Indian trade body asks businesses to avoid foreign-owned PhonePe, Google Pay when shifting from Paytm

According to Paytm's official website, the application powers more than 20 million merchants and businesses

India's Confederation of All India Traders (CAIT) has asked brick-and-mortar businesses to avoid switching to foreign-owned payment applications such as PhonePe or Google Pay as traders start shifting away from Paytm, the association's Secretary General Praveen Khandelwal told Moneycontrol.

"We have asked traders to pick the Unified Payments Interface (UPI) or payment applications offered by Indian banks, rather than go for applications backed by foreign companies. We need to stick to our Make in India vision," Khandelwal said.

This recommendation by CAIT, one of the key trade associations in India, follows an advisory issued on February 4 asking businesses to drop Paytm after the clampdown by the Reserve Bank of India (RBI). It also comes at a time when PhonePe expects to gain a share of any potential decline in rival Paytm’s user base.

Trouble began for Paytm when the RBI, on January 31, imposed major business restrictions on Paytm Payments Bank (PPBL), including on accepting fresh deposits and doing credit transactions after February 29. This timeline was later extended to March 15.

Founded by Vijay Shekhar Sharma, home-grown Paytm is widely used by India's brick-and-mortar trading community to accept and make payments. However, since RBI's action, there have been security concerns around using the application.

According to Paytm's official website, the application powers more than 20 million merchants and businesses, while more than 300 million Indians use Paytm to pay at stores.

PhonePe is now owned by the American multinational Walmart, and Google Pay is headquartered in California, United States.

Back in August 2023, the Chief Executive Officer of One 97 Communications Limited, Sharma, and the promoter entities became the largest shareholder in Paytm. In an exchange filing last week, the company informed that its made-in-India devices for QR codes, its sound boxes, and card machines will continue to operate as always beyond March 15, 2024, citing the FAQ issued by the central bank regarding Paytm’s associate, PPBL.

The company has also shifted its nodal account to Axis Bank, by opening an escrow account to ensure seamless merchant settlements.

The restrictions imposed by RBI on Paytm were triggered by a probe, which raised concerns about money laundering and violation of KYC norms by the entity.

This is not the first time concerns have been raised over foreign-backed payment platforms. Supriya Sule, a parliamentarian representing the Nationalist Congress Party, recently alleged that Google Pay and PhonePe are “ticking time bombs” and sought to know what steps the government was taking to check money laundering.