The imposition of moratorium on Yes Bank has given a big boost to the digital payments business of private sector lender ICICI Bank. When Yes Bank’s fintech and payment partners BharatPe and PhonePe began suffering outages because of the sudden takeover by the Reserve Bank of India (RBI), ICICI Bank stepped in to take over the payment and settlement systems that these two companies were using.
Moneycontrol spoke with ICICI Bank executive director Anup Bagchi to get a sense of how the difficult task of moving between two banks for such large payment companies got accomplished within 36 hours. Yes Bank had more than 40 percent market share in Unified Payments Interface (UPI) payments, a large part of which got redirected to ICICI Bank which had to support such sudden spurt in transactions.
“We assembled a 40-member team to immediately step in and ensure customer disruptions could be minimised,” said Bagchi, who also heads the bank’s retail banking business. “Our technology platform could bring in the scale required to support such massive volumes which these platforms process.”
UPI is a digital payment system developed by National Payments Corporation of India (NPCI) which enables customers to transfer funds between bank accounts through smartphones instantly.
The RBI enforced a moratorium on Yes Bank late on March 5 evening. While the move was aimed to protect depositors and prevent erosion of capital of the bank, its payments and settlement systems stopped functioning as well.
PhonePe users could not use the app to make transactions through the entire March 6. Even BharatPe, which deploys QR codes at small merchant outlets, stopped functioning. It was close to midnight when PhonePe took to social media to announce that it was back online again with all payment forms. Even BharatPe is in the process of redirecting a large chunk of the Yes Bank transactions on to ICICI Bank.
ICICI Bank had to establish multiple features and services such as creating nodal accounts, reconciliation systems, processing capacities in the back end to be able to support transactions through these entities. Its officials worked very closely with the PhonePe team on and got up and running quickly.
“We brought in officials from different teams like legal, account opening, technology, business banking and others, in order to ensure decision making and execution was prompt,” said Bagchi.
The bank's services such as instant current account opening, remote onboarding of customers etc. helped it migrate PhonePe customers into its fold instantly. Though a no-objection certificate is required while moving current accounts between two banks, ICICI Bank let go of such formalities and used only KYC (Know Your Customer) documentation to open accounts so that operations could be started, said Bagchi.
Industry sources told Moneycontrol that PhonePe had been in discussions with ICICI Bank for months after NPCI mandated a multiparty model for all UPI third party applications. Even BharatPe was processing some part of its daily volume through ICICI Bank. But, Yes Bank was still their major processor.
“But, it is at least a six-month process which goes through evaluations, testing and others. Hence, PhonePe was still primarily operating in a single party model,” said a top digital payments executive in the know of the matter. “But, what happened now is a huge loss for Yes Bank, which had created such a massive fintech partnership network.”
Bankers also pointed to the important role played by NPCI in the migration of services. As a settlement platform, NPCI now has to route transactions originating from Yes Bank handles into ICICI Bank systems.
Bagchi said the RBI was alerted but the NPCI worked closely with the bank and the payment companies.
“Most of the Yes Bank handles have moved to ICICI Bank and the rest will happen slowly, what NPCI did on Friday was to ensure that business continuity is maintained, there are more formalities which will be ironed out slowly,” said the payment executive quoted above.
PhonePe chief executive Sameer Nigam has said that, as of now with permission from NPCI and RBI, all YBL transactions are being driven to ICICI Bank. They will soon release an additional handle with ICICI Bank as well.
“Once Yes Bank moratorium is over, it will mean PhonePe users will have a choice of two handles from two different banks to work with,” Nigam said. “For our QR codes at merchant handles, they are working seamlessly as well and there is no need to replace any stickers.”
Also PhonePe shifted its nodal accounts to ICICI Bank to ensure that its merchants receive the funds on time and the confidence in the system is not hurt. Till the Yes Bank moratorium gets over, Nigam added that they had taken a hit on their working capital. PhonePe has 200 million users and is accepted by 100 million merchants over 300 locations.
While the March 6 incident could have turned into a mini payment crisis which was quickly averted, there were major lessons to be gleaned from the episode.
First, fintechs that have already scaled beyond a certain level need to enter into a multi-party model, similar to what Google Pay has done. Second, ICICI Bank showed that the lenders were still interested in UPI as a payment mode.
“There is anyway no money to be made from customers because merchant discount ratio is zero, but there are some benefits like getting sense of customer payment habits, acquiring new merchants and customers in one shot and all this will eventually bring some upside,” said Bagchi. “As of now we are only looking at it from an angle of continuity ensuring customer trust in the system does not fall.”