India’s leading digital payments platform, Paytm, has successfully obtained a crucial license essential for its survival and the uninterrupted functioning of several core features of its flagship payments app. The timely acquisition of this license comes on the eve of the impending cessation of operations for the firm’s banking unit, Paytm Payments Bank, due to regulatory constraints.
The National Payments Corporation of India (NPCI), the entity behind the groundbreaking Unified Payments Interface (UPI) infrastructure in the country, has granted approval to Paytm’s application to operate as a third-party application provider within the payments ecosystem. While this license does not reinstate all the privileges Paytm previously enjoyed, it positions the Noida-based company to operate on par with competitors like Walmart’s PhonePe and Alphabet’s Google Pay.
With the third-party application provider license in hand, Paytm can continue offering payments services via the UPI network, ensuring the seamless functioning of its app, despite the impending shutdown of its banking arm, Paytm Payments Bank, scheduled for Friday.
The Reserve Bank of India’s directive in late January mandated the halt of operations for Paytm Payments Bank, the primary transaction processing entity affiliated with Paytm’s parent company, One97 Communications. This regulatory intervention sent shockwaves across the industry and prompted Paytm to expedite the acquisition of the third-party application provider license to sustain its app’s critical operations.
The regulatory upheaval not only disrupted Paytm’s business operations but also exerted a significant impact on its financial standing, leading to a substantial erosion in market capitalization. Paytm’s valuation plummeted by more than half in the wake of the RBI’s directive, underscoring the magnitude of the challenge it faced.
To facilitate the transition and mitigate disruptions for its customers, Paytm has collaborated with leading banks including Axis, HDFC, State Bank of India, and Yes Bank, which will serve as payment system providers for the Paytm app, as per NPCI’s announcement on Thursday. NPCI has also advised Paytm to expedite the migration of all existing handles and mandates to the new payment system providers.
The establishment of NPCI, in collaboration with the country’s financial institutions, was instrumental in the development of UPI, aimed at revolutionizing retail payments by offering a faster, more accessible, and cost-efficient payment infrastructure. UPI enables seamless transactions between individuals across the country, solely through their virtual payment addresses.
Recognizing the urgency of the situation, the RBI urged NPCI to expedite the issuance of the third-party application provider license to Paytm, underscoring the regulator’s commitment to mitigating disruptions and ensuring the stability of India’s digital payments ecosystem amidst evolving regulatory dynamics.
