Paytm Gets NPCI Approval, Becomes Third-Party UPI App Provider

The National Payments Corporation of India (NPCI) has granted approval to One97 Communications Limited (OCL), the parent company of Paytm, to operate as a third-party application provider (TPAP) under the multi-bank model for Unified Payments Interface (UPI) services.

This long-awaited licence comes as a crucial lifeline for Paytm, especially after regulatory action forced its banking arm, Paytm Payment Bank Limited (PPBL), to cease operations post-March 15. With this approval, Paytm can continue offering UPI services to its vast user base.

Under the new arrangement, Paytm will collaborate with four major banks-Axis Bank, HDFC Bank, State Bank of India, and Yes Bank-to facilitate UPI transactions. These banks will serve as Payment System Providers (PSPs), acting as intermediaries connecting Paytm's app with the broader banking network. Notably, only banks are eligible to serve as PSPs in the UPI ecosystem.

Previously, Paytm leveraged its own banking entity, PPBL, which held the TPAP license. However, with the regulatory changes, Paytm had to pivot its strategy, necessitating collaboration with external banks for UPI services. This aligns Paytm's model with that of its competitors, such as Google Pay, PhonePe, Cred, and Amazon Pay, which operate under similar arrangements.

Yes Bank will play a pivotal role as the merchant acquiring bank for Paytm's existing and new UPI merchants. This strategic partnership underscores the importance of collaborative efforts within the fintech ecosystem to ensure uninterrupted services for users and merchants alike.

With the transition, existing Paytm users and merchants can expect a seamless experience when conducting UPI transactions and AutoPay mandates. The @Paytm handle will now be redirected to Yes Bank, ensuring continuity in services without disruption. NPCI has emphasised the importance of completing migration processes for existing handles and mandates to the new PSP banks promptly, further ensuring a smooth transition for all stakeholders.

For Paytm, UPI transactions constitute a significant portion of its business, with the platform processing 1.41 billion monthly transactions worth Rs 1.65 lakh crore in February. While these figures represent a slight decline from January's numbers, Paytm remains one of the top players in India's digital payment landscape. The platform's reliance on UPI transactions is evident, with approximately 75 percent of its gross merchandise value (GMV) stemming from UPI transactions.

The approval from NPCI marks a crucial milestone for Paytm as it navigates regulatory changes and strengthens its position in the digital payments market. By embracing a collaborative model with leading banks, Paytm demonstrates its commitment to innovation and adaptability in an ever-evolving regulatory environment.

Looking ahead, Paytm's partnership with Axis Bank, HDFC Bank, State Bank of India, and Yes Bank sets the stage for enhanced offerings and expanded services for its users. The company's ability to leverage the expertise and infrastructure of these banking partners will drive innovation and foster greater financial inclusion across India.

As digital payments continue to gain momentum in the country, Paytm's approval as a third-party UPI app provider underscores the growing significance of collaboration between fintech companies and traditional banking institutions. This collaborative approach not only ensures regulatory compliance but also fosters innovation and resilience within India's digital economy.