Yes Bank crisis: A look at the impact on the fintech ecosystem

Here's a look at some of the issues that have cropped up due to the recent development: 

1. Digital payment outage: One of the largest impacts were felt in the digital payments space with card payments at terminals deployed by Yes Bank stopping mostly from midnight of March 5. For Yes Bank handle users, Unified Payments Interface which allows customers to transfer funds between bank accounts stopped as well. IMPS (Immediate Payments Service) another interbank fund transfer mechanism, RTGS (Real Time Gross Settlements) for large value transactions all were stopped for Yes Bank customers. Third party payment applications like PhonePe, BharatPe along with many others also faced outages.  QR codes deployed through the bank stopped functioning creating problems for small merchants. Late in the evening PhonePe restarted card and wallet payments through their app.

2. Transition to other banks: BharatPe has started looking for ways to transfer the merchants acquired through Yes Bank to ICICI Bank, its other banking partner. However transition is not easy, might require replacement of the entire QR code base and fresh agreements between parties as well. Even PhonePe is transitioning into a new banking partner. Interestingly Paytm Payments Bank took to micro blogging site Twitter to offer them use of their platform, which PhonePe, its major competitor (not-so-politely) rejected.

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3. Advantage Paytm? The buzz in the market is that this move could benefit Paytm in luring away merchants who were using PhonePe or BharatPe for UPI payments. In fact, one top payment executive quipped it could be 'second demonetisation' for Paytm. But how much of that transition happens will be seen over time.

4. API Banking: One big impact is on the startups which were consuming API banking rails of Yes Bank. For instance, fintechs who wanted to verify a customer’s bank account details could use Yes Bank APIs to do what is called a 'penny drop' or a test fund transfer and ensure all the account details are correct.

Many startups have been part of the accelerator programme of Yes Bank which will be affected. Many entrepreneurs took to Twitter to call out the best in class API infrastructure which the bank had built and lamented that they could now be forced to settle for the second best service.

5. Yes Bank as main bank account: Customers who were using Yes Bank account as their principal account needed to move to other accounts. Players like Zerodha, Instamojo, Paytm Payments Bank said that they have stopped moving funds to Yes Bank accounts and requested their users to connect these platforms with any other account that they might have.

Naveen Kukreja, chief executive officer, Paisabazaar said that customers with credit cards from the bank needed to repay their dues on time, but those cards would remain inactive till resolution.

6. Biz in rural areas: Yes Bank also has around 31 business correspondents as its partners which provided banking in rural areas. In the last financial year, the bank processed Rs 20,496 crore through this platform. They were also affected with facilities like AePS not working. This caused problems in cash outs in rural areas and domestic remittance services got disrupted. Till the transition period is over, there will be disruption in the services.

7. Overall impact on UPI/IMPS: Yes Bank was one of the leaders when it came to digital payments. With partners like PhonePe, PayNearby and others, Yes Bank dominated UPI, IMPS and AePS in terms of transaction volumes. The bank had also invested in multiple smart city projects across Udaipur and Puducherry. Other niche government programmes included digitizing government to citizen payments in Rajasthan and others. All these services will be affected. As per numbers released in its Annual Report for the last financial year, the bank claimed 31% share of transactions on UPI with over 27 crore UPI users. Overall value of money settled through UPI last year was Rs 2.3 lakh crore. The bank processed 15 crore transactions on AePS in 2018-19. Given the current scenario, all these gains made by the bank could be wiped out.