Nodal accounts are special internal accounts that intermediaries are mandated to maintain by the RBI and act as vaults, where customer payments are collected before they are transferred to the merchants.
The central bank’s move will impact consumer and merchant payments given Paytm’s large network of merchants – both online and offline – who have deployed digital payment modes such as QR codes, point-of-sale (PoS) machines, sound boxes and others.
Also read | RBI bars Paytm’s services due to compliance concerns
“The impact will be on merchant payments. They had the largest acceptance among merchants. Now, they need to get other players’ QR, which opens up opportunities for rivals to make a dent,” a top fintech executive said.
“A nodal account being asked to be terminated at the earliest signals very low trust and serious concerns being felt by the regulator,” said the executive who termed the RBI order as “unprecedented”.
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Following the crackdown, other players in the payments ecosystem have sprung into action, and are discussing pushing their payments products to merchants over the next few months, industry executives said.Walmart-owned PhonePe is likely to be the biggest beneficiary, the executives said, adding the company is already preparing for a surge in business.
As of December 31, Paytm had 39.3 million registered merchants. The company said in a statement on January 11 that it has cumulatively deployed 5.8 million devices including PoS machines and sound boxes. In the December quarter, the company had processed 9.99 billion merchant transactions.
An emailed query to Paytm did not elicit a response till press time.
“A large chunk will move to PhonePe–they have the biggest fleet-on-street team to activate this right now,” said a person aware of the matter. PhonePe already is the largest UPI payments app.
Consumer impact
The RBI order will likely disrupt consumer payments too, said industry executives. The Noida-headquartered company is among the largest consumer payments platforms in the country.
As per data sourced from National Payments Corporation of India (NPCI), Paytm Payments Bank issued the third highest number of FASTags among issuer banks in November and December. In October, it had issued the highest number of FASTags.
Similarly, Paytm Payments Bank is the third largest UPI app in the country after PhonePe and Google Pay. In December, it processed 1.57 billion UPI transactions worth Rs 1.91 lakh crore, NPCI data showed.
While PhonePe is the market leader on UPI, Paytm has its user base cutting across mobile wallets and UPI railroad due to its branding and wide acceptance in non-metro markets also.