Paytm, one of India’s leading fintech players, has entered into discussions with prominent banks, including HDFC Bank, Axis Bank, and Yes Bank, to potentially transfer its payments and settlements load from Paytm Payments Bank. This strategic shift, set to take effect after February 29, could redefine the landscape of banking services and has the potential to significantly impact the fintech industry.
The talks, still in early stages, require the approval of the Reserve Bank of India (RBI) for the establishment of a new payments architecture from Paytm Payments Bank to the collaborating lenders. This regulatory step is crucial, given the supervisory concerns raised by the RBI in the past regarding Paytm. The parallels with previous transitions, such as the one involving Yes Bank and PhonePe, highlight the need for close coordination with regulatory authorities.
The discussions are centered around the involvement of at least three banks to handle the payments and settlements load effectively. The technical intricacies of such a transition require careful consideration, as the entire backend architecture, settlement systems, and existing agreements will need to be overhauled. Paytm’s Chief Operating Officer, Bhavesh Gupta, emphasized the need to relocate around 40 million merchants to other banks, illustrating the magnitude of this strategic move.
Paytm’s shift away from being a bank with its own settlement systems will leave it primarily with its mobile application. The sheer volume of transactions settled by Paytm every month, with 2.8 billion payments on the Unified Payments Interface (UPI) in December alone, underscores the complexity and scale of the impending transition.
This transition is not without challenges, especially in the UPI domain, where Paytm Payments Bank initiated 410 million transactions in December 2023. The migration of such significant transaction volumes to other banks could potentially impact the success rates of traditional lenders who are already working to keep pace with UPI’s rapid growth.
Furthermore, the move will have implications on bill payments, where Paytm Payments Bank is currently the third-largest player on the National Payments Corporation of India’s Bharat Billpay platform. In December, the platform processed 16 million bill payment transactions, making it a key player in this segment.
With a stronghold in the traditional wallets business, boasting 628 million active wallets as of calendar 2023, Paytm’s transition raises questions about the broader implications for the fintech industry. The discussions between Paytm and the collaborating banks mark a pivotal moment in the evolution of India’s fintech ecosystem, as industry stakeholders await further developments and regulatory approvals that could shape the future of payments and settlements in the country.
