Even as One97 communications Limited, which runs Paytm, is looking for bank partnerships to move all Paytm Payments Bank Limited accounts, at least half a dozen public and private sector bank executives Moneycontrol spoke with seemed hesitant to take up the business.
Following the Reserve Bank of India's (RBI) crippling actions on PPBL last week rendering the banking operations unavailable for customers other than to withdraw the existing balance, the banks are waiting for some regulatory direction before signing the deal.
Six senior banking executives of large private and public sector banks said that they are hesitant to partner with Paytm following RBI's actions and have asked for details on what were the issues behind the RBI action and are waiting for clarity and transparency from OCL before moving forward.
OCL is looking to transfer all the merchant and customer accounts that are maintained by PPBL as well as the UPI address which has @paytm as the VPA (virtual payment address) and is managed by PPBL. This is important for Paytm to ensure that these merchants stay within the Paytm app even as the backend sponsor bank changes.
Paytm has reached out to almost all of the top banks, the executives said that they see this as a liability following RBI's statement that there are several compliance and supervisory lapses.
"The migration has two parts. Where there are PPBL accounts, these accounts have to be created as new and the KYC has to be done afresh. It is a humungous task. While the merchant UPI handle needs to be mapped to the new non-PPBL bank account, it is a technical switch which is possible. Beyond a point, NPCI has no role in account opening. Once a serious issue gets flagged by the regulator, you have to address it and can't wish away," said the chief digital officer of a large public sector bank.
"Given it is a regulatory-driven situation, any bank taking over the portfolio will have to understand the depth of remediation involved. There are concerns about Know Your Customer (KYC) issues of merchants as well. Just that it consumes a lot of bandwidth to understand the situation and get things in control. With no MDR, there is not much money to be made, so why take risk," said the digital head of a private sector bank that works with a lot of fintechs.
Paytm said that the information is factually incorrect, unfounded and based on speculation. "We categorically deny this. Over the last two years, Paytm has been working with multiple third-party leading banks. We are expanding these relationships, and they are progressing positively," the company said in a statement.
Moneycontrol had reported that RBI had issues with PPBL for non-compliance on doing full know your customer (KYC) of the bank's customers, not doing full KYC of accounts older than one year, and keeping more money than allowed by the regulator in payments bank account. "The regulator also had issues with several fintechs including Paytm on facilitating crypto transactions as well as not reporting high-value suspicious transactions under the Prevention of Money Laundering Act (PMLA)," another head of digital banking at a private sector bank told Moneycontrol on January 31.
The banker with private sector bank quoted above added that the bank will take up the project if it comes as a request from RBI and NPCI to migrate the merchants to the bank's platform from PPBL.
Another senior bank executive also said that it is not keen to take this up unless the regulator asks them to. For instance, when Yes Bank faced a bank run and had to stop all cash withdrawals, UPI faced major disruption for a day or two as all of PhonePe accounts were handled by Yes Bank. NPCI requested ICICI Bank to step in immediately and since then, NPCI has insisted that all UPI apps should partner with more than one bank. "Management only recommends things here and the final call in such matters will be taken at board level," the banker said indicating that the regulatory involvement means that the banks are not willing to jump on the opportunity as yet.
"This also requires regulatory approval as KYC migration is not possible as per the current regulation. We will have to wait for RBI's signal on what the regulator and NPCI want before stepping in. If there are KYC issues, we will have to do KYC for all these merchants," the executive added.
"The business teams are evaluating the requirement to consider doing the KYC all over again. Some hesistancy is obvious. We are looking at the merchant side of the business," said the technology head of a large private sector bank.
A former bank executive and a fintech consultant said that all the banks would love to organically sign up these merchants. "So you could see sales efforts being intensified. The en masse movement will be a win-win for all. It is going to be a big bank wide effort. Not sure if major banks will have the space in their roadmaps or incentives for this. Integration is painful," the person added.
People close to the regulatory bodies said that they would want HDFC Bank, Axis Bank, ICICI Bank and SBI to split up and do the migration in case they decide that it is the best course of action in the situation. PPBL is the largest beneficiary bank in the UPI ecosystem. A beneficiary bank is the institution that has the most inbound transactions or more credits than debits. Any status quo is likely to create a major disruption in the offline scan and pay method that has been quite popular over the past two to three years.
"I believe it is fair that banks have reservations. There has been no discussion with RBI on this. There is no easy answer to this. Soundbox merchants are likely to be stickier and we cannot wait for them to move their accounts to other banks or other UPI apps. RBI will have to decide," says a senior executive, who works closely with RBI.
And time is running out. "Before actual migration, agreeing on rules or migration takes longer time," said the first banker quoted in the story.
This also poses serious issues for NPCI as well. The organisation has been trying to get more UPI apps to take market share from PhonePe and Google Pay, which have close to 85 percent value market share and 80 percent volume market share in the ecosystem. However, with several merchants and customers abandoning Paytm with the events of last week, the concentration risk on the platform has further increased.
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