Bankers, other likely buyers of Paytm Payments bank want to redo KYC of all merchants, vendors

Several bankers and other players who are looking to buy Paytm’s troubled Payments Bank division want all the KYC formalities and documentation of all on-boarded merchants and vendors who use the platform redone, before they proceed with any takeover

Several banks are eyeing the payments business of Paytm Payments Bank, but they remain cautious due to concerns over the source of funds in its nodal accounts. These banks may insist on conducting fresh KYC (know your customer) checks on the merchant base before proceeding with any takeover, as reported by the Economic Times.

Bankers highlighted worries about fraudulent merchants gaining access to their systems during the transition process. A senior executive from one of the interested banks emphasized the need for careful navigation, acknowledging the significant business opportunity but also emphasizing the associated risks.

The Reserve Bank of India (RBI) had directed Paytm to halt accepting deposits and credit transactions post February 29, citing lapses around KYC rules and money laundering guidelines. While fresh KYC is a standard requirement, it could pose challenges in the event of a hurried transfer before the deadline, as additional formalities may take more time.

Potential suitors for Paytm’s business include HDFC Bank, Axis Bank, and Yes Bank. However, queries sent to these banks remained unanswered as of Wednesday’s press time.

Earlier, it was reported that Paytm’s founder Vijay Shekhar Sharma had met RBI officials to seek an extension of the February 29 deadline, although sources suggest that the regulator is unlikely to grant any extension.

Banks are reportedly cautious before seeking clearance from the regulator, considering the seriousness of the lapses in KYC. Additionally, the Directorate of Enforcement (ED) is expected to launch a formal probe into Paytm regarding issues flagged by the RBI.

During a recent analyst call, Paytm’s chief operating officer outlined two options for the business transfer, with banks likely to opt for fresh onboarding of merchants, involving a detailed KYC process.

Despite the uncertainties, merchants onboarded by Paytm’s partner banks since 2022 are expected to continue accepting payments seamlessly. Paytm Payments Bank has been under an embargo since March 2022, during which time it has been adding merchants exclusively for its partner banks.