Why Paytm is likely to require Paytm Payments Bank's services even after March 15

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On March 1, One97 Communications (OCL), the parent firm of Paytm, 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).

While OCL has  partnered with Yes Bank, Axis and HDFC to continue its UPI business as a third party application provider (TPAP) app, much like its competitors (Google Pay and PhonePe), this will take time to implement, possibly beyond March 15, according to bankers.

On January 31, the Reserve Bank of India had asked PPBL to stop most banking services to be stopped by February 29, which was later extended to March 15.

However, in a clarification, RBI asked NPCI to facilitate the seamless migration of Paytm's UPI users to other banks from PPBL. This was necessary because for UPI payments, the Paytm app was acting as a bank app of PPBL, which was the payment service provider (PSP) bank that connected Paytm UPI users to the network. Hence, becoming a TPAP, means that other banks will have to take over the PSP function.

Despite the announcements, OCL is still dependent on PPBL until its PSP services are migrated to other banks.

“It is not possible to migrate all 90 million Paytm UPI users as well as the backend PSP function before March 15. The TPAP approval hasn't even come through yet. This will likely take three months. Though RBI's clarification on UPI continuity beyond March 15 could be read as PPBL can continue to provide PSP function to OCL until the migration is over,” said a senior banker associated with the process.

The redundancy of the announcement

With RBI’s frequently asked questions (FAQ) on Paytm clarifying that all the Paytm wallets, FASTags and NCMC (national common mobility cards) rupee value cannot be migrated to any other players or wallets, the Paytm users had no choice but to close these accounts and get new ones.

OCL has already partnered with HDFC Bank and Axis Bank for the FASTags to be distributed on its platform. Until the RBI crackdown, the Paytm app distributed Paytm-branded FASTags were powered by PPBL.

“The payments bank, its accounts, the merchants onboarded by the bank and the wallets powered by the bank are at the centre of all the issues Paytm is facing now,” said a senior banker with a public sector bank.

The person added that it was a foregone conclusion that OCL would have to cut all ties with PPBL to survive as an independent app.

Paytm has an estimated 30 million merchants using Paytm with only around 60 lakh using PPBL as their bank account. Those using PPBL accounts will have to close those accounts.

The merchants acquired by PPBL and using @paytm handles, QR codes and devices can continue using those as long as those were linked to other bank accounts.

While these merchants have to be transferred to other banks as PPBL was the acquirer, RBI clarification on continuity has come as a relief to Paytm.

“News reports were suggesting that the bank will remain dormant and even a possibility of cancellation of license by the regulator. So existing partnerships will not work post-March 15. The announcement is redundant,” said the head of digital at a private sector bank.

The multiple scenarios here indicate that Paytm cannot use any product powered by PPBL because of RBI's action and still the app will have to rely on PPBL as PSP even after March 15.

"The announcement has no value," added the banker quoted above.