by Elton Gomes
Following observations made by the Reserve Bank of India (RBI), Paytm Payments Bank has stopped adding new customers on its platform, according to four people with knowledge of the matter.
After an audit by the RBI, Paytm stopped adding new customers from June 20 onwards. The RBI made certain observations about the process followed by Paytm in acquiring new customers and its adherence to know-your-customer (KYC) norms, three of the four aforementioned people said.
One of the four persons said, “RBI has directed Paytm Payments Bank to stop onboarding of new customers with immediate effect.” Paytm’s company executive said that the company is making changes to its “account opening process to introduce ‘current accounts’ due to which new account creation process has been paused,” as per a report in Live Mint.
Paytm’s Payments Bank allows users to start a zero balance account without any transaction charges. However, as per RBI guidelines, payments banks cannot lend, but they can only accept deposits or payments.
In addition, the RBI noted that Paytm needs to have better security mechanisms in place to not compromise on customer data. The bank asked the company to house the payments bank office in a separate office. Paytm recently shifted its payments team to another office in Noida.
The apex bank asked Paytm to remove Renu Satti from the CEO’s post, and raised questions on her ability to run the bank. Satti stepped down as CEO of the payments bank, and was slated to head Paytm’s new retail initiative. The RBI seemed doubtful of Satti’s position as its guidelines require a person to be a banker in order to take up a CEO’s post in a payments bank.
According to a report in BloombergQuint, the problem lies in the lack of robustness in the electronic-KYC norms followed by most payment banks such as Paytm. As per the article, the customer never comes face-to-face with the bank, and banks allow users to open a bank account while using a one-time-password (OTP) authentication.
To ensure everything is in the right place, payment banks conduct a biometric verification of the customer within one year of opening the bank account. If the customer fails this verification, the bank account will not function.
The RBI has cracked the whip on other payment banks as well in the past. In March, it imposed a fine of Rs 5 crores on Airtel Payments bank for violating KYC checks. The RBI had temporarily halted the e-KYC process of the payments bank for opening accounts of customers without taking their full consent.
Elton Gomes is a staff writer at Qrius.
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