Yes Bank: Moratorium hits PhonePe, other fintech partners

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Fintech companies such as PhonePe have suffered after the Reserve Bank of India's (RBI) moratorium on Yes Bank affected multiple services overnight, disrupting the ecosystem.

Unified Payments Interface (UPI) based transactions, a major service point for digital payment services came to a halt, and PhonePe which is the largest payments partner of the bank was among the worst affected.

On the whole, multiple industry sources told Moneycontrol that fintech partners which utilise Application Programming Interface (API) Banking have felt the jolt. API banking is a set of protocols or tools that allows third-party platforms access to a bank's services.

Sameer Nigam, CEO of PhonePe addressed customers on Twitter saying: "We sincerely regret the long outage. Our partner bank (Yes Bank) was placed under moratorium by RBI. Entire team's been working all night to get services back up asap. We hope to be live in a few hours." (sic)

Dear @PhonePe_ customers. We sincerely regret the long outage. Our partner bank (Yes Bank) was placed under moratorium by RBI. Entire team's been working all night to get services back up asap. We hope to be live in a few hours. Thanks for your patience. Stay tuned for updates!

— Sameer.Nigam (@_sameernigam) March 6, 2020

One fintech entrepreneur explained that anything - be it a transaction or settlement - that had to go through the bank has stopped functioning.

This has happened because the Reserve Bank of India (RBI) capped withdrawals to Rs 50,000. Yes Bank's nodal accounts have stopped functioning which is why transaction settlements could be affected, said a top banker in the know.

For latest developments on the Yes Bank follow our LIVE Blog

As per the gazette notification by the central bank, Yes Bank can only make payments for its customers under exceptional circumstances such as weddings, higher education outside the country or medical treatment.

Another top executive with a private sector bank attributed the disturbance to the chaos that might have occurred after the RBI's late evening announcement, adding that the services would likely remain affected until there is an early resolution to the problem.

"Hopefully another bank will take over these services and provide funding to ensure at least customer transactions through third-party applications continue," said the banker quoted above.

RBI was forced to take control of the private sector lender after it failed to raise a sufficient amount of equity capital in order to maintain the viability of its banking business. "RBI came to the conclusion that in the absence of a credible revival plan, and in public interest and the interest of the bank’s depositors, it had no alternative but to apply to the Central Government for imposing a moratorium," said the bank in a public notification.

Further, the banking regulator has also superseded Yes Bank's board and appointed ex-State Bank of India CFO Prashant Kumar as the administrator during the moratorium period.

Yes Bank has been one of the major fintech enablers in the country, driving multiple startups through the Yes Fintech initiatives. From UPI, Aadhaar enabled payments (AePS), alternate lending systems, fraud analytics, and wealth tech, the bank provided all forms of services. It recently opened up multiple API banking services to startups as well.

The bank was also running an accelerator programme which was meant to incubate startups and help them in their go-to-market propositions. In the wake of the new developments, all these services will likely be disrupted for a period of time.