What's RBI Message To NPCI About Paytm's UPI Payments?

The digital payments giant Paytm witnessed a 5% surge in its share prices, hitting an upper circuit during early trade on Monday. Shares of Paytm's parent company, One97 Communications Limited, were trading 5% higher on the Bombay Stock Exchange (BSE) at Rs 428.10 apiece.

This surge comes following the Reserve Bank of India's (RBI) directive advising the National Payments Corporation of India (NPCI) to examine Paytm's request to become a third-party application provider (TPAP) for unified payments interface (UPI) payments. 

The RBI stated, "NPCI has been advised by the RBI to examine the request of One97 Communication (OCL) to become a TPAP for UPI channel for continued UPI operation of the Paytm app, as per the norms."

What is TPAP?

TPAP, or Third-Party Application Provider, denotes entities facilitating UPI payments for customers and merchants through applications or platforms. As intermediaries, TPAPs connect stakeholders in transactions, ensuring seamless execution. Their vital role in the UPI ecosystem involves facilitating millions of daily transactions, making them integral to the efficiency and functionality of the UPI payment system.

What Are Potential Implications for Paytm and the UPI Ecosystem?

If approved, this move would allow Paytm to continue processing payments via UPI, contingent upon the support of newly identified banks. However, Paytm Payments Bank Limited (PPBL) faces restrictions from the RBI, prohibiting further credits into its accounts and wallets after March 15, 2024.

The RBI's directive aims to ensure smooth digital payments through Paytm's UPI handle (@paytm) and minimize risks within the UPI system. One97 Communication, owning a 49% stake in Paytm Payments Bank Ltd, is central to this development, as outlined by the RBI.

Strategic Move by Paytm

The recent developments in Paytm's journey within UPI ecosystem seems to be a positive outlook for the company.

RBI's advice to NPCI to onboard 4-5 banks as Payment Service Provider (PSP) banks is expected to facilitate a seamless transition for users with @paytm UPI handles, ensuring uninterrupted services and enhancing user experience, the company said in a release.

Reducing Concentration Risk in UPI System

Bernstein's report highlighted that one of the reasons for these steps is to "minimize concentration risk in the UPI system by having multiple payment app providers." This recognition should alleviate concerns about whether RBI's actions were directed against PPBL or the Paytm app itself.

Furthermore, the initiative allowing merchants to switch settlement accounts to PSP banks other than PPBL offers greater flexibility and continuity for businesses relying on Paytm's QR code systems.

Positive Outlook and Future Growth

Bernstein maintains a positive outlook, expecting minimal business impact for Paytm's overall operations. The brokerage firm has maintained an 'outperform' rating for Paytm, setting a target price of Rs. 600. 

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