Paytm Payments Bank to shut tomorrow: What services will work, what won't?

Paytm has been the leader of India’s fintech world.

Those who make digital payments, however, will now need to make alternate arrangements through a different bank because, starting 15 March, Paytm Payments Bank Ltd (PPBL) will no longer be providing services including credit transaction processing and deposit acceptance.

The development comes after the Reserve Bank of India (RBI) imposed restrictions on PPBL on 31 January citing serious rule violations.

Guidelines have also been released by the Bombay Stock Exchange (BSE) for investors who use the bank only to trade stocks.

Here’s all we know about it.

The closure

The RBI ordered the closure of Paytm Payments Bank, citing “concerns and issues with non-compliance” at the bank.

Paytm Payments Bank and its parent company One97 Communication have come under scrutiny for the “purported lack of requisite information barriers within the group and data access to China-based entities that were indirect shareholders in the payments back through their stake in the parent company”, according to The Indian Express.

According to PTI, the bank opened hundreds of accounts without proper identification, raising concerns about possible involvement in illegal operations including money laundering.

NDTV quoted its sources as saying, the information was also sent to other authorities, such as the Prime Minister’s Office and the Enforcement Directorate (ED).

In response, Sanjay Malhotra, the Revenue Secretary, stated that the ED will look into Paytm Payments Bank, which is scheduled to close temporarily by Friday.

Services that will be affected

After 15 March, customers will still be able to withdraw or transfer money from their Paytm Payments Bank accounts, but they won’t be able to credit or deposit money into them.

Paytm Payments Bank accounts will no longer be able to get salary credit, direct benefit transfers, or subsidies, although they will still be able to receive refunds, cashbacks, and sweep-ins from partner banks.

After the deadline, users won’t be able to use features like top-up or money transfer in their wallets, but they will still be able to make payments if there is money in their accounts.

Consumers who have a Paytm Payments Bank-issued FASTag will not be able to recharge it.

It will no longer be possible to top off or recharge NCMC cards provided by Paytm Bank.

After Friday, users won’t be able to transfer funds using UPI or IMPS into Paytm Payments Bank accounts.

The current balance may be used to make monthly OTT payments; however, from 15 March, another bank account must be used.

In addition to transferring the money to another bank account, users will be able to close the wallet.

It’s also crucial to remember that for the services to function, customers must set up an additional bank account or switch from Paytm Payments Banks to another bank account that is supported. This will allow them to do things like recharge other

FASTag money, make EMI payments, and receive salary credit.

Paytm to get third-party app licence

The National Payments Corporation of India (NPCI) is likely to approve a third-party application provider (TPAP) license for Paytm, formally known as One 97 Communications, by Friday, Reuters quoted its three sources directly aware of the development as saying on Tuesday.

The third-party application provider license will allow customers to continue using the Paytm app for payments through India’s popular unified payment interface (UPI), even as its banking arm, Paytm Payments Bank, ceases operations by March 15, following regulatory action due to issues of non-compliance.

UPI, operated by the NPCI, is India’s real-time payments system that allows users to transfer money across banks.

“The (TPAP license) approval will come before March 15 and most of the checks have been completed,” one of the sources said.

“While the integration with banks may take more than a month, the license approval should be in place before the deadline ends.”

Reuters had reported last month that Paytm is likely to partner with Axis Bank, HDFC Bank, State Bank of India, and Yes Bank  for processing transactions through UPI.

RBI crackdown

Paytm was the leader when India’s fintech revolution started. But  Paytm Payments Bank  ran into trouble soon after it was launched and has been under the RBI scanner since 2018.

The operations that led to the crackdown began when PPBL first obtained a banking license in January 2017 to offer wallets, savings accounts, prepaid cards, and National Common Mobility Card services. Within a year of operations, the bank saw its first regulatory strike, when the RBI temporarily stopped accepting new accounts in June 2018 due to violations of licensing requirements, according to CNBC-TV18.

In 2021, PPBL was fined Rs 1 crore by the RBI after it was discovered in October 2021 that the company had filed false information. The same year, the central bank noticed significant KYC AML (anti-money laundering) violations.

Accordingly, RBI again imposed supervisory restriction on PPBL in March 2022, to stop on-boarding new customers with immediate effect and to appoint an external audit firm to conduct a comprehensive system audit. As a result of PPBL’s persistent disregard for KYC regulations, the RBI fined the company ₹5.39 crore by October 2023, marking the fourth time it had done so.

Additionally, a report by PTI suggests the PPBL, had lakhs of non-KYC (Know Your Customer) complaint accounts, and in thousands of cases, single PANs were used for opening multiple accounts.

Further escalating regulatory concerns were reports of significant transactions inside the group and related parties that were not disclosed. As part of a clean-up exercise, the Enforcement Directorate (ED) in September 2022 had initiated a probe under the criminal sections of the Prevention of Money Laundering Act (PMLA) after a number of instances of gullible debtors ending their lives came to the fore from various states.

With inputs from agencies