Recent sweeping actions against Paytm Payments Bank blocking new customer acquisitions, recharging FASTags, and barring funds transfers beyond February 28th represent a crescendo in long simmering tensions with the banking regulator RBI tied to serial non-compliance spanning money laundering norms, conflict risks and process gaps.
Paytm however contends compliance fixes are underway now to restore operations, asserting no user funds face jeopardy still.
But analysts argue the extent of crackdown signals deep supervisory discomfort with Paytm’s rapid payments bank scaling in recent years without tightening laxity simultaneously.
Here are the three reasons attributed by experts, that directly and indirectly compelled RBI to take action against Paytm Payments Bank:
Faulty KYC Enabling Dubious Transactions
Audits unearthed failures around executing diligent KYC validation for merchant onboarding and subsequent transaction monitoring. Large sums flowed without establishing beneficial ownership or origins especially via tied up third-parties flouting basic due processes. Despite red flags, flows continued unabated raising money laundering risks the RBI couldn’t ignore anymore.
Opacity Around Related-Party Dealings
Paytm Payment Bank’s opacity around extensive related-party transactions with other group entities alarmed regulators about potential conflicts of interest eroding corporate governance standards. Its heavy dependence on parent channels for volumes and services signaled blurred autonomy. Founder Vijay Shekhar Sharma’s indirect board influence across group firms added to doubts over decentralized decision structures.
IT Systems, Data Privacy Vulnerabilities
Repeated IT systems and network vulnerabilities came up during security evaluations around data storage, privacy and cloud architectures. Paytm fell short of prompt remediation despite multiple warnings. With growing cyber threats, critical payments data exposure via third-parties or compliance gaps posed high socio-economic risks needing proactive mitigation.
In summary, RBI seems unconvinced of Paytm’s seriousness around shoring operational and technological loopholes enabling illegitimate flows or information leakage despite patient engagement. The shock treatment intends jolting executive attention before public trust erodes in India’s payments backbone allowing illegal activity.
