paytm ban: Paytm saga: Top stories to read on RBI’s punitive action and its implications

In a move that sent shockwaves through the fintech industry, the central bank on January 31 directed Paytm Payments Bank to stop all forms of banking services — including accepting deposits and processing of payments — effective February 29. Since then, the buzz around Paytm crisis has only grown manifold.
At ETtech, we’ve followed the developments and their aftermath very closely. Here are our top stories on the Paytm saga:

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Breaches piling up for seven years at Paytm Payments Bank: Violation of banking compliance norms on money laundering, conflict of interest, maintaining an arm’s length from the parent, lax processes allowing fraud, licensing agreement breaches—these are some of the complaints that are said to have accumulated over the years. Among the alleged violations, know your customer (KYC) norms, a basic necessity for any financial services firm, weren’t met. It didn’t conduct proper KYC checks for hundreds of thousands of customers.

After series of ‘violations’, Paytm may lose Payments Bank licence: The Reserve Bank of India (RBI) alerted the Directorate of Enforcement (ED) a few months ago about possible money laundering and know-your-customer (KYC) violations at Paytm, and the fintech services provider may lose its payments bank licence, given infringements flagged by the banking regulator over the past few years.

Also read | Opportunity for us to come out better, stronger: Paytm founder Vijay Shekhar Sharma

Paytm in talks to migrate payments, settlements from Paytm Payments Bank: Fintech major Paytm is in talks with at least three other banks who can take on the payments and settlements load from Paytm Payments Bank, which will effectively stop most of its banking services after February 29. For the process to start, the Reserve Bank of India will need to bless the setting up of the new payments architecture from Paytm Payments Bank to the other lenders, according to three people in the know.

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Paytm will keep working beyond February 29, assures Vijay Shekhar Sharma:
In a bid to allay user concerns, Paytm founder Vijay Shekhar Sharma took to X on Friday to assure the app’s continued operation beyond February 29.”To every Paytmer,” Sharma wrote, addressing the platform’s user base directly. “Your favourite app is working, will keep working beyond 29th February as usual.”

Also read | Shock and awe: Founders decry RBI action against Paytm

ETtech Explainer: how will RBI move impact customers | Read an explanation of how the move will impact Paytm Bank customers, the company, and the ecosystem—and how different the current set of curbs is from previous regulatory clampdowns.

Rs 300-500 crore hit likely on Paytm’s earnings: RBI action against subsidiary Paytm Payments Bank could have an impact of up to Rs 300-500 crore on its annual earnings before interest, tax, depreciation and amortisation. Group chief financial officer Madhur Deora told analysts later in the day that the leadership arrived at the number by looking at the worst possible situation.

Also read | Paytm hit: Can you still use wallet, Fastag? All your questions answered

Fintechs fear RBI’s Paytm action to have wider implications: Many founders and investors, in their reaction on public platforms, termed RBI’s directive as harsh with a potential to affect millions of consumers and businesses. Industry insiders and legal experts ET spoke with pointed out that the order might be aimed at the payments bank, but it has implications for the larger fintech industry.

Brokerage firms warn of ‘regulatory overhang’ around Paytm’s future:
The strict punitive action against Paytm Payments Bank has made brokerage firms sceptical about its future. The ‘regulatory overhang’ and ‘reputation harm’ can have a long-term bearing on the fintech firm’s overall business and profitability plans, analysts said.

Also read | The week that was: Hope and despair on Startup St.

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