Before collaborating with Paytm to take over merchant accounts, banks wait for RBI’s approval

Paytm’s search for bank partnerships to transfer its Paytm Payments Bank Limited (PPBL) accounts is encountering reluctance from several public and private sector banks. Following the recent regulatory actions by the Reserve Bank of India (RBI) on PPBL, which suspended its banking operations, banks are hesitant to proceed without clear regulatory guidance.

Paytm aims to migrate all PPBL accounts, including merchant and customer accounts, to ensure continuity within the Paytm app. Banks express concerns about compliance and supervisory lapses, demanding transparency from One97 Communications Limited (OCL), Paytm’s parent company.

Despite Paytm’s denial of hesitancy claims, banks remain cautious due to regulatory uncertainties and potential liabilities. The RBI had flagged compliance issues with PPBL, contributing to the reluctance of banks to engage in partnerships.

Paytm’s efforts to reach out to major banks face challenges as banks evaluate the complexities and risks associated with the migration process. Regulatory approval and clarity on KYC issues are deemed essential before banks consider taking over the PPBL portfolio.

The situation raises concerns for NPCI (National Payments Corporation of India) and underscores the concentration risk on the UPI (Unified Payments Interface) platform. Time constraints and the need for regulatory decisions add urgency to the evolving scenario.

The entity has been working on encouraging additional UPI apps to gain market share from PhonePe and Google Pay, which currently hold approximately 85 percent of the value market share and 80 percent of the volume market share in the ecosystem. Nevertheless, following the events of last week, where numerous merchants and customers disassociated from Paytm, the concentration risk on the platform has escalated even more.