RBI’s recent decision to cease Paytm Payments Bank Limited (PPBL) from offering its banking services to customers has faced harsh criticism from many seasonal entrepreneurs and investors. In response, Paytm issued a press release, expressing anticipation of a worst-case impact of Rs 300 to 500 crores on its annual EBITDA (earnings before interest, taxes, depreciation, and amortization).
However, affirming its commitment to improving profitability, Paytm’s parent company, One97 Communications (OCL), announced plans to shift business relations away from Paytm Payments Bank, strengthening ties with leading third-party banks for the distribution of payments and financial services products.
Unlike PhonePe and GooglePay, Paytm has so far enjoyed a unique advantage of having its own proprietary bank, “Paytm Payments Bank,” reducing dependence on third-party banks for financial services. However, in response to recent regulatory measures, Paytm has initiated collaboration with other banks, a departure from its exclusive reliance on Paytm Payments Bank.
Notably, Paytm Payments Bank encompasses all the key products offered by Paytm, including wallets, UPI, and deposit accounts. All of Paytm’s 330 million-plus wallet accounts and 150 million UPI handles are centralized within this entity. Therefore, moving millions of Paytm Payments Bank accounts to other third-party banks, such as Yes Bank or State Bank of India (SBI), is likely to pose a big challenge for the company.
In the official press release, Paytm emphasised that its future strategy involves expanding its payments and financial services business exclusively through collaborative partnerships with other banks.
The Paytm Payment Gateway business catering to online merchants will continue offering payment solutions to existing merchants. Simultaneously, the offline merchant payment network offerings, including Paytm QR, Paytm Soundbox, and Paytm Card Machine, will continue as usual, facilitating the smooth onboarding of new offline merchants.
One must note that in March 2022, RBI banned Paytm from onboarding new merchants for its online payment gateway business. As of now, Paytm awaits approval for its payment aggregator license from the RBI.
Addressing market rumours, Paytm founder Vijay Shekhar Sharma assured no margin loans or pledged shares owned directly or indirectly by him.
Moving Nodal Accounts
In light of the RBI’s directive to terminate nodal accounts of One97 Communications (OCL) and Paytm Payments Services Limited (PPSL) by February 29, 2024, the company will shift these accounts to other banks.
“They 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. Now they will have to issue new QR codes, paste the new QR codes on the millions of soundbox devices wherever it is linked to PPB. This is a logistical nightmare,” said a fintech consultant with one of the big four audit firms.
A nodal account serves as a specialized account designed to receive payments from various bank accounts and transfer them to merchants. This functionality extends to both online merchant payments and offline transactions through point-of-sale terminals.
This scenario parallels the situation when Yes Bank faced an embargo by the RBI in 2020, leading PhonePe to swiftly shift its payment services to ICICI Bank.
What’s interesting is that Paytm’s other financial services, such as loan distribution, insurance distribution and equity broking, are not directly linked to Paytm Payments Bank Limited and are expected to remain unaffected by these recent actions.
However, industry analysts have voiced concerns regarding the potential erosion of customer trust in Paytm. This could potentially discourage them from making purchases on the platform, as the recent ban imposed by RBI on Paytm Payments Bank has had a noticeable impact on the brand’s reputation.
