RBI Told Paytm Payments Bank to halt services by February-end

Defense News ,India :- In a significant move on Wednesday, the Reserve Bank of India (RBI) directed Paytm Payments Bank to cease all banking services, including deposit acceptance and payment processing, within a month. Effective February 29, the central bank froze all essential transaction services conducted through Paytm's platforms, such as Unified Payments Interface (UPI), IMPS, Aadhaar-enabled payments, and others.

These disciplinary actions, considered unprecedented in the financial services industry, will impact both Paytm app users and the broader merchant community relying on Paytm for payment processing, wage disbursals, and quasi-banking functions. While Paytm will continue offering products in travel, movie tickets, and more, the order is expected to have a significant impact on various fronts.

The RBI's directive will particularly disrupt Paytm Payment Bank's Fastag users and National Common Mobility Card (NCMC) holders, given the bank's full support for these services. Paytm Fastags recorded 57 million transactions in December, among the highest in the industry.

Notably, Paytm Payments Bank must halt new customer onboarding, deposits, credit transactions, and wallet top-ups from March 2022. Existing customers will be unable to add money to their accounts after February 29, though they can withdraw and utilize existing funds until exhausted. RBI has mandated the settlement of all transactions initiated before February 29 in nodal accounts held by One 97 and Paytm Payments Services by March 15.

This regulatory action follows Paytm Payments Bank's earlier embargo on adding new customers since March 11, 2022. An external audit revealed persistent non-compliances and supervisory concerns, leading to a showcause notice from RBI in July 2021 and a subsequent fine of Rs 1 crore on the bank.

The impact of this order extends beyond Paytm Payments Bank, affecting various payment channels, including wallet, Paytm UPI, NACH, Fastag, and fixed deposits. Paytm may need to relocate many backend services for its wallet offerings to other banks.

The regulatory scrutiny on Paytm has been ongoing, with the company facing obstacles in obtaining licenses for its insurance and payment aggregator businesses. Alleged Chinese shareholding in the past was cited as a reason for these setbacks, though China's Alibaba has since divested its entire stake in Paytm.

RBI's actions are viewed as a response to persistent non-compliance and supervisory concerns, potentially related to data localization and access issues. The regulatory move underscores the importance of data security and national security in the tech space, with implications for businesses handling user data within India's territory.