Editorial: Cracking the whip

CHENNAI: In a reality check for India’s mobile wallet and payments banking ecosystem, RBI ordered Paytm Payments Bank Ltd (PPBL) to stop accepting deposits or top-ups in customer accounts, wallets, FASTags and other instruments after February 29. Withdrawal or utilisation of balances by its customers from their accounts, are to be permitted without any restrictions, up to their available balance, the apex bank said.

The banking regulator had frequently flagged concerns of non-compliance with regulatory guidelines vis-a-vis PPBL, but to no avail. On the back of money laundering fears and dubious dealings to the tune of hundreds of crores of rupees between Paytm and its lesser-known banking arm, RBI clamped down on the Vijay Shekhar Sharma-operated entity. PPBL is reported to have lakhs of non-KYC (Know Your Customer) compliant accounts. In thousands of cases, single PANs were used for opening multiple accounts. There were even instances of the total value of transactions — running into crores of rupees, much beyond regulatory limits in minimum KYC pre-paid instruments raising money laundering concerns.

As per RBI’s provisional data for December 2023, Paytm Wallet users carried out 24.72 crore transactions worth over Rs 8,000 crore for purchase of goods and services while 2.07 crore transactions were carried out for transferring over Rs 5,900 crore. The National Payments Corporation of India (NPCI) said PPBL was the top UPI beneficiary among banks in December, with 283.5 crore transactions in the month. It had remitted 41 crore transactions in the period, while customers made 144.25 crore transactions on the Paytm Payment Bank App worth Rs 16,569.49 crore.

The Enforcement Directorate and the Financial Intelligence Unit have now asked RBI to share its report on the recent action taken on PPBL. In the aftermath of this, shares of One97 Communications Ltd, which owns Paytm, slumped by as much as 40 per cent this week. The company’s market capitalisation also eroded by Rs 17,378.41 crore to Rs 30,931.59 crore. As niggling worries have cropped up, RBI Governor Shaktikanta Das assured investors it will be coming out with an FAQ to clarify the payments bank scene.

Stakeholders in the regulation and policy space have pointed out that banking is a tightly regulated sector, and when fintech companies decide to embrace it, there is the onus of creating a strong compliance vertical. They need to have proper processes in place to adhere to regulatory mandates, before the roll-out of new products and the conduct of KYC. The question of data privacy and sharing of information also cannot be overlooked.

An issue flagged by fintech companies is the extent to which RBI will remain a service/technology provider. The apex bank has been responsible for introducing innovation centric initiatives such as sandboxes or testing environments as well as the Reserve Bank Innovation Hub. The ubiquitous nature of UPI has also encouraged the Centre to offer fintech companies and start-ups a really long rope.

Two years ago, the NPCI had extended the deadline for UPI players to adhere to a market cap of 30 percent to December 31, 2024. Currently, there’s no limit on volume as we can see that in October 2023, PhonePe accounted for 46 per cent of UPI transaction volumes, Google Pay held 36 per cent, and Paytm another 13 per cent. The ecosystem is here to stay, but with riders on regulation and compliance.