NPCI nod to onboard users may help Paytm streamline UPI operations

One97 Communications (OCL), the company that operates brand Paytm, received a nod from the National Payments Corporation of India (NPCI) to onboard new Unified Payments Interface (UPI) users.

This comes nearly nine months after the Reserve Bank of India (RBI) placed an embargo on OCL to add new customers.

In a letter to the Noida-based company’s founder and chief executive officer (CEO) Vijay Shekhar Sharma, NPCI chief Dilip Asbe permitted the firm to begin new user onboarding.

The permissions are subject to NPCI’s procedural guidelines and agreements with Payment Service Provider (PSP) banks.

“We would like to inform you that vide letter dated October 22, 2024, the NPCI has granted approval to the company to on-board new UPI users, with adherence to all NPCI procedural guidelines and circulars,” Paytm said in an exchange filing.

The approval indicates regulatory comfort for the company to streamline its UPI operations.

“Paytm will start onboarding new UPI customers which will help it grow monthly transacting users (MTU) and the overall payment volumes.

"More than growth in business numbers, the approval points to improved regulatory comfort and the significant role that the company plays in the digital payment business,” said Nitin Aggarwal, research analyst, Motilal Oswal.

On Monday, Sharma told analysts that the company would not remain a mediocre player in the UPI market.

“In the UPI ecosystem, when the RBI allowed us to become a third party application provider (TPAP) player, it very clearly marked a responsibility to Paytm that we will be able to potentially solve concentration risks that the system carries,” Sharma said in a call with analysts after the results.

Meanwhile, the nod to onboard new users may lead to an increase in UPI transaction volumes for the firm.

“In addition, the improved customer base and alongside growth in payments would reflect in higher transactions on the platform.

"This will provide sustained growth opportunities to the company in the long term as focus remains on monetising the customer, merchant base by growing the financial business at a healthy pace,” Aggarwal added.

Paytm has a 7 per cent share in the UPI ecosystem dominated by players such as PhonePe and Google Pay, who cumulatively have a share of 85 per cent.

The NPCI approval comes after a significant loss of the UPI market share by the fintech major.

Its associate entity Paytm Payments Bank had faced crippling restrictions from the banking regulator in January.

Its market share on UPI has slipped from 13 per cent in January to about 7 per cent in September on the back of an embargo to add new users.

However, it continues to be the third largest player in the UPI ecosystem.

In February, the RBI advised the NPCI to consider Paytm’s request to become a TPAP for continued UPI operation of the app.

This was subject to the condition that no new users would be added by Paytm until all existing users were successfully migrated to a new handle.
In March, the firm was allowed to function as a TPAP on UPI.

Four banks, State Bank of India, Axis Bank, HDFC Bank, and YES Bank, act as payment service providers to Paytm as part of the arrangement.