What the RBI FAQs mean for Paytm and its users: Said and Unsaid

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Last week, the Reserve Bank of India (RBI) came up with detailed frequently asked questions (FAQs) on Paytm Payments Bank Limited (PPBL) to clear any confusion for its users amid a regulatory firestorm.

While the banking regulator makes clear that products and instruments powered by the bank must be shut down, a few issues such as the UPI payment service provider (PSP) service that PPBL offers to One97 are not yet clear. Moneycontrol tries to demystify the FAQ for its readers.

What happens to Paytm Payments Bank Limited (PPBL)?

Other than extending the deadline for most banking services from February 29 to March 15, there have not been any concessions to the payments bank. It will continue to exist until most customers withdraw or transfer their money from their accounts, wallets and other instruments. The backend technology will have to run for a couple of months.

Moneycontrol had reported that central bank intends to cancel the licence once most customers withdraw, transfer or use the balance amount in their accounts or instruments such as wallets, FASTags and NCMC.

What happens to the millions of account holders of PPBL?

There are an estimated 60-75 lakh merchants using PPBL accounts. There are also a lot of Paytm users who also opened accounts with PPBL while using Paytm wallets, FASTags and even UPI. However, there is no specific data on how many of these non-merchant payments bank accounts have been created.

There is no recourse here other than closing those savings accounts and all the assets that came with them including Paytm QR, Soundbox and Point Of Sale (POS) machines of merchants using PPBL accounts. However, these can continue working provided they are powered by a bank other than PPBL, which has been discussed in detail below.

The PPBL account holders will have to transfer the balance to other banks. RBI has not said anything about another bank acquiring or migrating these accounts. The bank is shut for all practical purposes from a customer business perspective.

Paytm has signed up Axis Bank to transfer all the nodal bank accounts held until now by PPBL.

For all PPBL account-holding customers, this is a serious disruption from changing their auto-reload settings to auto-repayment settings on several OTT platforms and other subscriptions.

Most banks have been hesitant to migrate the PPBL accounts or acquire these customers.

What happens to One97’s wallets, National Common Mobility Cards (NCMC) and FASTag business?

RBI has not specified or mentioned anything about another bank possibly acquiring the assets or customers along with the prepaid payment instrument (or PPI licence required to run wallets) or other properties. Since PPBL had the licences to run these instruments, customers will have to use the remaining balance or close these accounts and ask for a refund from PPBL.

Nowhere in the FAQ did RBI say that another bank or financial institution with a licence can step in and transfer or migrate the customers using these instruments. The regulator is categorical that the balance has to be used up and the accounts are to be closed after that. It even asks customers to get new ones.

One97 already distributes FASTags issued by other banks and it can continue to do so as a distributor. Ditto for NCMC as well.

Will there be Paytm wallets ever again?

Paytm, as a mobile payments company, started its life as wallets. When Paytm got a licence for a Payments Bank, One97 surrendered its licence and started using the PPI licence of PPBL. In fact, One97 can also get a new PPI licence and start issuing new wallet instruments to its customers if it feels that it is a product with loyal followers.

When One97 shifted all its wallet customers to PPBL, there was no disruption and the customer data, KYC and transaction history was all seamlessly moved to PPBL. Technically, that can happen again, however, this is not a normal situation.

In an extraordinary circumstance where the KYC of account holders are in question with allegations of money laundering or non-reporting of high value transactions being investigated by the regulator, it seems impossible and implausible that such a reverse transfer can happen.

Probably, One97 can start life all over again as a wallet. However, only around 5 percent of Paytm's gross merchandise value came from wallets and has been shrinking since UPI started gaining popularity.

The FAQ no 21. Reading between the lines and various interpretations… Did RBI imply that another sponsor bank can step in? 

To be sure, we don’t know. It says that if a merchant is using Paytm assets such as a QR code or Soundbox but has an account with a commercial bank, they can continue using the same without any disruption. After all, RBI is clarifying its position once again that as long as any solution that other banks power, such as payment handles or QR codes will continue to work seamlessly as before as its actions or sanctions are on the Paytm Payments Bank and not related to One97.

This is not a change of stance from RBI’s first circular that came out on January 31 that enforced the crippling restrictions on PPBL.

It does not in any way explicitly say that another bank can sponsor these accounts. It is for those accounts that already use other banks. If these accounts already have another commercial bank, it does not need a new sponsor bank.

What a lot of fintechs have got wrong in the past and continue to get wrong is reading between the lines of what the regulator’s guidelines say. If RBI has not said one thing clearly, it is always better to speak with the regulator to understand what that means.

What happens to all the 90 million UPI accounts that use @ paytm handles? Will it change? Does it have to change?

RBI has not said anything here. If the Paytm UPI users – customers or merchants – were using PPBL as their bank account, those accounts will have to be closed and the customers will lose the VPA (virtual payment address) or their UPI handles and QR codes. There is no confusion about that.

If the customers were using UPI linked to other bank accounts – like SBI or HDFC Bank – but were given @ paytm handles, things are a bit hazy now. That is because One97 uses PPBL as the PSP (payment service provider) for all its UPI business and hence the @ Paytm handle.

This is not a nodal account and no money is parked there or moves through the PSP service.

Is PSP a banking service?

RBI has said that PPBL cannot do any banking service and PSP is considered as a banking service. But this is open to interpretation. Some bankers Moneycontrol spoke to said that by banking services, what RBI means is only consumer-facing banking services or where there is KYC-related documentation. PSP is only a backend technology and it does not handle any money movement. Also, as long as the customers are using other bank accounts, there is no question of PPBL having access to any customer KYC details or ownership.

So will my UPI handles or QR codes change?

As long as PPBL’s servers keep their lights on, the UPI handles or the QR codes don't need to change.

Paytm is in the process of getting a TPAP (Third Party Application Provider) licence from National Payments Corporation of India, which runs UPI, with other commercial banks such as Axis Bank, Yes Bank, HDFC Bank and ICICI Bank as the PSPs. Once these partnerships are in place, Paytm will likely ask its customers to send an SMS to do device binding for the new bank PSPs. So all those Paytm users can continue using UPI without any disruption.

It is quite likely that PPBL has all the customer transaction data. However, with customer consent through one click, this can be transferred to the new PSP partner of One97 and the app will have transaction history.

How does this work?

There is a small precedence to this arrangement. When Yes Bank faced a bank run and its transactions were temporarily frozen by the regulator, PhonePe – which had Yes Bank as the sole PSP until then – overnight onboarded ICICI Bank as PSP. While the @ handles were still @ybl for PhonePe users, those were powered by ICICI Bank in the backend.

Until the FAQ, banks were worried about doing the same here as this was an extraordinary situation where a payments bank has been sanctioned for KYC related concerns.

According to multiple bankers, the FAQ no 21 gives comfort that the QR or handles don't have to change if the customer accounts are with other banks. Out of the 9 crore customers using UPI on Paytm, more than 90 percent use other banks. The FAQ no 21 clearly does say that the handles or QR need not change. While RBI says this is for merchants, bankers feel extending the same logic to UPI customers won't be wrong.

Did RBI explicitly approve this?

The answer is no.

Paytm, NPCI and its PSP banking partners are likely to discuss this with RBI before doing this, says a senior banker close to the regulator.

Until this transition happens, PPBL has to keep its servers running. It could take three to six months. If RBI cancels PPBL licence before that, it could derail the smooth transition and will call for a hard reset with customers losing handles and QR codes possibly changing. But with time, this can be reconfigured at the backend.

The @ Paytm will have to change some day as a TPAP cannot own a VPA of its own. If that happens, the customer handle will change. But that can be solved another day.