The ban imposed by the Reserve Bank of India (RBI) on Paytm Payments Bank turned out to be just the opening act of a regulatory drama for Vijay Shekhar Sharma-led One97 Communications. Compounding the challenges, the Indian Highways Management Company (IHMCL) has now directed highway travellers to ditch Paytm and snag FASTags from a curated list of 32 banks. This deliberate exclusion is a direct result of Paytm Payments Bank currently undergoing regulatory scrutiny for alleged rule violations.
With over 70 million Fastag users in India, Paytm Payments Bank asserts a significant 30% market share, translating to more than 20 million users. In response to the impending shift, these 20-million-plus Paytm Fastag users are set to receive new RFID (radio frequency identification) stickers, as existing Paytm Fastags will be inoperative after February 29. This strategic move aims to ensure a seamless experience for millions of Paytm Fastag users on toll roads after the specified cutoff date, as revealed by sources familiar with the matter to ET.
The banks enlisted by the National Highway Authority of India (NHAI), managed by IHMCL, for Fastag services are extensive and prestigious. The list includes Airtel Payments Bank, Allahabad Bank, AU Small Finance Bank, Axis Bank, Bank of Baroda, Bank of Maharastra, Canara Bank, Central Bank of India, City Union Bank, Cosmos Bank, Equitas Small Finance Bank, Federal Bank, Fino Payments Bank, HDFC Bank, ICICI Bank, IDBI bank, Idfc first Bank, Indian bank, Induslnd bank, J&K Bank, Karnataka bank, Karur Vysya bank, Kotak Mahindra Bank, Nagpur Nagarik Sahakari bank, Punjab National Bank, Sarswat bank, State Bank of India, Thrissur District Cooperative bank, UCO Bank, Union bank of India, and Yes Bank.
What’s surprising is that none of these 32 banks are currently willing to onboard Paytm Fastag users. Banks may be hesitant to extend their services to Paytm Fastag users, possibly fearing potential reputational damage or regulatory scrutiny, particularly if issues arise with any of Paytm Fastag users.
“The only option left for such customers is to cancel the Paytm Fastag and buy new ones from any of the banks (listed by IHMCL),” Sources told ET.
FASTag is an RFID-based device revolutionizing toll payments for vehicles in motion. The RFID chip, affixed on the vehicle’s windscreen, allows customers to make seamless toll payments directly from their linked accounts. Operational at over 750 toll plazas, including national and state highways, FASTag simplifies and expedites the toll collection process across India.
What Will Happen to Your Paytm FASTag Balance?
Now, you must be wondering what will happen to the monthly or annual balance in Paytm FASTag if the customer opts for a switch.
Typically, banks providing FASTag services have well-established procedures for customers who wish to migrate from one service provider to another. This process may involve the deactivation of the existing FASTag (issued by Paytm in this case) and issuing a new one from the chosen bank. During this process, the entire balance in the Paytm FASTag account will either be refunded to the customer, or smoothly transferred to the new FASTag.
Customers are advised to contact both Paytm and the new bank promptly to ensure a smooth transition and obtain accurate information about the balance transfer process. It’s essential to be aware of any terms and conditions associated with the balance transfer, including potential fees or charges that may be applicable during the transition.
Paytm UPI Slowdown Raises Concerns
A noticeable slowdown in Paytm’s UPI transactions in India has become another concern. Data from the National Payments Corporation of India (NPCI) indicates a stagnation in Unified Payments Interface (UPI) transactions originating from Paytm Payments Bank (@paytm) over the past six months. Corporation of India (NPCI). In August 2023, Paytm Payments Bank reported a substantial 455.52 million UPI transactions, which declined to 410.19 million by the end of December 2023. On a broader scale, UPI transactions on Paytm’s proprietary handle (@paytm) surged only a modest 6.1% YoY between December 2022 and 2023.
Since the RBI imposed a ban on its banking services, Paytm shares have been on a downward trajectory. On February 16, at 9.30 am, the stock reached a new low, trading at Rs 324.40.
Other Fintech Startups Under Scrutiny
In the aftermath of the Paytm fiasco, the spectre of regulatory action looms over more payment banks in India. In a recent development, the Financial Intelligence Unit (FIU) has identified roughly 50,000 accounts lacking Know Your Customer (KYC) verification, potentially involved in suspicious transactions and money laundering activities. Notably, around 30,000 of these accounts belong to payments banks other than Paytm Payments Bank. The details have already been provided to the Reserve Bank of India (RBI) for further investigation.
In addition, the Enforcement Directorate (ED) has been probing a Mahadev app scam involving 10,000 UPI accounts registered with Paytm. However, after the RBI’s crackdown on Paytm Payments Bank, One97 Communications denied ED’s money laundering probe, citing reports as “malicious.”
Industry analysts emphasize that KYC challenges are not just limited to Paytm Payments Bank as many fintech startups, in their pursuit of rapid customer onboarding, often take shortcuts. This practice becomes more pronounced as these companies expand, leading to a significant challenge in effectively managing risk and compliance.
