It has also asked Paytm to stop onboarding fresh users until it completes the migration of the existing users to other banks.
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For merchant payments to continue as before, One 97 Communications has been asked to create settlement accounts with one or two banks. Paytm has already said that it is in the process of migrating accounts to Axis Bank to ensure compliance and business continuity.
“National Payments Corporation of India (NPCI) has been advised by the RBI to examine the request of One 97 Communications Ltd (OCL) to become a Third-Party Application Provider (TPAP) for UPI channel for continued UPI operation of the Paytm app,” the central bank in a release issued today.
ET had written on February 10 that Paytm is trying to become a TPAP on UPI, just like its other rivals Google Pay and PhonePe.
To ensure seamless migration, the RBI has asked NPCI to allow four to five banks to become payment service provider banks for Paytm. It has set a condition that these banks should have the capability to process a high volume of UPI transactions.
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Major lenders like HDFC Bank, Axis Bank, Yes Bank and ICICI Bank could become the PSP for Paytm now. Given the large volume of UPI payments processed by Paytm, the RBI wants multiple banks to support these transactions to minimise concentration risk.These clarifications from the regulator will finally allow banks to move in on the Paytm business. Senior bankers had told ET earlier that unless they receive explicit instructions from the RBI, they will not move in to take on the Paytm business.
However, for merchant payments, banks might ask for a fresh KYC of the base to ensure fraudulent merchants are kept away, industry insiders said.
In an unprecedented move, the central bank had on January 31 directed Paytm Payments Bank to stop offering basic banking services from the end of February. The deadline was subsequently relaxed to March 15.
Today’s RBI order finally draws the curtain on Paytm’s banking business and brings it on par with other fintechs like Google Pay, Amazon Pay and PhonePe who offer payment services through UPI.
