In a statement released on Friday, February 23, the central bank stated, "National Payments Corporation of India (NPCI) has been advised by the RBI to examine the request of One97 Communication to become a third-party application provider (TPAP) for UPI channel for continued UPI operation of the Paytm app, as per the norms."

The RBI states that the directive was issued to reduce concentration risk in the UPI system and guarantee smooth digital payments for UPI users utilizing the "@paytm" handle (run by the Paytm Payments Bank).

It is important to remember that PhonePe and Google Pay, two foreign-owned companies, presently control the majority of UPI payments. The market may become even more skewed in favor of the two titans if domestic Paytm, which handles the third-highest volume of digital payments, is restricted as a result of RBI restrictions on its payments bank subsidiary.

The fintech giant will have to move its "@paytm" handles from Paytm Payments Bank to a group of newly designated banks if the NPCI awards Paytm a TPAP licence, according to the RBI's announcement. The possible TPAP licence will only allow for the inclusion of new subscribers if Paytm has first migrated all of its current consumers to other banks.
 

"NPCI may assist in the accreditation of four to five banks as Payment Service Providers (PSPs) Banks with proven capacity to execute high volume UPI transactions, in order to enable the smooth migration of the "@paytm" handle to other banks. The RBI stated in a circular that this minimizes concentration risk in accordance with NPCI standards.

For those who are unaware, a PSP bank links to the UPI network as a member in order to access payment services. It gives the TPAP this capability, which permits end users and merchants to process and receive UPI payments.

The parent company of Paytm, One97 Communications, may open settlement accounts with several PSP Banks for retailers who use Paytm QR codes, according to the RBI.

The RBI has also provided the following clarifications:
• Customers that do not have the UPI handle "@paytm" do not need to switch banks.

• Before March 15, 2024, customers having Paytm Payments Bank wallets and accounts will need to make alternate arrangements with other banks.

• Prior to the deadline, users who possess the National Common Mobility Cards (NCMC) and FASTag issued by the payments bank will also need to make other arrangements.

The RBI said, "All of the aforementioned actions are taken solely to protect customers and the payment system from any potential disruptions and are without prejudice to the regulatory or supervisory actions initiated by RBI against Paytm Payments Bank."

This development coincides with the approaching deadline for the RBI's business limitations on Paytm Payments Bank to be implemented.
The deadline for the payments bank to cease all deposits, credit transactions, and top-ups in any of its customer accounts is March 15th, as set by the central bank. Additionally, it has prohibited the payments bank from providing any further financial services beyond March 15th, including the UPI function and fund transfers.

Since Paytm will be able to readily access the UPI platform and interface with banks more smoothly with the help of a TPAP licence, the RBI's directives to the NPCI may provide some relief to the beleaguered fintech major.
Paytm has experienced some respite on the bourses in recent days as the central bank extended the deadline for the curbs, even though its payments bank is still wallowing under the effects of the RBI's directions.

In order to expedite merchant payments, the business promptly announced that it had moved its nodal account to Axis Bank. These events caused the Paytm stock to rise again.

Paytm's shares closed 5% higher at INR 407.60 on the BSE on Friday, February 23, after hitting the upper circuit.