Payments bank controversy hits Paytm’s UPI market share, drops to 11% in February

Paytm's UPI market share continues to decline over the last year

Mobile payments firm Paytm's UPI market share dropped to 11 percent in February compared to the 11.8 percent the company had in January before the payments bank crisis started, Moneycontrol has learned from a couple of banking sources aware of the matter.

Less than a year ago, Paytm had a 13.3 percent market share, which has been gradually decreasing over the last nine months. However, the drop of close to a percent in just a month has happened despite the fact that the UPI business had no direct impact from the restrictions placed on the bank by RBI.

On January 31, RBI had placed crippling restrictions on the Paytm Payments Bank Limited (PPBL) after persistent compliance lapses.

According to the National Payments Corporation of India (NPCI) website, which runs UPI payments platform, in April 2023, Paytm had a 13.3 percent market share, which came down to 13 percent in May, dropping 0.2 percent in June to settle around 12.8 percent. That is half a percentage drop in two months. By November it had dropped even further to 12.1 percent, another 0.7 percent drop in five months. By January, it was 11.8 percent.

Paytm did not respond to Moneycontrol's request for comments on the company's market share.

Google Pay has been increasing its market share gradually during the same period. Google Pay held 36.4 percent in January this year, while it had a 35 percent market share in April 2023. Cred has also increased its market share from 0.5 percent in April 2023 to 0.9 percent in January.

Bigger challenges

From March 15, Paytm will have to function as a third-party application provider (TPAP) just like its competitors PhonePe and Google Pay. And not as a payments bank app, which it was until now. The transition is likely to see a further drop in market share.

“It is still not as bad as it appears. However, post March 15, it might drop significantly as it cannot onboard new customers until the TPAP starts functioning at the backend,” said a source

Paytm has roped in Axis Bank, Yes Bank and HDFC Bank as its payment service provider (PSP) banks to be its partners in the TPAP service. PSP banks connect the UPI apps with the banking network. For Paytm it was PPBL until now.

On February 23, RBI said customers and merchants having ‘@paytm’ handles are to be migrated seamlessly from PPBL to a set of newly identified banks to avoid any disruption.

For UPI to run seamlessly, migration has to happen and the UPI platform is too big a clog in India’s digital payments ecosystem to leave banks and the NPCI guessing on how to move forward.

While NPCI is looking to expedite the TPAP application process, the partner PSP banks systems have to integrate with Paytm’s systems while also transferring all the customer UPI details from PPBL to themselves and the Paytm app. One97 Communications Limited (OCL), runs the Paytm app.

Meanwhile, On March 1, One97 Communications (OCL) in a statement to the stock markets said that its board approved the discontinuation of several inter-company agreements with its associate entity, Paytm Payments Bank Limited (PPBL). However, it will continue to require PPBL's backend technology support to facilitate the migration process.