RBI Directs NPCI To Examine Paytm’s Request For Becoming A Third-Party App Provider For UPI

The Reserve Bank of India (RBI) has advised the National Payments Corporation of India (NPCI) to examine Paytm’s request to become a third-party application provider for UPI payments.

“National Payments Corporation of India (NPCI) has been advised by the RBI to examine the request of One97 Communication 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 in a statement on Friday (February 23). 

As per the RBI, the directive has been issued to ensure seamless digital payments by UPI customers using ‘@paytm’ handle (operated by the Paytm Payments Bank) and minimise concentration risk in the UPI system.

It is pertinent to note that UPI payments are currently dominated by two foreign-owned players – PhonePe and Google Pay. In the event of curtailment of homegrown Paytm, which processes the third-biggest volume of digital payments, owing to the RBI curbs on its payments bank arm, the space may further be tilted in favour of the two giants. 

Meanwhile, the RBI in its statement also said that in the event the NPCI grants a TPAP licence to Paytm, the fintech major will have to migrate its ‘@paytm’ handles from Paytm Payments Bank to a set of newly identified banks. The addition of new subscribers under the potential TPAP licence will also be contingent on Paytm migrating all its previous users to other banks beforehand. 

“For seamless migration of ‘@paytm’ handle to other banks, NPCI may facilitate certification of four to five 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,” the RBI said in a circular.

For the uninitiated, a PSP bank is a member of UPI and connects to the UPI platform for availing payment facility. It provides this facility to the TPAP, which in turn enables the end-users/ merchants to make and accept UPI payments.

The RBI also said that One97 Communications, the parent of Paytm, may open settlement accounts with multiple PSP Banks for merchants using Paytm QR codes. 

The following are the other clarifications from the RBI: 

• No need to migrate to other banks for customers that do not have the UPI handle ‘@paytm’
• Customers, with Paytm Payments Bank wallets and accounts, will have to make alternative arrangement with other banks prior to March 15, 2024
• Users that have the payments bank’s FASTag and National Common Mobility Cards (NCMC) will also have to make alternative arrangements before the deadline

“All the above actions are undertaken in the sole interest of protecting the customers and payment system from any possible disruptions and are without any prejudice to the regulatory or supervisory actions initiated by RBI against Paytm Payments Bank,” added the central bank. 

The development comes as the deadline inches closer for implementation of the business restrictions imposed by the RBI on Paytm Payments Bank. 

The central bank has set the March 15 deadline for the payments bank to stop all deposits or credit transactions or top-ups in any of its customer accounts. It has also barred the payments bank from offering other banking services, such as UPI facility and fund transfers post March 15.

The RBI’s directions to the NPCI may offer some respite to the embattled fintech major as acquiring  a TPAP licence will help Paytm seamlessly integrate with banks and easily access the UPI platform.

While its payments bank continues to seethe under the impact of RBI’s directives, Paytm has had some respite on the bourses in the past few days after central bank extended the deadline for the curbs. 

Quickly afterwards, the company also said that it shifted its nodal account to Axis Bank to streamline merchant payments. On the back of these developments, Paytm stock bounced back.

Shares of Paytm hit the upper circuit on Friday (February 23) and closed 5% higher at INR 407.60 on the BSE.