RBI Directs NPCI to Implement UPI Alternatives for Paytm Payments Bank Users

The Reserve Bank of India has introduced measures to facilitate seamless UPI transactions following restrictions on Paytm Payments Bank.

Key Highlights:

Paytm Payments Bank Restrictions: As of March 15, 2024, Paytm Payments Bank cannot accept further credits into its customer accounts and wallets.

Objectives of Additional Steps:
   – Ensure seamless digital payments via UPI using the ‘@paytm’ handle.
   – Minimize concentration risk in the UPI system by involving multiple payment app providers.

Steps Taken:
   – National Payments Corporation of India (NPCI):
     – Advised by RBI to examine One97 Communication Ltd (OCL)’s request to become a Third-Party Application Provider (TPAP) for UPI.
     – If approved, migration of ‘@paytm’ handles to new banks is stipulated to avoid disruption.

   – Migration Process:
     – No new users can be added by TPAP until existing users are successfully migrated.
     – NPCI to facilitate certification of 4-5 banks as Payment Service Provider (PSP) Banks for seamless migration.

   – Merchant Settlement:
     – OCL instructed to open settlement accounts with PSP Banks (other than Paytm Payments Bank) for merchants using PayTM QR Codes.

Enforcement action taken against Paytm Payments Bank under Section 35A of the Banking Regulation Act, 1949.

Reserve Bank of India (RBI) has instructed the National Payments Corporation of India (NPCI) to address the concerns of users associated with Paytm Payments Bank who heavily rely on the Unified Payments Interface (UPI). This directive primarily affects individuals using virtual payment addresses linked to Paytm, as they will undergo a smooth transition to other banks. In line with this, the RBI has mandated NPCI to identify and collaborate with four to five banks capable of efficiently managing high transaction volumes, ensuring a seamless shift for affected users.

Moreover, as part of the regulatory measures, NPCI has been given the responsibility of evaluating Paytm’s request to operate as a third-party payment application. This move could potentially extend Paytm’s role within the digital payments ecosystem, subject to NPCI’s scrutiny and approval. These regulatory actions demonstrate a commitment to maintaining the stability and reliability of the digital payments landscape, emphasizing the importance of providing users with continued access to efficient and secure financial services.

Customers holding wallets or accounts with Paytm Payments Bank are advised to proactively make alternative arrangements before the specified deadline of March 15th. This advisory extends to users of FASTag and the National Common Mobility Card (NCMC). By heeding this guidance and transitioning to alternative banking options, users can ensure a smooth continuation of their financial transactions and avoid potential disruptions in their digital payment experiences.

On February 22, One97 Communications, the operator of Paytm, along with HDFC Bank and Yes Bank, collectively applied to be a third-party application provider (TPAP) for the Unified Payments Interface (UPI) with the National Payments Corporation of India (NPCI). Similarly, Axis Bank and Paytm have also jointly submitted an application to NPCI for TPAP status, as per MC. These banks have engaged in discussions with NPCI to facilitate a swift process, ensuring a seamless experience for customers using the Paytm app for UPI payments.

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