Paytm Payment Bank to be shut down by RBI order, big blow to India's fintech

Kathmandu. The Reserve Bank of India (RBI) has announced a ban on Paytm Payment Bank. The RBI has taken such a decision on Wednesday that most of the services of Paytm will be closed from 29th February.

According to RBI, this decision has been taken because Paytm has repeatedly violated the rules. With this announcement of RBI, the share of Paytm has seen a huge decline.

The company's share price fell by 40 percent in two days, Thursday and Friday. On Friday, Paytm shares were trading at 487 baht, the lowest in over a year.

Paytm's share in India's digital payment market is 16/17 percent. In this case, millions of people may be affected due to the order of the Reserve Bank.

A press release issued by the RBI said, “Paytm's audit report and external auditor's report have found that Paytm has consistently violated the rules. Therefore, as per Rule 35 (A) of the Banking Regulation Act, after February 29, any credit deposit, transaction, wallet with Paytm Payments Bank customers , will not be able to use Fast Tag.”

The statement also mentions that Paytm should provide full facilities to withdraw and use the balance of its customers. “This facility will also be available to customers who have Paytm Savings and Current Accounts or who use FAST Tag,” the central bank of India said.

This means that after 29th February the customers of Paytm Payment Bank Limited will not be able to use it and RBI has also asked Paytm to settle the nodal account by 15th March.

What is Paytm's response?

One97 Communication, the mother company of Paytm, has said that work is going on for Paytm Payment Bank to comply with RBI instructions. He said, “Being a payments company, One97 works with multiple banks, not just Paytm Payments Bank. We are speeding up the process and we will be fully dependent on our partner banks as soon as the ban comes into effect.”

It is mentioned that in the future One97 will work with other banks instead of Paytm.

Who is Paytm Payment Bank?

There are three types of services under Paytm, Paytm Payment Bank, Paytm Wallet and UPI. Only amount can be deposited in Paytm Payment Bank. But it cannot give loans.

Similarly, even if a debit card is issued, one has to negotiate with a lender regulator to issue a credit card. In a simple sense, it is a bank account in which money can be kept.

Payments can usually be made to merchants from that. When making payment in this way, the amount is transferred to the merchant's bank account through Paytm account. Based on that, Paytm gives credit points to its customers.

Paytm's parent company One97 has a Prepaid Payment Instrument (PPI) license, under which Paytm Payment Bank was launched in 2017.

What will be the impact on the customer's wallet and UPI?

All Paytm services will operate as normal till 29th February. After that, there will be some changes for customers using Paytm Wallet and UPI services. Customers who have money in their Paytm wallet can transfer it elsewhere.

But more money cannot be deposited in the wallet. However, customers who have linked their Paytm account with a third party bank can use Paytm Wallet and UPI payments.

But users of wallets linked to Paytm Bank will not get this facility. After 29 February, it will not be possible to receive funds from Paytm in both bank accounts and wallets.

What is Fasttag?

According to Indian government regulations, FASTag is placed on the front windshield of all cars. Fast Tag is an electronic toll collection system, which is operated by the National Highway Authority of India.

Toll fee can be paid through prepaid wallet at every toll booth. But with the decision of RBI, it will be possible to use the remaining funds in Paytm's Fast Tag service from March 1. But no additional amount can be kept in it.

Can businesses there accept payment through Paytm?

Currently, Indian shopkeepers who receive funds in Paytm Payment Bank Accounts will not be able to receive payments in the same way. Because it will not be allowed to deposit money in the said account.

But businesses with QR stickers from other companies can take payment.

What will be the impact on India's fintech market?

Ashneer Grover, the founder of Bharat Pay, responded that this type of action by RBI will end the fintech sector itself. He has expressed his displeasure through social network X.

He said, “I don't understand, clearly RBI doesn't want FINTE's business. This kind of activity will kill the sector. Finance Ministry, Finance Minister and Prime Minister need to intervene in this matter. Today IIM-IITs are struggling to employ their students. Yes. This kind of transgression is not good for the country. It is not right to show UPI to the world and punish those who started it.”

Similarly, Rajat Gulati, co-founder of Pluton, a company that provides digital financial services to banks, told the BBC, “Through this, the RBI has given a clear message to fintech companies that it is impossible to avoid regulation. If you are providing services related to payments, the rules that have been made to protect the rights of users , you can't break them. In March 2022, RBI had banned Paytm Payment Bank from adding new customers. Now, after a thorough investigation and external auditors' report, in which the violation of rules became clear, RBI took this decision.”

“What will happen in the fintech market is that for those companies who are working in accordance with the rules, this decision of the RBI will act as an approval. And this will also make the customers feel that the RBI is there to protect their interests. Maybe there will be a lot of buzz on this issue for a couple of days. But now this decision will bring stability and improvement in this market for a long time.”

Paytm's shareholders and investors are under stress

Since the RBI ordered Paytm, the company's share price has been falling sharply, which is said to fall further. It is certain that this will affect the shareholders of the company.

There are three parts of Paytm and when one of them is going to be closed, its impact will be big. But if the company's most important services, Paytm Wallet and UPI, continue, it will be seen in the coming days whether the share decline will stop or not.

Last updated: Jan 19, 2080 12:46

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Rabins Sharma Lamichhane

Rabins Sharma Lamichhane is senior ICT professional who talks about #it, #cloud, #servers, #software, and #innovation. Rabins is also the first initiator of Digital Nepal. Facebook: rabinsxp Instagram: rabinsxp

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