Paytm Scrambles for Partners After RBI Curbs Force Banking Shakeup

19 Feb 2024 , 03:01 PM

Since the Reserve Bank of India (RBI) imposed stringent restrictions on Paytm Payments Bank Limited (PPBL), an affiliate of One97, the company has been compelled to seek bank partnerships to sustain its UPI business. The central bank’s directive mandated PPBL to cease all banking services, except for allowing the withdrawal of remaining funds in the accounts, potentially impacting its payment service provider (PSP) services as well.

Previously, PPBL served as the PSP bank for One97, with Paytm boasting an estimated 90 million UPI users on its platform. Unlike major UPI apps like PhonePe, Google Pay, Cred, and Amazon Pay, which are Third-Party Application Providers (TPAPs) reliant on PSP bank partnerships for UPI transactions, Paytm operated differently due to PPBL’s status as a bank. Essentially, the Paytm app functioned more akin to the mobile banking interface of PPBL.

In response to the regulatory constraints, Paytm recently forged a partnership with Axis Bank to transition all nodal accounts previously managed by PPBL to the private sector lender. Axis Bank is a prominent payment service provider for major UPI players like Google Pay, Amazon Pay, Cred, and PhonePe. Pending approval from the National Payments Corporation of India (NPCI), Paytm will adopt the role of a TPAP, aligning with its competitors. TPAPs rely heavily on PSP banks to ensure speedy transactions and minimize payment failures, with platforms like PhonePe and Google Pay typically maintaining multiple bank partnerships to mitigate risks.

Despite its significant presence in the UPI ecosystem over the last three years, with over 20% market share in inbound credit transactions, PPBL has consistently maintained one of the lowest rates of transaction failures among banks.