Paytm Payments Bank RBI Ban – 4 Top Reasons To Exit ASAP
Synopsis
The Country’s Central Bank “The Reserve Bank of India “ has ordered Fintech major Paytm to stop all forms of banking services of Paytm Payments Bank effective February 29. 2024. This action has been taken under section 35A of the Banking Regulation Act 1949 citing “persistent noncompliance with norms and continued material supervisory concerns on how it was run”
Introduction
The Paytm Payments Bank RBI Ban is unprecedented. For the uninitiated, Paytm Payments Bank, or PPBL is a digital banking service providing banking facilities and savings account options since November 2017. It is an extension of Paytm a popular Indian multinational financial technology company, that specializes in digital payments and financial services.
These restrictions by RBI on Paytm Payments Bank will lead to several services becoming inoperable on this platform.
Here are the services that will stop working effectively on February 29.
Table of Contents
What will not Work
No Fund Transfer ,UPI and Bill Payments
All fund transfers (regardless of the type of services like Aadhar Enabled payment services, IMPS, etc.), bill payments, or UPI facilities will not work effective February 29.
This means that Paytm app/wallet linked to Paytm Payments Banks will stop working after February 29. Customers using the Paytm application for UPI and wallet payments, where the underlying bank account might be with a different bank will be able to continue operating normally, but those using the Paytm Payment bank account will have to stop doing so from February 29.
No Credits and Top-Ups
Credit transactions or top-ups in any customer accounts, prepaid instruments, wallets, FASTags, NCMC ( National Common Mobility Cards ), etc. will not work effective February 29.
No Deposits
No new deposits can be made in Paytm Payments Bank effective February 29. PPBL can’t issue loans or provide any credit facilities.
No New Customers and No New Accounts
No new accounts can be opened and no new customers can be made by Paytm Payments Bank effective February 29.
Impact on users:
- Existing users with PPBL accounts will need to find alternative ways to deposit or top-up their accounts and access credit facilities.
- Users relying on Paytm FASTags or NCMC cards will need to switch to other providers.
Note :
Also to be clear, the move targets Paytm’s banking operations but it does not mention if transactions made via external banks will also be affected. Meaning, you may be able to make UPI payments through Paytm as long as it is connected to an external account. However, considering Paytm Wallet is powered by Paytm Payments Bank, you may still not be able to use Paytm Wallet. “The RBI’s move primarily targets Paytm’s banking operations, allowing customers to still utilise Paytm for digital payments as long as their account remains connected to an external bank, even after February 29
To ensure funds held by consumers do not get stuck, RBI has allowed withdrawal and utilisation until a credit balance is available in the Paytm account. However, adding of fresh funds will not be permitted after February 29.
What Will Work
Existing balances:
Users can still access and spend their existing balance in their accounts.
Withdrawals
Users can withdraw their entire balance from their accounts without any restrictions
FASTags
FASTags issued by Paytm Payment Banks will continue working and users can continue using existing balances in their FASTag wallet and via third-party banks after the nodal transfer happens.
Paytm QR, Paytm Soundbox, and Paytm Card
Services like Paytm QR, Paytm Soundbox, and Paytm Card Machine for offline merchants will continue as usual, allowing onboarding of new offline merchants.
The Payment Gateway business
The Payment Gateway business for online merchants will continue to offer payment solutions to existing merchants.
Other financial services
The ban only applies to PPBL’s banking services. Other Paytm services like the e-commerce platform and Paytm Mall are not affected. Financial services such as loan distribution, insurance distribution and equity broking are not directly related to the associate bank and are expected to be unaffected.
Termination of Nodal Account of OCL and PPSL by RBI
The Reserve bank of India has also terminated all nodal accounts of One97 Communications Ltd (OCL) and Paytm Payments Services Ltd (PPSL). This basically suggests that all transactions initiated before February 29 need to be settled by March 15, after which no such transaction will be permitted by RBI.
Impact on Paytm :
The directive to terminate the nodal account of OCL and PPSL by February 29, 2024, will lead to the migration of the nodal account to other banks during this period.
This is bound to disrupt their (Paytm’s) payment services for both online and offline merchants. While they may eventually settle directly in another bank account, it will surely create a lot of disruptions,
Note : The RBI (Reserve Bank of India) introduced Nodal Accounts as a requirement for intermediaries like aggregators, e-commerce platforms, and payment gateways. The purpose is to make sure that the payments collected from customers are released to vendors promptly and without any unnecessary delays.
Timeline
- February 29th, 2024: Last day for deposits and top-ups.
- March 1st, 2024: Ban on new banking services takes effect.
- Onward: Users can only withdraw their existing balance until further notice.
Reserve Bank Of India -Press Release
Conclusion
In Conclusion, The disciplinary measures are seen as unprecedented for the financial services industry, and will affect the app’s users as well as the wider merchant community that uses the Paytm network for payment processing, wage disbursals and other quasi-banking functions.
RBI is seen to be extremely serious about data localisation and its action against Paytm could be a result of issues around data storage and access.
It is of paramount importance for any business enterprise in the tech space or handling data for any business purpose, whether regulated or not, to store data within the territory of India to protect data of the users. It seems the action taken by RBI is more from a data security and national security perspective.
FAQ
What happens to my existing Paytm account?
- Your existing wallet and bank account balances remain accessible and can be used for transactions until they are depleted.
- You can withdraw your funds at any time through ATMs, bank transfers, or other permitted channels.
- Any interest, cashback, or refunds will be credited to your account as usual.
Is Paytm UPI Banned ?
Paytm in a press release has assured that UPI services shall remain unaffected. Paytm plans to migrate merchants accepting UPI payments to other banks,
However, considering the volatility of the situation, I strongly recommend exit from Paytm.
What are the alternatives to Paytm Payments Bank?
- You can open a savings account with any other bank in India.
- Several other digital wallets offer similar services to Paytm, such as PhonePe, Google Pay, and Amazon Pay.
Where can I find more information?
- RBI order on Paytm Payments Bank : https://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=53405