Amid the uncertainty over whether the Reserve Bank of India (RBI) will revoke Paytm Payments Bank’s (PPBL) licence and the fallout for parent company One 97 Communications and the fintech ecosystem as a whole, here’s a low-down on the types of payment services in vogue, the licences needed for them, the jargons they throw around and their meanings, and their business requirements.

Which are the kinds of fintechs in India and what do they do?
  • Digital payments: Remittances, and merchant and enterprise payments
  • Alternative lending: Alternative credit scoring for micro, small and medium enterprises (MSME), and retail loans
  • InsurTech: Expanding insurance distribution and customising products to customer needs
  • InvestmentTech: Facilitating ease of investing and personal wealth management, including robo-advisory for automation of investment advice
  • RegTech: Fine-tuning automation of regulatory compliance
  • BankTech: Helping banks and other financial institutions meet evolving customer requirements
Who governs fintechs?

The RBI regulates banks, non-banking financial companies (NBFCs), payment service providers (PSPs), credit bureaus, and money and foreign exchange markets. Thus, fintechs — which offer digital payments, digital lending, and digital or neo-banks — are within the RBI’s remit. Further, lending service providers (LSPs), which undertake tasks like customer acquisition, loan recovery, underwriting; and digital lending apps (DLAs), which provide user interface for digital lending services, are governed indirectly under the regulator’s outsourcing framework.

The Securities and Exchange Board of India (SEBI) regulates the securities market and intermediaries like stockbrokers and investment advisors; so fintech services involving stockbroking and investment advisory fall within its purview. The Insurance Regulatory and Development Authority of India (IRDAI) regulates fintechs operating as insurers, corporate agents, insurance aggregators and third-party agents for insurance.

Which are the types of fintech licences handed out by RBI?
  • Prepaid payment instruments (PPI)
  • Payment aggregators (PAs) and payment gateways
  • NBFC-P2P (peer-to-peer) lending 
  • Card payment network
  • Cross-border money transfer
  • Bharat BillPay operating units (BBPOU)
Which licence does One 97 Communications and Paytm Payments Bank have?

One 97 Communications originally had a mobile-based PPI wallet known as ‘Paytm wallet’. However, once the subsidiary Paytm Payments Bank began operations in July 2017, the fintech surrendered the PPI licence and transferred its PPI business (Paytm wallet) to Paytm Payments Bank. This gave Paytm an advantage over peers such as PhonePe and Google Pay, which operated only as third-party application providers (TPAP). 

Which licence does One 97 Communications currently operate under?

After the operationalisation of Paytm Payments Bank, One 97 Communications operates as a payment aggregator (PA) for online-offline merchants, working with various banks including Paytm Payments Bank. However, One 97 Communications’ PA licence was rejected in November 2022. If Paytm Payments Bank’s licence is revoked too, the parent company will be left with no licence as the PPI licence is not transferable.

Who can operate merchant QR codes?

PSPs can operate QR codes at merchant sites. One 97 Communications has one of the largest merchant networks in the country and pioneered payments through QR codes powered by Paytm Payments Bank. With the RBI now asking the entity to shut the nodal accounts of the bank, Paytm is looking to migrate to other banks to operate its QR codes and other services such as FASTag and National Common Mobility Cards (NCMC). The other QR operators in the country include BharatPe, PhonePe, ScanPay, Google Pay, DigiPe and Ensygnia, among others.

Why are payment aggregators in the news?

The RBI introduced the payment aggregator framework in March 2020, mandating payment gateways to obtain a licence to acquire merchants and provide digital payment acceptance solutions. It asked several entities in December 2022 to pause incremental onboarding until they submit additional documents and audit reports, and a final licence is awarded. After over a year’s wait, the RBI in December 2023 granted PA licence to about 10 entities. It has granted in-principle approval to 32 entities as of February 2024, and six other applicants are being scrutinised.