Vijay Shekhar Sharma, the founder of One97 & Paytm and a well known figure in India's fintech industry, is in the headlines after the recent Reserve Bank of India (RBI) imposed new restrictions on Paytm Payments Bank Ltd.
The Reserve Bank of India (RBI) has asked Paytm Payments Bank to stop its main payment services by the end of February due to ongoing issues with not following the rules, last week. This decision affects One97 Communications, the company that owns Paytm. Even though Paytm app and Paytm Payments Bank are separate, they share some features, like FASTag.
What is the reason behind the RBI banning Paytm Payments Bank?
Concerns about money laundering and suspicious transactions involving hundreds of crores of rupees between the well-known Paytm wallet and its less-known banking arm have allegedly prompted the Reserve Bank of India to take action against the Paytm.
Paytm Payments Bank Ltd (PPBL) reportedly had hundreds of thousands of accounts that were not compliant with Know Your Customer (KYC) requirements. Additionally, in thousands of instances, a single PAN (Permanent Account Number) was used to open multiple accounts,. There were cases where the total value of transactions, reaching crores of rupees, exceeded regulatory limits in minimum KYC pre-paid instruments, raising concerns about potential money laundering, according to reports.
RBI's Encounters with Paytm
On June 19, 2018, the RBI prohibited Paytm Payments Bank (PPBL) from opening new accounts and wallets due to supervisory concerns. This restriction was lifted on December 27, 2018.
In March 2019, the Banking Ombudsman issued a notice to PPBL for failing to monitor an account, violating RBI's KYC provisions.
On November 25, 2022, RBI rejected Paytm Payments Services Ltd's application to operate as a payment aggregator. The regulator asked for a resubmission post-government approval, with PPSL continuing operations but not onboarding new merchants.
RBI imposed a penalty of Rs 1 crore on PPBL on October 1, 2021, for violating the Payment and Settlement Systems Act, 2007.
On October 10, 2023, a penalty of Rs 5.93 crore was imposed on PPBL for various non-compliances, including failure to identify beneficial owners and regulatory breaches related to customer advance accounts.
RBI found that PPBL reported a cyber security incident with delay, failed to implement device binding control measures, and had issues with its video-based customer identification process infrastructure.
Other Controversies
Apart from this, Paytm faced controversies due to its substantial Chinese investments, particularly from Alibaba Group, which became the major shareholder with a 34.7 per cent stake before Paytm's IPO. To address regulatory concerns, Antfin, an Alibaba group firm, reduced its stake to below 10 per cent.
In an attempt to distance itself from Chinese ownership, Paytm's CEO, Vijay Shekhar Sharma, acquired a 10.3 per cent stake in Antfin through his overseas entity. Paytm's IPO in November 2021 marked India's largest public issue, but its stock struggled, trading below the issue price. After the RBI's recent move, One97 Communications shares dropped around 40 per cent, and even Warren Buffet's Berkshire Hathaway sold its Paytm stake at a loss.
Currently, SAIF III Mauritius Company Limited is the largest direct shareholder in Paytm with a 10.83 per cent stake.
Paytm Transaction Update for customers: Limits Apply After Feb 29
Users of Paytm Wallet can conduct transactions until the end of February 29. After that date, they can only use their existing balance until it runs out, with no option to add more money. This rule also applies to PPBL accounts and linked services like FASTag and the National Common Mobility Card, used for travel in metro and public transport.
What are the alternatives for users?
Over 20 banks and non-banking entities, including leaders like PPBL, Mobikwik, PhonePe, SBI, ICICI Bank, HDFC, and Amazon Pay, offer wallet services.
Additionally, 37 banks, including public and private sector ones such as SBI, HDFC, ICICI, IDFC, and Airtel Payments Bank, are authorized to provide FASTag. Customers can conveniently recharge their FASTag online through their bank's mobile banking, internet banking, or third-party apps like Google Pay and PhonePe.
About Paytm and how it started?
Paytm, short for "Pay Through Mobile," was introduced by Vijay Shekhar Sharma in 2011, initially focusing on mobile recharges. The company gained significant momentum during the 2016 demonetization in India. Vijay Shekhar Sharma launched the Paytm wallet service, allowing users to make mobile payments and transactions.
During the demonetization period, when the Indian government invalidated high-denomination currency notes, Paytm capitalized on the reduced availability of physical currency.
In 2018, Paytm received a substantial investment of USD 300 million from Warren Buffett's Berkshire Hathaway, further solidifying its position in the fintech industry. Paytm has since expanded its services beyond mobile recharges to include a wide range of financial transactions, bill payments, and online shopping.
The company's initial success during demonetization and subsequent strategic expansions have made Paytm one of the leading players in India's digital payment and financial services landscape.
