Due to possible gaps in its technology systems, the central bank barred SoftBank-backed Paytm Payments Bank from adding new customers on Friday, potentially stifling the fintech’s small-finance ambitions and further riling investors skeptical of the fintech’s ability to boost earnings after an expensive initial share sale.
Since its formation in May 2017, the banking authority has taken action against Paytm Payments Bank three times. For the second time, it has been forbidden to open new accounts.
Paytm Payments Bank has joined a growing list of financial institutions and lenders that have been fined for systemic flaws, including MasterCard, Diners Club, American Express, and HDFC Bank. In India, where transactions are increasingly done digitally, the banking authority is keen on constructing a failsafe payments system.
A complete system audit of the bank’s IT system has also been ordered. Paytm Payments Bank’s onboarding of new customers would be subject to RBI approval following the examination of IT auditors’ reports.
The central bank also issued a show-cause notice to Paytm Payments Bank on July 29, 2021, alleging that the company violated the Payment and Settlement Systems Act, 2007, by submitting false information to the RBI confirming the completion of One97 Communications’ transfer of the Bharat Bill Payment Operating Unit business to PPBL. Paytm Payments Bank has been fined Rs 1 crore by the RBI.
Paytm Payments Bank is a joint venture between Vijay Shekhar Sharma, the founder of Paytm, and One97 Communications, the parent company of Paytm. Sharma personally owns 51 percent of the bank.
According to its website, it began operations in 2017 and claims to have 60 million bank accounts with 4 lakh new customers added every month. It is also one of the main issuers of the FASTag system for highway toll payments, has issued over 8 million FASTag units so far.