India's trade body CAIT asks brick-and-mortar businesses to drop Paytm

Founded by Vijay Shekhar Sharma, Paytm is widely used among India's brick-and-mortar trading community to accept and make payments.

Following the clampdown from the Reserve Bank of India (RBI), India's Confederation of All India Traders (CAIT) has issued an advisory asking brick-and-mortar businesses to switch from Paytm to other payment applications.

"The RBI has imposed certain restrictions, prompting CAIT to recommend that users take proactive measures to protect their funds and ensure uninterrupted financial transactions. Large number of small traders, vendors, Hawkers and women are making payments through Paytm and as such RBI restrictions on Paytm could lead to financial disruptions for these people," the CAIT said on February 4.

CAIT, which largely represents brick-and-mortar shops, urged traders to act promptly and make informed decisions to mitigate any potential adverse effects on their financial operations.

The RBI, on January 31, imposed major business restrictions on Paytm Payments Bank, including on accepting fresh deposits and doing credit transactions after February 29. On March 11, 2022, the RBI barred Paytm Payments Bank from onboarding new customers.

Founded by Vijay Shekhar Sharma, Paytm is widely used among 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, more than 20 million merchants and businesses are powered by the application to accept payments digitally, while more than 300 million Indians use Paytm to pay at stores.

CAIT asks traders to transition to other payment apps or consider direct UPI transactions. The association further suggested using payment applications offered by individual banks.

According to a Moneycontrol report on February 2, the central bank's action follows findings that there were major irregularities in Paytm's KYC (Know Your Customer) processes, exposing customers, depositors, and wallet holders to serious risk. These include the absence of KYC for a very large number of customers (running into lakhs), and PAN validation failures in lakhs of accounts.

During its probe, the RBI found that in thousands of cases, the same PAN was linked to more than 100 customers and in some cases, to more than 1,000 customers. This has raised money-laundering concerns since the total value of transactions, running into crores of rupees, is much beyond the regulatory limits in minimum KYC pre-paid instruments.