According to source, Axis Bank, Canara Bank, Yes Bank, and Kotak Mahindra Bank are leading candidates to collaborate with Paytm for transferring its merchants who were initially onboarded by Paytm Payments Bank Ltd (PPBL), which has faced challenges. Multiple sources suggest that approximately 30 million merchants are utilizing Paytm’s services under One97 Communications Limited (OCL). PPBL served as the payment service provider (PSP) partner bank for OCL in onboarding these merchants. The specific bank or banks among the four mentioned may be chosen for migrating the merchants from PPBL, although this detail is currently unclear.
The Reserve Bank of India (RBI) has imposed punitive measures on PPBL but has permitted OCL merchants and Unified Payments Interface (UPI) users to maintain their handles, QR codes, and point-of-sale (PoS) machines beyond March 15, when the restrictions take effect. This decision aims to prevent any disruptions in merchant and consumer payments.
The banks anticipate an annual expenditure of approximately Rs 50-70 crore to manage and process the substantial volume of merchant transactions, which amount to billions. The projected expenses will differ based on the types of merchants each bank onboards, the number of transactions below Rs 2,000, and other factors.
A senior executive involved in the discussions mentioned that documentation is underway, with ongoing discussions at various stages. Once a deal is finalized, the selected bank will proceed with integration, which could potentially occur within this week.
Yes Bank’s managing director and chief executive officer, Prashant Kumar, stated two weeks ago that the private sector bank is willing to assume responsibility for the merchants acquired by PPBL. He emphasized the necessity for the bank to conduct KYC (Know Your Customer) compliance verification and due diligence, highlighting the strategic value of this move for the bank’s business operations.
The terms of the deal are still being negotiated.
According to a banking insider familiar with the talks, the financial terms have not been finalized yet. Among the banks involved, Axis Bank and Canara Bank have proposed the lowest expenses, while Kotak Mahindra Bank and Yes Bank have suggested higher expenses. Although the discussions are ongoing, they are expected to conclude this week due to the impending March 15 deadline.
Since most transactions will occur on the UPI platform, which lacks merchant commission revenue for payment companies, the negotiations revolve around how the banks will recover these costs. Any revenue generated from the merchants by the partnering banks will be shared between OCL and the banks.
According to another banker involved in these talks, the National Payments Corporation of India (NPCI) prefers having multiple banks migrate the merchant accounts to minimize concentration risks. However, the outcome of the commercial negotiations between Paytm and the banks will determine which partnerships materialize. Additionally, the need for banks to conduct KYC for most of the merchants adds an extra cost, leading to delays in the discussions.
On another front, Axis Bank, Yes Bank, and HDFC Bank have collaborated with OCL to manage Paytm’s consumer-side UPI business as a third-party application provider (TPAP). Previously, the Paytm app functioned more like PPBL’s banking app for UPI transactions.
According to BSE filings, Paytm has over 30 million merchants registered on its platform. Among them, approximately 20% (around 6 million) utilize PPBL as their settlement savings account, which will only be operational for balance withdrawal or transfers to other bank accounts.
For the remaining merchants, OCL utilized PPBL to onboard them while offering @Paytm QR codes and handles. These merchants maintain settlement accounts with other commercial banks.
Following RBI’s imposition of restrictions on PPBL, which is an associate company of OCL, Paytm has had to pursue partnerships with banks to maintain its UPI business.
The RBI has instructed PPBL to cease all banking services, except for facilitating withdrawals of remaining funds in the accounts. It is anticipated that the provision of payment service provider (PSP) services will also be impacted.
The majority of UPI addresses on the Paytm app are linked to PPBL, which serves as the sponsor bank or PSP bank. These accounts now need to be transferred to other banks.
On February 23, the RBI instructed the NPCI to ensure a smooth migration of all UPI @paytm handles to three or four commercial banks. This directive aims to prevent any disruptions to the country’s widely-used digital payments platform.
PPBL serves as the PSP bank for all UPI accounts linked to Paytm, each having an @paytm handle. In order for these accounts to continue operating after March 15, they require special approval from the regulator to smoothly transition to other banks. The PSP function must also remain operational until the assets are successfully transferred to new banks, a process that may extend beyond March 15.
