Paytm in talks with Axis, Canara, Yes and Kotak to migrate merchant accounts from payments bank

Four banks get ready to take over Paytm merchants

Axis Bank, Canara Bank, Yes Bank and Kotak Mahindra Bank are among the frontrunners to partner with Paytm to migrate its merchants onboarded by the mobile payments firm through its embattled Paytm Payments Bank Ltd (PPBL), according to multiple sources.

Around 3 crore merchants are using mobile payments firm Paytm, run by One97 Communications Limited (OCL). PPBL acted as the payment service provider (PSP) partner bank for OCL to onboard these merchants. It is not clear whether one of these banks or all four will migrate the merchants from PPBL.

Paytm, Axis, Yes, Canara and Kotak Mahindra did not respond to Moneycontrol's queries. We will update this report as and when we get the responses.

The Reserve Bank of India (RBI), which imposed punitive restrictions on PPBL, has allowed OCL merchants and Unified Payments Interface (UPI) users to continue using their handles, QR codes and point-of-sale (PoS) machines even after March 15, when the restrictions come into force. This move by the regulator was to avoid any merchant and consumer payment disruption.

The banks are expecting around Rs 50-70 crore in expenses annually to run and process the billions of these merchant transactions. The expected cost will vary depending on which banks onboard what kind of merchants, how many transactions will be below Rs 2,000 and so on.

“The documentation is happening. Different discussions are happening and each of them is in a different stage and whoever closes the deal will move forward with integration and it could happen this week,” said a senior executive privy to the discussions.

A fortnight ago, Yes Bank managing director and chief executive officer Prashant Kumar had said that the private sector lender is open to taking over the merchants acquired by PPBL. He added that this will require the bank to complete verification on KYC (Know Your Customer) compliance and due diligence as it makes good business sense for the bank.

Commercials yet to be finalised

“The commercials are yet to be finalised. While Axis Bank and Canara have quoted the lowest expenses, Kotak and Yes have quoted expenses on the higher side. The discussions have not yet concluded but are expected to close this week since the March 15 deadline falls this Friday,” said a banking source aware of the discussions.

Since the majority of the transactions are going to be on UPI platform, which does not have any merchant commission revenue for payment companies, the discussions are around how the banks will be able to recover that. Whatever revenue the partners earn from the merchants, will be shared between OCL and the banks.

“While the National Payments Corporation of India (NPCI) wants multiple banks to migrate the merchant accounts to avoid concentration risks, the commercial discussions between Paytm and banks will decide which partnerships will come through. The fact that banks also need to do the KYC of most of the merchants is an additional expense delaying the discussions,” said a second banker, who is part of some of these discussions.

Meanwhile, Axis, Yes and HDFC Bank have partnered with OCL to run Paytm’s consumer-side UPI business as a third-party application provider (TPAP) . Until now, for UPI, the Paytm app was more like the banking app of PPBL.

As per BSE filings, Paytm has more than 3 crore merchants on its platform, of which around 20 percent, or around 60 lakh, use PPBL as their settlement savings account, which will be inoperative other than for withdrawal of the balance amount or for transfer to other bank accounts.

For the rest of the merchants, OCL leveraged PPBL to acquire them while providing them with @ Paytm QR codes and handles. These merchants are using other commercial bank accounts as settlement accounts.

RBI restrictions 

After RBI imposed restrictions on PPBL, an associate company of OCL, Paytm has been forced to seek bank partnerships to sustain its UPI business.

The central bank has directed PPBL to halt all banking services, except the withdrawal of the remaining funds in the accounts. It is believed that the payment service provider (PSP) services will also be affected.

Also, for most of the UPI addresses on the Paytm app, the sponsor bank – technically called the PSP bank -- is PPBL. Now these accounts have to be migrated to different banks.

On February 23, the RBI asked the NPCI to facilitate the migration of all UPI @paytm handles seamlessly to three or four commercial banks to avoid disrupting the country’s popular digital payments platform.

PPBL acts as a PSP bank for all Paytm UPI accounts, all of which have @ paytm handles. If those accounts have to function beyond March 15, they need the regulator’s special approval to seamlessly migrate those accounts to other banks and even keep the PSP function running until the assets are transferred to other banks, which could take longer than March 15.