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Updated February 6th, 2024 at 18:26 IST

After RBI’s restrictions on Paytm, will banks start playing fintech?

Former banker and VC Rahul Gupta says the Reserve Bank of India will see big and small players ‘with the same yardstick.’

RBI Imposes These Restrictions on Paytm Services
RBI Imposes These Restrictions on Paytm Services | Image:ANI
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Regulations vs technology: The Reserve Bank of India likes to give space for innovation but not at the cost of the economy and consumers, according to Rahul Gupta, Founder and Managing Partner, of venture debt fund ValuAble.

The observation comes as listed fintech major Paytm’s Payments Bank has been restricted from onboarding customers, and barred from taking deposits, conducting credit transactions, or carrying top-ups on customer accounts, prepaid instruments, wallets or FASTags for road tolls.    

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As per NPCI data, over 500 banks are issuers, or PSP and PPI issuers for the Unified Payments Interface (UPI), which allow for payments by scanning or entering a contact detail.

Digital payments have been hailed for their ease and quick transactions, as well as for promoting financial inclusion. While wallets and fintech aggregators like Paytm have pioneered the ecosystem, leading banks have quickly caught onto tech-enabled payments.

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 The RBI is taking cognisance of compliance since the systemic risk is exponential with regard to two-way authentications, Gupta noted, adding that worry is correct at the regulator’s end. 

“KYC (Know Your Customer) is very important,” Gupta said. Notably, Paytm Payments Bank had lakhs of non-KYC compliant accounts, and in thousands of cases single PANs were used for opening multiple accounts, as per sources cited by PTI.

Gupta said regulators are pragmatic and want to support opportunities but the RBI has ensured operations within a pre-determined framework.

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Gupta, who has been with Axis Bank in the past, drew parallels on the tightening of rules for credit cards, which made banks vigilant but did not rule out the segment. 

Notably, innovations in payments have been driven by regulatory initiatives. Demand for agile Payment as a Service (PaaS) platform to orchestrate transactions with multiple bank payment infrastructures is predicted, as per a report by Chiratae Ventures and The Digital Fifth.

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“With the current situation, the matter has been under review for quite sometime. Paytm’s meeting with the regulator is a good move because the regulator needs to be regarded as the authority,” Gupta noted.

The development will result in banks and fintechs coming together, bringing together the right rooting of banks and the agility of the startup ecosystem.

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On the regulations, Gupta said RBI does not take a stand overnight and is crisp with advice pertaining to compliance.

Addressing speculations of bigger entities eyeing an acquisition of Paytm, which has a “larger persona” among fintechs in India, Gupta said the regulation ecosystem in India is way mature, and RBI sees bigger and smaller players with the same yardstick.

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Published February 6th, 2024 at 18:26 IST

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