The Reserve Bank of India has advised the National Payments Corporation of India (NPCI) to examine One97 Communication’s request to become a Third-Party Application Provider (TPAP) for continued UPI operations of the Paytm application.

If NPCI grants the TPAP licence to Paytm, UPI accounts with ‘@paytm’ handles will need to be migrated in a seamless manner from Paytm Payments Bank (PPBL) to a set of newly identified banks to avoid any disruptions.

businessline reported on February 19 that after shifting its nodal accounts to Axis Bank, One97 Communication is in the process of applying for a TPAP licence, which is required to run UPI services and facilitate merchant transactions through partner banks post-March 15, 2024. It had also said that Paytm is reportedly in discussions with other banks, such as HDFC Bank, ICICI Bank, and YES Bank, with which it was already working in various capacities, for partnering on UPI services.

“No new users are to be added by the said TPAP until all the existing users are migrated satisfactorily to a new handle,” the central bank said, adding that the NPCI may facilitate the certification of 4-5 banks as Payment Service Provider (PSP) banks with “demonstrated capabilities to process high volume UPI transactions.”

For merchants using Paytm QR Codes, One97 Communication may open settlement accounts with one or more PSP banks other than Paytm Payments Bank, the central bank said.

As per NPCI guidelines, large TPAPs (those processing more than 5 per cent of the total monthly volume/value of the UPI ecosystem) need to mandatorily participate in UPI through a ’multi bank model’, and associate with at least three and up to ten sponsor banks.

As of January 2024, Paytm Payments Bank was the third-largest platform for UPI payments after PhonePe and Google Pay. It processed 157 crore transactions worth ₹1.9-lakh crore during the month, accounting for a market share of 12.7 per cent in terms of volumes and 10.3 per cent in terms of the value of UPI transactions. 

Paytm is presently not classified as a TPAP due to UPI transactions being routed through Paytm Payments Bank so far. The parent company, on a standalone basis, has no licence outside of a payments bank licence. 

The TPAP licence is crucial for Paytm to continue its operations. Even so, the entity will lose the advantages of operating a bank and fall behind peers such as PhonePe and Google Pay, which also have a PA (Payment Aggregator) licence.

Seamless migration

The RBI said that steps have been taken to ensure seamless digital payments, migrate the ‘@paytm’ handle operated by PPBL to other banks, and minimise concentration risk in the UPI system by having multiple payment app providers, given that PPBL cannot accept further credits into its customer accounts and wallets after March 15, 2024.

It clarified that the migration of UPI handles is applicable only to such customers and merchants who have an ‘@Paytm’ UPI handle, and no action is required by users that have any other UPI address or handle.

“Customers whose underlying account or wallet is currently with PPBL are advised to make alternative arrangements with other banks well before March 15, 2024,” it reiterated, adding that holders of FASTag and National Common Mobility Cards (NCMC) issued by PPBL will also need to make such “alternative arrangements” to avoid any inconvenience.

“All the above actions are undertaken in the sole interest of protecting the customers and payment system from any possible disruptions and are without any prejudice to the regulatory or supervisory actions initiated by the RBI against Paytm Payments Bank.”