources.

Another executive said that Paytm is modifying its “account opening process to introduce ‘current accounts’ due to which new account creation process has been paused.”

The report also claimed that Paytm was asked to remove Renu Satti as chief executive of the payments bank following the RBI’s objections about her ability to lead a banking services firm. The RBI mandates the incumbent of a CEO’s position at a payments bank to be a banker.

A Paytm spokesperson told LiveMint, “This is incorrect… Renu Satti’s appointment was made on 19th May 2017 vide an official approval from the RBI.”

This claim comes in line with a recent statement by Paytm regarding its new Retail business, for which Renu Satti had stepped down as CEO of Paytm Payments Bank and took over as the chief operating officer.

Further, the RBI noted that Paytm should have better security mechanisms to store customer data and asked Paytm Payments Bank to have an office separate from that of One97 Communications Ltd. This again comes in line with Paytm’s plans to shift its headquarters to its new office in Sector 137 along Noida Expressway in Uttar Pradesh

The security restrictions come as a surprise with Paytm being the frontrunner in supporting data localisation directive by the RBI.

Recently, the company moved its Paytm Payments team to a new facility in Noida.

The bank continues to operate all existing wallet and savings accounts of customers. Those who have minimal KYC accounts can do full KYC.

However, new customers cannot open minimal KYC wallets for the time being. All existing customers can continue to do banking transactions, deposits, withdrawal, money transfer, bill payments and third-party payments, and it is business as usual for them.

Paytm: Increasing Presence, Expanding Portfolio

As Paytm looks to expand into Japan with SoftBank and Yahoo backed PayPay, the company has been strengthening its foothold in the country as well.

Recently, the digital payments company had plans to start with foreign exchange services, it may enter cross-border remittance services, both outward and inward, as well in near term.

The company had announced that it has achieved an annual run rate of 5 Bn transactions and $50 Bn in gross transaction value (GTV).

Launch in May 2017, Paytm Payments Bank is a mobile-first bank with zero charges on all online transactions (such as IMPS, NEFT, RTGS) and no minimum balance requirement. For savings accounts, the bank currently offers an interest rate of 4% per annum.

The bank had set an aim to invest $500 Mn in KYC operations in order to reach 500 Mn bank accounts by 2020.

With a target of setting up 100K banking touchpoints, the company is now actively leveraging Paytm’s 7 Mn offline merchant base to reach people in rural and semi-urban areas across the country.

Over the last few months, Paytm Payments Bank has aggressively bolstered its corporate offerings and has launched a food wallet for its corporate customers. At present, 500+ companies give the Paytm food wallet to their employees.

Airtel Payments Bank Controversy

After receiving multiple complaints, in an order issued on December 15, 2017, the UIDAI temporarily banned Airtel and Airtel Payments Bank from conducting eKYC of customers using Aadhaar.

Reports surfaced at the time that bank accounts of more than 2.3 Mn Airtel customers were created, with over $7.3 Mn (INR 47 Cr) being transferred to these accounts.

As a result of the ban, Airtel was not allowed to conduct e-verification of its telecom customers nor was it allowed to link customers’ SIM to Aadhaar during the interim period.

Additionally, the Payments bank was barred from opening new accounts using Aadhaar-based eKYC. It was, however, able to open bank accounts through “alternate methods”, if available.

In April, Reliance Jio commenced the operations of its Jio Payments Bank and Department of Posts opened its payments bank in January 2017.

While FINO kicked-off its operations in June 2017 and Aditya Birla Idea commenced its operations from February 22, 2018.

Apart from these, others that received the RBI’s license include Cholamandalam Distribution Services Ltd, Tech Mahindra Ltd,  Dilip Sanghvi (founder of Sun Pharmaceuticals Ltd) and National Securities Depository Limited.

Airtel finally got back on track with its Payments Bank services after nearly 10 months of RBI and UIDAI trouble. Let’s see how long it takes Paytm to be able to start onboarding customers on its payments bank platform again.

[The development was reported by Livemint.]

Update [Augst 1, 2018 3:27 PM]: The article has been updated after getting official communication from Paytm.