Fintech major Paytm is in talks with at least three other banks who can take on the payments and settlements load from Paytm Payments Bank, which will effectively stop most of its banking services after February 29.

For the process to start, the Reserve Bank of India will need to bless the setting up of the new payments architecture from Paytm Payments Bank to the other lenders, according to three people in the know.

“Last time when something like this happened with Yes Bank and PhonePe, the RBI was kept in the loop, this time since the regulator had raised supervisory concerns on Paytm we are looking for directions from them,” said one of the people mentioned above.

The second person in the know said that HDFC Bank, Axis Bank and Yes Bank are the three lenders in conversation with Paytm for this task, but the process is yet to start since the regulator has not said anything yet.

“For a payments platform the size of Paytm, the entire load cannot be transferred to one lender, it will need to be diversified across at least three banks with the technical capability to support the same,” said the third person ET spoke to.

Speaking to stock market analysts on Thursday, Paytm chief operating officer Bhavesh Gupta said that around 40 million merchants will need to be moved to other banks. Regarding moving virtual payment addresses and UPI handles there is a precedence and a similar procedure can be followed here too, he said.Also read | RBI action on Paytm indicates tough times ahead for fintech startupsA payments giant

This movement will surely create a major rebalancing of transaction volumes in the back-end given the sheer number of transactions Paytm settled every month.

Unlike any other fintech, Paytm being a bank had its own settlement systems. Now it is just left with a mobile application.

“The entire agreements will have to change in the back-end, there are third-party payment apps on UPI, and all that architecture needs to change,” said the second person quoted above.

On the Unified Payments Interface, Paytm Payments Bank accepted 2.8 billion payments in December alone. A significant chunk of these transactions are merchant payments that are accepted via QR codes.

As a ‘remitter’ bank, that is where a consumer is using Paytm Payments Bank to make a payment, the bank initiated 410 million transactions in December last year. All these volumes on UPI will have to migrate to other banks. But this might impact customer experience on the app.

Also read | ETtech Explainer: how will RBI move impact customers

“The large traditional lenders are anyway trying to keep pace with the growth of UPI, now with Paytm’s transactions going to them it will have an impact on their success rates, something Paytm always took pride in,” said a senior fintech industry executive.

Impact on bill payments

A similar issue will happen in the case of bill payments too, where Paytm Payments Bank is the third largest bill payment platform on NPCI Bharat Billpay.

In December alone 16 million bill payment transactions originated on the Paytm app by consumers, making it the third largest player after PhonePe and BillDesk.

In the traditional wallets business, Paytm has always been a leader. In terms of the number of active wallets, the count for Paytm stood at 628 million as of calendar 2023. In December alone, Paytm Payments Bank processed 240 million transactions settling payments worth around Rs 8,074 crore.

Also read | Brokerage firms warn of ‘regulatory overhang’ around Paytm’s future

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