Due to a recent RBI directive, Paytm Payments Bank can’t take new deposits or execute credit transactions post-February 29th. Paytm wallet customers can still use their current balance but can’t top up anymore. RBI’s actions are due to potential money laundering and dubious dealings in the bank. Let’s understand why did RBI ban Paytm payment bank and wallet.
Vijay Shekhar Sharma, an Aligarh district native in Uttar Pradesh, started a digital payment firm, influenced by Alibaba’s mobile focus. A key player in India’s fintech growth, Sharma’s goal was an Alipay-like mobile market, fostering online product sales by businesses.
Though previous controversies exist, the present predicament of Paytm Payments Bank, with RBI ordering a halt to numerous operations, is a first. It presents a massive challenge to this notable fintech powerhouse.
What is Paytm Payments Bank?
PPBL, a payments bank established on May 23, 2017, has a significant connection with One97 Communications Limited (OCL), as OCL holds a 49% stake in PPBL, while Vijay Shekhar Sharma owns the remaining 51%.
As a payments bank, PPBL offers a range of digital banking services, including savings and current accounts, fixed deposits through partner banks, and popular features like wallets, UPI, and FASTag. Among its offerings, PPBL’s flagship product, the Paytm Wallet, stands out in its segment.
According to the Reserve Bank of India‘s provisional data from December 2023, over 24.72 crore transactions were made through Paytm Wallet, totaling more than Rs 8,000 crore in goods and services. Additionally, there were 2.07 crore transactions through the wallet, transferring over Rs 5,900 crore. These impressive numbers showcase the widespread usage and popularity of Paytm Wallet.
Despite these achievements, the RBI’s decision to ban Paytm has raised questions and concerns about the future of the popular digital payment platform.
What is RBI action against Paytm Payments Bank?
The regulatory authority has issued a directive to Paytm Payments Bank Ltd last week, a limited bank with the ability to receive deposits but not provide loans. The directive stated that the bank must discontinue accepting new deposits, conducting credit transactions, and facilitating top-ups for customer accounts, prepaid instruments, wallets, and cards for toll payments after February 29, 2024.
For those who currently use a Paytm wallet, they will be able to access their existing funds until they run out. However, after February 29, adding new funds will no longer be possible. If the RBI does not change its stance, Paytm wallet top-ups will come to a halt and transactions using the wallet will no longer be available.
Read also: Navigating Cryptocurrency Taxation in India: Innovative Strategies Unveiled
A Timeline of Penalties & Ban on Paytm by RBI
July 2017: The Reserve Bank of India (RBI) has canceled Paytm’s Authorization Certificate to operate a Payment System, leading the company to transfer its PPI business, known as the Paytm Wallet, to Paytm Payments Bank. This action follows RBI guidelines, ensuring compliance with the regulations.
October 20, 2021: In addition to this, the RBI has imposed a penalty of ₹1 Crore on Paytm Payments Bank for violating a rule outlined in Section 26(2) of the Payment and Settlement Systems Act, 2007. The reason for the penalty is the incorrect information provided by PPBL.
March 11, 2022: RBI has directed Paytm Payments Bank to immediately halt the onboarding of new customers and undergo a thorough IT system audit. This measure aims to ensure the company’s adherence to security protocols and safeguard customers’ data.
November 6th, 2022: RBI has instructed Paytm to resubmit its application for a Payment Aggregator license within 120 days. Until then, the company is prohibited from onboarding new online merchants
October 12, 2023: The Reserve Bank of India has imposed a penalty of ₹5.39 crore on PPBL for failing to adhere to KYC rules and allowing foreign IP addresses in their Video-Based Customer Identification Process (V-CIP).
January 31st, 2024: RBI has directed PPBL to suspend onboarding of new customers, discontinue UPI facilities, and put a halt on deposits, credit transactions, top-ups, wallets, FASTags, NCMC Cards, and fund transfers after February 29th, 2024.
February 1st, 2024: Acknowledging the directives from RBI, Paytm has issued a statement. The parent company, OCL, has announced plans to collaborate with third-party banks to ensure compliance with RBI’s guidelines for payments and financial services distribution.
Impact of RBI Ban on Paytm’s Customers
On January 31, the Reserve Bank of India directed Paytm Payments Bank to discontinue accepting deposits or top-ups in customer accounts, wallets, FASTags, and other instruments starting from February 29. However, customers have the freedom to withdraw or use the funds in their accounts, whether it be savings, current, prepaid instruments, FASTags, or National Common Mobility Cards, up to the amount available.
Until February 29, Paytm Wallet users can continue to make transactions, but afterwards, they will only be able to use their remaining balance until it is depleted. They will not have the option to add additional funds to their accounts.
In addition to PPBL accounts, this rule also extends to Paytm wallet-linked services such as FASTag and National Common Mobility Card, which are frequently utilized for commuting on metros and other public transportation. As a result, the Reserve Bank of India’s ruling carries considerable consequences for Paytm customers and the various services offered through the platform.
Why did RBI Ban Paytm Payment Bank?
The Reserve Bank of India has been voicing persistent concerns about a range of issues. Most notably, there are apprehensions regarding potential money laundering and dubious transactions worth hundreds of crores of rupees taking place between the popular Paytm wallet and its lesser-known banking counterpart. As a result, the banking regulator has taken strict action against entities under the leadership of Vijay Shekhar Sharma.
Paytm Payments Bank Limited (PPBL) was found to have a significant number of non-compliant accounts with incomplete KYC documentation. Shockingly, there were thousands of instances where one PAN was used to open multiple accounts.
Additionally, there were alarming cases of transactions going over crores of rupees, far surpassing the prescribed limits for minimum KYC pre-paid instruments. These worrisome actions hinted at the possibility of money laundering being carried out through Paytm, ultimately prompting the RBI’s drastic measure of banning the company.
Impact of RBI Ban on One97 Communications' share
The recent actions taken by the RBI have had a profound impact on One97 Communications Ltd, which is the parent company of the popular Paytm brand. Within a span of just two days, the company’s stock took a sharp nosedive of 40%, reaching its lowest trading limit of Rs 487.05 on the BSE. This downturn has resulted in a significant decrease in the company’s market capitalization, plummeting by a staggering amount of Rs 17,378.41 crore to reach Rs 30,931.59 crore. This market reaction serves as a clear indication of the severe consequences of the RBI’s ban on Paytm, causing a decline in the company’s overall value and shaking investor confidence.
What are the Options for Paytm users?
With Paytm currently facing certain restrictions, users have a variety of other digital wallet options to consider. These alternatives include over 20 banking and non-banking entities, such as Mobikwik, PhonePe, SBI, ICICI Bank, HDFC, and Amazon Pay, all offering their own wallet services. This diverse selection of providers beyond Paytm’s rival PPBL allows users to choose the best fit for their needs.
Furthermore, for FASTag services, there are 37 authorized banks that offer these electronic tags. Among these are well-known names like SBI, HDFC, ICICI, IDFC, and Airtel Payments Bank.
The convenience of being able to recharge FASTags online through their own bank’s mobile or internet banking, as well as third-party apps like Google Pay and PhonePe, makes for a seamless transition for customers from Paytm to other trustworthy options.
Conclusion
In summary, the Reserve Bank of India (RBI) imposed a ban on Paytm Payments Bank due to regulatory violations such as providing false information and not complying with KYC requirements. This serves as a reminder of the importance of following regulations in the rapidly growing fintech industry. Both Paytm and OCL are now working towards meeting RBI’s guidelines for future compliance.
Frequently Asked Questions (FAQ)
For speedy resolution of your inquiries, simply dial Paytm’s 24X7 helpline at 0120-4456-456. Need to report a UPI issue? Contact the BHIM toll-free number at 18001201740 or reach out to the helpline at 022-45414740 for all your transaction concerns and complaints.
The brainchild of Vijay Shekhar Sharma, the son of a humble schoolteacher hailing from a small town in northern India. Back in 2011, Sharma brought to life the now flourishing mobile wallet, Paytm. And with the implementation of India’s demonetization in 2016, the company experienced exponential growth, reaching a staggering 400 million users and 25 million daily transactions.
Starting from February 29, 2024, Paytm Payments Bank will no longer be authorized to accept deposits, facilitate credit transactions, or add funds to any customer accounts, such as prepaid cards, wallets, FASTags, NCMC (National Common Mobility Cards), or any other customer account.
Paytm’s financial state has hit an all-time low, raising concerns about whether the company has truly recovered. It’s difficult to predict when the company will bounce back since the recent RBI circular means that Paytm Payments Bank will be unable to conduct any significant operations after February 29, 2024.