Paytm Bank’s exit from UPI unlikely to be disruptive

MUMBAI: Paytm Payments Bank’s regulator-mandated virtual exit from the UPI platform may not have as disruptive an impact on the cashless transaction ecosystem as is being currently feared as most users have multiple backend accounts that are out of the scope of the central bank’s curbs.

Furthermore, only about a sixth of the 90 million Paytm UPI users use the app as the sole application for transactions, people familiar with the developments said.

Similarly, in the merchant’s category, about 70% of the merchants availing services of Paytm have their accounts outside of Paytm Payments Bank. That means they are not totally dependent on the payments bank for their business.

“Although Paytm is a big player, the actual or effective presence of Paytm Payments Bank in the various areas of its functioning are not as high as projected,” said a person familiar with the usage data.

In a report on Tuesday, Macquarie Capital Securities expects a sharp reduction in Paytm revenues across various segments, anticipating an exodus of customers. It had pegged the overall customers at 330 million. They include 110 million of monthly transacting users and a merchant subscription network of about 10 million.

Macquarie had estimated that One97 Communications, the Paytm parent, will lose 60% to 65% of revenues over FY25 and FY26 in both its payments and distribution businesses after the RBI asked the payments bank to stop all basic payment services through various platforms and technology railroads – UPI, IMPS, Aadhaar-enabled payments and bill payment transactions – with effect from February 29.

The regulatory action came after the payments bank was found to have violated several rules, including those related to know-your-customer (KYC) documents, which are considered a basic necessity for any financial services firm.

Paytm rose to prominence after the 2016 demonetisation of currency notes, and has been synonymous with the rise of digital payments in India. The regulatory action had raised concerns of a deeper disruption in the payments ecosystem.

But the success of UPI in the past few years and the rise of other competing apps using the National Payments Corp of India’s (NPCI‘s) railroads have given users the option to switch out of Paytm easily.

“Only about 10% (i.e. 9 million) of the Paytm UPI app users have an underlying bank account solely with Paytm Payments Bank, while 81 million users have other bank accounts. Out of the 31.5 million savings bank accounts of the Paytm Bank, around 14 million accounts are either dormant or frozen. The number of current accounts is only about a million,” the person familiar with the numbers said. Also, out of the millions of defined benefit transfers (DBT) beneficiaries in the country, only about 100,000 unique users of Paytm Payments Bank have received DBT in the last six months. Although Paytm has 350 million wallets, about 300 million of them have a zero balance. Wallets with a balance and also active in the past one year are only around 50 million in total.