The topic of the Paytm ban has been breaking the internet ever since the Reserve Bank of India (RBI) barred its Payments Bank services on Thursday. India's Central Bank RBI barred Paytm Payments Bank Ltd (PPBL) from further deposits or credit transactions or top ups in any customer accounts, prepaid instruments, wallets, FASTags, NCMC cards, etc., after February 29, 2024, other than any interest, cashback, or refunds which may be credited anytime. As a result, entire India went into shock as Paytm is among the most used apps when it comes to online payment services. Notably, Paytm was first formed as a prepaid mobile and DTH recharge platform. However, it went on to become a market leader in the country's QR and mobile payments networks. Paytm was among the first apps that gave UPI services when Prime Minister Narendra Modi announced demonization. Now, the question arises as to why Paytm Ban has come into effect or why RBI has barred Paytm from offering core services like wallets and fund transfers. Paytm ban is explained in three points below-
The Reserve Bank of India has maintained its secrecy over its decision, however, it has indeed issued a statement. RBI in its statement said that it was based on a comprehensive system audit report and subsequent compliance validation report by external auditors.
As per the RBI, an external audit has uncovered non-compliance with regulations and notable supervisory concerns regarding Paytm's books. Paytm and RBI came at loggerheads for the first time in March 2022 when the Central Bank barred Vijay Shekhar Sharma's company from onboarding new customers and mandated thorough audits of its IT systems.
To be precise, the RBI is reportedly not pleased with Paytm Bank's conduct, and this crackdown is a result of regulatory and compliance issues that have been lingering since March 2022.
Paytm Ban Reason 2
The second reason is KYC. In 2022, RBI had first red-flagged Paytm Payments Bank and asked it to stop onboarding new customers. RBI had flagged processes followed by the company in acquiring new users, especially on KYC norms. Thereafter, in October 2023, the RBI fined Paytm Payments Bank Rs 5.39 crore over deficiencies in regulatory compliance.
Paytm Ban Reason 3: The China Angle
The third and final reason for the Paytm Payment services is its Chinese investors. While Paytm is founded by Indian entrepreneur Vijay Shekhar Sharma, a report suggests that it has taken investment from a Chinese investor firm called Ant Group. As per the information available, Ant Group, formerly known as Ant Financial, is an affiliate company of the Chinese conglomerate Alibaba Group. The group owns the world's largest mobile payment platform Alipay, which serves over 1.3 billion users and 80 million merchants, with total payment volume reaching CN¥118 trillion in June 2020.
In 2023, a report stated that Ant Group transferred about 44% of its stake in One 97 Communications Ltd, which runs Paytm, to founder and chief executive Vijay Shekhar Sharma. In another report, a newswire stated that Chairman Vijay Shekhar Sharma will buy a 10.3% stake worth $628 million in the firm he founded from an arm of Chinese fintech giant Ant Financial in a deal that would make him its single largest shareholder. The move comes as Sharma, who is also Paytm's chief executive, looks to simplify its ownership structure amid broader concerns about Chinese ownership in Indian financial technology companies.