After shifting its nodal accounts to Axis Bank last week, One 97 Communications, or Paytm, is now in the process of applying for a Third Party Application Provider (TPAP) licence with the National Payments Corporation of India (NPCI), sources told businessline.

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Government-backed NPCI oversees and regulates the Unified Payments Interface (UPI) platform and allied financial services that work on the network. Payment Service Providers (PSPs) need to obtain a TPAP license from NPCI to run UPI services and facilitate merchant transactions through partner banks. 

TPAPs are responsible for complying with guidelines prescribed by both NPCI and their partner PSPs (banks) and facilitate RBI, NPCI, and other agencies to access their data, information, and systems with respect to UPI transactions. 22 entities, including Amazon Pay, Google Pay, Mobikwik, PhonePe, and WhatsApp, currently have a TPAP licence.

No licence

Paytm is presently not classified as a TPAP due to UPI transactions being routed through Paytm Payments Bank. The parent company, on a standalone basis, has no licence outside of a payments bank licence. 

The application for TPAP is expected to be supported by Axis Bank, industry players said, adding that NPCI too is keen to ensure that the licence is granted before March 15 so that customers and merchants can continue to use Paytm for UPI payments.

Axis Bank is a payment partner for most major UPI players, such as Amazon Pay, Google Pay, and PhonePe. Paytm is also reportedly in discussions with other banks, such as HDFC Bank, ICICI Bank, and YES Bank, with which it was already working in various capacities, for partnering on UPI services.

TPAP is Crucial

With RBI asking Paytm Payments Bank to wind down operations and shut its nodal accounts effective February 29, the TPAP licence is crucial for Paytm to continue its operations amid concerns of RBI revoking the payments bank licence once customers and merchants have migrated to other platforms or linked their accounts to other banks.

“One 97 does not have a PPI (Prepaid Payment Instrument) licence, and the PA (Payment Aggregator) licence was rejected. They have no option but to apply for a TPAP licence to maintain operations,” said an industry official in know of the matter.

While Paytm has the option to reapply for a PPI or PA licence, given the regulatory concerns surrounding customer onboarding and inadequate KYC, the RBI is unlikely to approve the same in the immediate future, industry players said.  While a TPAP licence will allow Paytm to continue operations, it will lose the advantage of bank licence and also fall behind peers such as PhonePe and Google Pay, which also have a PA licence

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As of January 2024, Paytm Payments Bank was the third-largest platform for UPI payments, after PhonePe and Google Pay. It processed 157 crore transactions worth ₹1.9-lakh crore during the month, accounting for a market share of 12.7 per cent in terms of volumes and 10.3 per cent in terms of value of transactions.

Paytm did not respond to queries on TPAP licence.