Paytm to pause lending operations for a couple of weeks to address partners' concerns

Paytm said that it was in discussions with RBI and NPCI to transfer all the wallet accounts maintained by PPBL to a commercial bank.

Mobile payments firm Paytm has said that the company has paused its lending platform operations for a couple of weeks even as it engages in conversations with banks for partnerships.

The development comes a day after the Reserve Bank of India practically stopped Paytm Payments Bank Limited (PPBL), an associate company of One97 Communications that runs the Paytm brand, from carrying out most banking operations.

In an investor conference call on February 1, the company management said that its lending partners on the platform have requested clarity on the RBI notification. The company has been engaging in conversations with them to address all their concerns. Paytm has around eleven banking and non-banking financial companies that lend to Paytm customers through their platform.

"Each lender will have concerns and we are engaging with them. We are clarifying what kind of an impact this will have on the portfolio. They had questions and are processing our answers. We have been proactively working with them. We have paused new origination of loans for a couple of weeks and there has been a disruption," Bhavesh Gupta, COO of Paytm said.

The pause in the operations is also because around 60,000 merchant loans use PPBL as the settlement account. The repayment is based on auto payment done on e-NACH platform and now this repayment account will have to be moved to other bank accounts and then autopay mandate has to be set on that account as well. While these can be done digitally, Paytm will have to talk to merchants to do this operational exercise.

However, moving PPBL accounts to other banks is likely to be a difficult task as this presents a huge operational challenge at the physical and digital levels, as Moneycontrol reported this morning.  The company will have to convince every single merchant to link another bank account to their UPI address instead of the PPB account. This will also likely change the QR codes and will have to issue new QR codes, paste the new QR codes on the millions of soundbox devices wherever it is linked to PPB.

Paytm said that it was in discussions with RBI and NPCI to transfer all the wallet accounts maintained by PPBL to a commercial bank. This needs special regulatory approval as the customer KYC is not transferable according to existing regulations.

Among several reasons why RBI came with crippling regulations on PPBL is because the bank had dependency on Paytm for its business and the regulator was not comfortable with the idea.

Paytm management also promised to double down on compliance to regain the confidence of banks, lending partners, and other stakeholders. "We are going to be compliance first and technology second company from here on," founder and CEO Vijay Shekhar Sharma told analysts.