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Paytm: ET Explainer: why NPCI nod for Paytm UPI onboarding matters


Paytm, operated by One 97 Communications, received approval from the National Payments Corporation of India (NPCI) to onboard new UPI users, lifting a regulatory freeze imposed on it earlier this year. This approval marks a significant development for the digital payments platform, which has been under scrutiny by regulators.

Why was Paytm barred?

In February 2024, NPCI restricted Paytm Payments Bank (PPBL), an associate entity of Paytm, from offering basic banking services citing compliance issues. This resulted in PPBL being barred from adding new users onto its UPI service. Eventually UPI payments moved from PPBL to Paytm where the latter became a third-party payment app. But the new user addition embargo was not lifted, and the application had been pending with the NPCI.How did Paytm get approval?

One 97 Communications submitted a formal request to NPCI on August 1, asking for permission to resume onboarding of new UPI users. In the meantime, Paytm migrated around 135 million UPI users to its four new partner banks for UPI payments. After conducting a review of Paytm’s compliance with NPCI guidelines, including risk management, customer data protection and multi-bank support protocols, NPCI gave approval on Tuesday.

What are the conditions?

While NPCI has given the green light, it comes with strict conditions. Paytm must adhere to NPCI’s procedural guidelines, particularly around risk management, app branding and QR code usage. The approval is also tied to compliance with the Payments and Settlement Act, 2007, the Information Technology Act, 2000, and the Digital Personal Data Protection Act, 2023.

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What does this mean for Paytm?

The NPCI’s approval now allows the Noida-based fintech firm to resume user addition on its UPI platform, a crucial part of its business.Since the RBI’s action against PPBL, the number of Paytm’s monthly transacting users (MTUs) have been declining. In September 2024 it had around 68 million MTUs, compared with 78 million a year back. With this approval, Paytm can now focus on customer acquisition and growth. As a third-party payment app (TPAP), Paytm processes UPI transactions in partnership with State Bank of India, Axis Bank, HDFC Bank and Yes Bank.

How does the market share cap play into this?

In 2020, NPCI suggested a 30% market share cap for TPAPs on UPI to reduce the dominance of two players — Google Pay and PhonePe — and address concentration risks. The deadline to meet this cap, initially set for December 31, 2022, was extended to December 31, 2024, but is expected to be further pushed. Now with NPCI’s approval, Paytm wants to address the market share concerns by adding new users and building marketing offers to move a chunk of the UPI transactions onto its own platform. As of September end, Paytm had a cash reserve of Rs 9,990 crore, which could help in its growth plans.

Paytm Q2 results

The company reported a 34% year-on-year decline in second-quarter operational revenue at Rs 1,660 crore. It posted a net profit of Rs 930 crore because of the sale of its ticketing platform, Paytm Insider, to Zomato that resulted in a one-time gain of Rs 1,345 crore for the company. Its operational revenue in the second quarter of last fiscal year was Rs 2,518 crore.



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