The Reserve Bank of India (RBI) has rejected the application of Paytm Payments Services (PPSL) for licence to operate as a payment aggregator, the company informed the bourses on November 26.
The fintech company’s subsidiary had applied for authorisation to provide payment aggregator (PA) services for online merchants.
The central bank said that PPSL is required to re-submit its PA application within 120 calendar days. Other steps include seeking necessary approval for past downward investment from Paytm into PPSL to comply with the government’s foreign direct investment (FDI) guidelines, and not onboarding new online merchants.
The company noted that no other “material observations” were made by the RBI, in its letter.
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“This has no material impact on our business and revenues since the communication from RBI is applicable only to onboarding of new online merchants. We can continue to on board new offline merchants and offer them payment services including all-in-one QR, Soundbox, card machines,” the statement said.
The company added that PPSL can continue to do business with existing online merchants, for whom the services will remain unaffected. “We are hopeful of receiving the necessary approvals in a timely manner and resubmitting the application,” the company said.
According to Paytm Payments Bank website, the company has 100 million KYC customers and it is adding 0.4 million users every passing month. "We are also the largest issuer of FASTag with over 8 Million FASTag units issued," the website says.
What is a payment aggregator?
A payment aggregator provides payment services to merchants and e-commerce sites by accepting payment instruments from customers. As a part of this, they pool the funds received from customers and transfer them to merchants after a certain time.
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The services include facilitating integrated payment options such as transactions of cash and cheque, and online and offline touch points, besides allowing bank transfers for merchants without the need to set up accounts directly with the bank.
Why a licence is needed?
In a new set of guidelines issued in March 2020, the RBI mandated that all PAs shall be authorised by it. For this, the regulator instructed non-bank companies offering PA services to apply for authorisation by June 30, 2021, which was later pushed to September 30, 2021.
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The decision on granting the licence has come after a period of assessment of the applications. The norms made it important for all payment gateways to acquire a licence to continue. The few firms authorised to operate as payment aggregators in India will come under the direct purview of the RBI. Over 185 fintech enterprises and start-ups had submitted their applications for a PA licence.
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