Processing UPI transactions: Paytm's TPAP request awaits bank tie-ups

Discussions with PSP banks could take over a month to reach an agreement

One97 Communication Ltd’s (OCL’s) application for a third-party application provider (TPAP) status will only be considered after it establishes tie-ups with payment service provider (PSP) banks, sources said. OCL operates under the brand name of Paytm.

To offer Unified Payments Interface (UPI) services, Paytm must connect with banks other than Paytm Payments Bank (Paytm PB). 

Paytm declined to respond to a query from Business Standard on the issue.

While discussions with PSP banks are underway, the process could extend over a month before an agreement is reached, the sources said. As a result, Paytm may not be able to offer UPI services immediately after March 15, the date after which the Reserve Bank of India (RBI) has stated that Paytm PB will no longer be able to conduct deposit or credit transactions.

A TPAP is a service provider that participates in UPI through a PSP bank. 

A PSP bank, a member of UPI, connects to the UPI platform to avail and provide UPI payment facilities to the TPAP. This, in turn, enables end-user customers and merchants to make and accept such payments.

The National Payments Corporation of India (NPCI) approves the participation of issuer banks, PSP banks, TPAPs, and prepaid payment instrument issuers (PPIs) in UPI.

On February 23, 2024, the RBI said it had advised the NPCI to examine the request of OCL to become a TPAP for continued UPI operations on Paytm app. This followed the regulator’s instruction to Paytm PB to cease offering services after March 15, 2024.

The RBI has mandated that @paytm handles should be migrated from Paytm PB to other banks which will act as PSP. The sources said that once Paytm enters into an agreement with at least one or two banks, the TPAP status would be granted by the NPCI.

“As and when they go live, the NPCI will give the approval. They have to connect to a new bank first,” said a highly placed source aware of the issue.

The RBI also mandated for merchants using Paytm QR codes, OCL needs to open settlement accounts with one or more PSP banks, other than Paytm PB. However, the process of identifying and partnering with PSP banks could take time, and the TPAP status is unlikely to be awarded before March 15.

The RBI has asked the NPCI to facilitate the certification of 4-5 banks -- with demonstrated capabilities to process high-volume UPI transactions -- as payment service provider (PSP) banks

“One or two banks may tie up with Paytm by the end of March or early April, after which the TPAP status will be granted,” a source said.

Paytm also needs to satisfy certain conditions, including data localisation and security, for the TPAP status to be granted. A TPAP must store all the payments data, including UPI transaction data collected by the TPAP for the purpose of facilitating UPI transactions, exclusively in India.

The sources said that Paytm is likely to comply with these conditions. Since Paytm PB will not be able to operate after March 15, it is crucial for the Paytm app to maintain continuity of services beyond that deadline.