RBI's Paytm Crackdown: Loyal Users Jumping Ship Doesn't Bode Well For Its Business

Manu Kumar, an auto driver based in Noida, has been relying on the Paytm Wallet and Paytm Payments Bank for getting payments from customers for the past few years. The recent news surrounding fintech giant Paytm, which operates the Paytm wallet and bank, has Kumar concerned. He is contemplating switching to BharatPe or PhonePe, other fintech companies that have wallets  as well.  

Kumar has heard that Paytm will stop working altogether from March 1. Because he is unsure about the Unified Payments Interface (UPI), changing the wallet will be a precautionary measure. 

Kumar has already stopped taking payments for his rides on Paytm. He would rather accept cash payments as he would eventually have to migrate. “I am choosing to keep a minimal amount in the Paytm wallet,” he told The Core. 

Bhrampal, a street food vendor in Delhi said that he has been using the Paytm QR code for payments for the last six years. He now finds himself unsure of the functionality of the QR code or UPI ID after February 29. “I don’t use Paytm Payments Bank, but my Paytm UPI ID and QR Code are linked with my bank account. I hope they will be functional as I connect them directly to the bank and don’t use the wallet.” 

A directive from the Reserve Bank of India (RBI) imposing restrictions on the Paytm Paymentss Bank could ring the death knell on Paytm, the poster child of Indian startups. The central bank prohibited the payments bank from accepting deposits or conducting credit transactions in customer accounts, wallets, FASTags, and other services after February 29. 

“Withdrawal or utilisation of balances by its customers from their accounts including savings bank accounts, current accounts, prepaid instruments, FASTags, National Common Mobility Cards, etc. are to be permitted without any restrictions, up to their available balance,” the RBI said in the notification. 

The RBI cited “persistent non-compliances and continued material supervisory concerns in the bank” for the action. 

Founder Vijay Shekhar Sharma said in a statement that “your favourite app” was working and would continue to work beyond February 29, an email from the Paytm Paymentss Bank said otherwise. 

It read, “Please note that you will not be able to deposit or add money to your Paytm Paymentss Bank Account/Wallet after Feb 29, 2024. However, there is no restriction on withdrawal of money from your existing balance even after Feb 29, 2024. The directive does not impact your existing balances and your money is safe with the Bank.” 

Confusion about the future is prompting customers to jump ship, and soon, from the payment app that had become synonymous with payments, especially for small businesses and this does not bode well for the future of the company.

“The recent crackdown has created a fear in the minds of the people in terms of using Paytm. There has been negative publicity. So, even if UPI is functional after February 29, a large section of users will migrate to other platforms like Google Pay and PhonePe,” said BN Mishra, spokesperson for Indian Banks' Association (IBA). 

 

Paytm Synonymous With Online Payments 

Paytm, short for “pay through mobile” was established by Sharma in 2010 primarily as a mobile payment service facilitating merchants to receive payments from customers. It was established under the parent company One97 Communications headquartered in Noida, Uttar Pradesh.

In 2014, the company introduced its wallet service. The wallet garnered attention when cab-hailing app Uber and Indian Railways incorporated it as a payment option. 

Paytm became ubiquitous during the months following demonetisation in November 2016, much before other players like Google Pay, BharatPe, or PhonePe were launched. The cash crunch post-demonetisation saw lakhs of Indians using Paytm. For small businesses or local vendors, who dealt mostly in cash, Paytm saved the day during demonetisation. 

In the years that followed, Paytm introduced several other features that made it popular among Indians across various ages and backgrounds.

“I started using Paytm wallet as it allows me to use credit cards to make smaller payments at tea stalls, local auto, and for app cabs. I could load my wallet using a credit card at a minimal convenience fee. But for Google Pay, I had to link it to a savings account or a debit card. Plus, I found it easy and fast to do transactions using Paytm wallet,” said Devesh Goswami, a young professional based in Delhi.

The Paytm wallet became a preferred option for youngsters, as it allowed them to utilise their credit cards for small local purchases. For street vendors, app-based cab drivers, and individuals in unorganised sectors, it became the preferred choice due to the accessibility of a Paytm Payments Bank account. They could store and access funds from daily transactions without undergoing an extensive documentation process.

Raj Kumar Giri, the driver of an app-based cab service, said, “It was easier to get the payment after the ride and the payment immediately reflects in the wallet after every ride. As I started working as a driver, I found it the easiest way to access the money. I was so used to it that I didn't explore other apps either.” 

Other similar apps such as PhonePe and Mobikwiki also have wallet options, but Paytm seemed to have the first mover advantage. Various cashback offers and coupon codes available for transactions attracted customers to use Paytm either for personal use or for small-scale business purposes. 

Paytm introduced a first-of-its-kind soundbox in 2019, which became popular during the pandemic, that announces the confirmation of a payment by a customer to any merchant. Now, most shops, small or big, across India have one of these. 

They became further popular during the pandemic as even more Indians opted for contact-free online payment services. Now stores in malls, movie theatres, salons, and other bigger businesses also use Paytm.

"We have been using Paytm after the Covid outbreak. We also have a Paytm wallet linked. We have PhonePe too, but we don't use it as such. If we see that even Paytm UPI is not working post-February 29, we will either use HDFC UPI or PhonePe. Whatever money is in the Paytm wallet, will be used before February 29 for paying bills, " said Shailesh J Wadhwani, owner of Budget Bazaar, a departmental store in Delhi

Movie Time Theatre, a single-screen movie theatre in Malad West, Mumbai started using the Paytm Barcode just a few months ago as they figured out that they could avail of several offers, rewards and discounts for transactions. They are not sure if they can continue using it after February 29 and might switch to other apps like PhonePe. 

 

Alternative For The Users

While some of Paytm’s users have already started to migrate, the uncertainty about its future is a problem for those who don’t have a bank account outside of the Paytm Paymentss Bank. 

“They will have to migrate their accounts to either some other commercial bank or payment bank, which has started happening already. If there is any issue with the KYC (Know Your Customer) data, it may take a little longer to migrate. For tech-savvy people, they might choose another payment bank and others may just visit a nearby bank for getting bank accounts (either for using bank UPI or linking the bank account to PhonePe or other apps),” said Ashvin Parekh, a banking consultant and managing partner at Ashvin Parekh Advisory Services LLP, a banking consultancy firm. 

A key factor that contributed significantly to the mass reach of Paytm was its easy KYC process. People could open a Paytm Paymentss Bank account and/or start using wallet services, without even visiting any bank and complete the process from anywhere. It is particularly challenging for those, who don't have any other bank accounts and just use a Paytm wallet or Paytm Paymentss Bank for their daily transactions. Moreover, it is the habit of using one app for so long for various transactions and suddenly migrating to a new app might be somehow out of comfort for many. 

Rohan, a local grocery storekeeper in Mumbai said that he preferred using the wallet as he could collect the money daily in the wallet and then accordingly, distribute his money in different bank accounts. But after the announcement, he had stopped using it completely and might switch to another app soon.  

 “They can download BHIM straightaway and link any debit card to BHIM. All banks support BHIM UPI. They need to generate a distinct UPI ID. The Paytm UPI linked with other banks  will function in a limited manner. But with the reputation risk it is carrying, it might become a bit of a challenge,” said Parekh. 

 

(With inputs from Zinal Dedhia and Anjali Palod)

Also Read: ‘Privatisation Contingent On Several Factors’: DIPAM Secretary Tuhin Kanta Pandey On PSU Disinvestment Plans