RBI’s Directive to NPCI Regarding Paytm’s TPAP Request: Implications and User Benefits          

Introduction:

• The Reserve Bank of India (RBI) has recently instructed Paytm Payments Bank Limited to cease operations by March 15, 2024, which raises concerns about the continuity of Paytm’s Unified Payments Interface (UPI) services. In response, the RBI has urged the National Payment Council of India (NPCI) to evaluate One97 Communications’ (OCL) request to function as a Third-Party Application Provider (TPAP) for the Paytm app, enabling the continuation of UPI operations.

Understanding TPAP:

• A TPAP is an entity that furnishes UPI-compliant applications to end-users, facilitating UPI-based transactions. These entities include mobile wallets, merchant apps, or any platform utilizing UPI for payments. NPCI governs and operates the UPI platform, providing the infrastructure for TPAPs to collaborate with payment service providers (PSPs) and banks to conduct transactions while ensuring adherence to security and compliance standards.

RBI’s Directives and Paytm’s Situation:

• With the RBI’s mandate barring Paytm Payments Bank from accepting deposits or top-ups after March 15, 2024, the prospect of TPAP registration for Paytm’s UPI services becomes uncertain. However, the RBI’s recent directives aim to ensure seamless digital payments for UPI customers, prompting NPCI to assess OCL’s request to function as a TPAP for Paytm.

Potential Benefits of TPAP Approval:

• TPAP approval from NPCI is pivotal for Paytm to sustain its UPI-based payment services. If granted, the migration of ‘@paytm’ handles to newly identified banks will be orchestrated to avert disruptions. Moreover, OCL would be restricted from adding new users until existing ones are seamlessly transitioned. This process aligns with NPCI regulations mandating large TPAPs to operate through a multibank model, thereby mitigating risks and fostering competition in the UPI ecosystem.

Implications for Users:

• For users with ‘@Paytm’ UPI handles, the migration to alternative banks will ensure uninterrupted service provision. However, users with UPI handles other than ‘@Paytm’ will remain unaffected by these changes, requiring no action on their part.

Current Landscape and Conclusion:

• Presently, there are 22 NPCI-approved 3rd party UPI apps, offering users diverse options for UPI transactions. The ongoing developments underscore the dynamic nature of India’s digital payment ecosystem, highlighting regulatory efforts to ensure stability, security, and inclusivity.

Conclusion:

• The RBI’s directive to NPCI regarding Paytm’s TPAP request reflects regulatory initiatives to sustain digital payment services amid evolving operational challenges. Approval as a TPAP holds significance for Paytm’s continuity in providing UPI-based transactions, with user interests and seamless transitions at the forefront of considerations.