Paytm Payments Bank is prohibited from making fresh deposits after February 29, 2024 due to an order issued by the Reserve Bank of India (RBI). The company, part of One97 Communications, is a leader in Indian fintech and faces challenges of regulatory scrutiny and customer uncertainty. A three-member advisory committee will be established by the organization to strengthen governance matters, as announced.
Here’s a comprehensive breakdown to understand the issue with Paytm Payments Bank Ltd (PPBL) after RBI’s decision:
What happened?
On January 31, the RBI placed limits on PPBL in accordance with section 35A of the Banking Regulation Act, 1949. RBI has directed PPBL to stop onboarding new customers with immediate effect.
What is restricted for PPBL?
After February 29, 2024, making deposits, credit transactions, or top ups in any customer accounts, wallets, FASTags, etc. is prohibited.
What is allowed for PPBL?
After February 29, 2024, customers can still use the money that was already deposited into their PPBL accounts and wallets.
What happened with the Nodal accounts of PPBL?
RBI said in the notification that the Nodal Accounts of One 97 Communications Ltd and Paytm Payments Services Ltd are to be terminated at the earliest, most probably before the cutoff date i.e. February 29.
What are Nodal Accounts?
Nodal accounts are types of bank accounts that are opened by businesses and are used to hold funds on behalf of their customers and vendors. The RBI introduced it to prevent any business or intermediary from withholding illegal money from customers.
What is Paytm Payments Bank?
Paytm Payments Bank was established in 2017 and has its headquarters in Noida.
How are Payments Banks different from traditional Banks?
Similar to traditional banks, they can provide most of the services, including deposit taking and debit card issuing, without the risk of credit. Payment banks are prohibited from having deposits exceeding one lakh rupees.
Why did RBI barred PPBL?
RBI said in the press release that PPBL is barred after “Comprehensive System Audit report and subsequent compliance validation report of the external auditors revealed persistent non-compliances and continued material supervisory concerns in the bank, warranting further supervisory action.”
What will be the impact on Paytm?
Paytm has to transfer its operations from PPBL to other banks and this will have an impact of Rs 300-500 crore as per the press conference held by Paytm after the RBI’s decision came.
Merchants will switch to other bank accounts for the UPI facility, which will affect the soundbox business, and numerous organizations are developing their own soundboxes.
How will it impact customers?
Customers will not lose any money that is deposited in the PPBL accounts but anyone who uses PPBL for UPI transactions will have to look a different bank’s account to continue with the service post the cutoff date.
Who founded Paytm?
In 2010, Paytm was founded by Vijay Shekhar Sharma. The CEO of the organization hails from a small village in Aligarh city.
What is Paytm app?
Paytm is a fintech organization that facilitates digital payment services through UPI and digital wallet to the users.
It provides services such as online recharge, DTH, data card, and metro card recharge, and mobile bill payment, according to its website.
Along with it, one can book tickets for flights, trains, buses, as well as for movies, shows, and events with the app.
How does the Paytm app work?
As a service provider, it acts as a mediator between different banks for transactions.
It also provides a digital wallet facility that a user can use just like a bank account but it is generally used for the seamless transfer of money within two paytm wallets.
The absence of different bank servers makes it more efficient. UPI is used by Paytm to transfer money from one account to another.
How did the Paytm app operate before PPBL?
Paytm initially started operations as just a digital payments app and for that, it partnered with various banks. Paytm recently stated in its press release that it is exploring the option to partner with banks to facilitate digital transactions.
What is the Fintech sector?
Fintech is a mix of finance and technology. This sector involves providing digital financial services such as transaction facilities, insurance, mobile banking, trading, and cryptocurrency.
Paytm and Demonetisation
After demonetisation, Paytm became the poster boy of digital payment services in India with the slogan of ‘Paytm Karo’. Between October 2016 and November 2017, the company saw a 130 million increase in its user base, from 140 million to 270 million.
Who are some other major players in India’s fintech landscape?
There are various competitors of Paytm in the Fintech market such as Gpay owned by Google aka Alphabet, Phonepe owned by Sameer Nigam, BharatPe founded in 2018 by Ashneer Grover and Shashvat Nakrani.
In addition to these, Mukesh Ambani’s JioPay and other banking apps facilitate services for their account holders.
Is Paytm selling its app to the competitors?
Paytm has denied any claims or reports regarding discussions regarding the sale of its wallet business.
