In a significant move, the Indian government has effectively halted the operations of Paytm, an e-wallet service widely used by over 300 million people. The drastic action comes as a consequence of Paytm’s parent company, which runs a bank, being found in consistent violation of money laundering prevention obligations.
Earlier in February, The Register reported on the troubles facing Paytm as its affiliated bank faced closure due to regulatory concerns. The government’s decision not only shuttered the bank but also restricted Paytm’s ability to channel new funds to users’ wallets, leading to a deadline for users to add funds until February 29.
Last Friday, India’s Reserve Bank extended the deadline to March 15 but with a crucial caveat: users are now prohibited from adding funds to their Paytm wallets from any source. This restriction has significant implications, likened to a scenario where popular platforms like PayPal restrict members from increasing their account balances.
Beyond being an e-wallet service, Paytm is deeply integrated into India’s financial landscape, operating a widely used payment network with point-of-sale terminals scattered across the country. The Reserve Bank’s latest move forces Paytm to cease using its own bank and engage a third-party bank, Axis, to back its services for merchants. This shift is vital as merchants using Paytm are charged for their transactions.
The decision from the Reserve Bank comes shortly after Paytm attempted to address governance concerns by forming a committee. However, these efforts failed to satisfy the central bank’s demands for improved compliance, leading to the ongoing restrictions on Paytm’s operations.
Vijay Shekhar Sharma, CEO and founder of Paytm, responded to the regulatory actions by cautioning merchants about potential scams related to balance transfers. He also emphasized the continued operation of Paytm’s merchant services, expressing hope that Paytm would persist as a symbol of digital India.
India’s Reserve Bank’s firm stance against Paytm, despite its widespread adoption and local popularity, underscores the regulator’s commitment to enforcing compliance standards in the financial sector. This aligns with the government’s broader policy to reduce the country’s cash economy and combat financial crime, aiming to strengthen the nation’s economic foundation. The unfolding events position Paytm as a symbol of the consequences faced by financial services entities that fail to meet regulatory expectations.
