In a bid to maintain seamless merchant settlements as before, financial services company Paytm has announced to shift its nodal account to Axis Bank, which was previously used with the Paytm Payments Bank Ltd (PPBL).
In a regulatory filing with the stock exchanges, the company said the new arrangement has been executed by opening an escrow account with Axis bank to ensure merchant settlements continue without any hassle.
The move came as the Reserve Bank of India (RBI) instructed the termination of the nodal accounts of One 97 Communications Limited (OCL) and Paytm Payment Services Ltd (PPSL), which were maintained by PPBL. The RBI terminated this because of “persistent non-compliances” and “continued material supervisory concerns” within the bank.
PPSL, OCL’s wholly-owned subsidiary, has been using the Axis Bank services since its inception. “The shift of the nodal account to Axis Bank (by opening an Escrow Account) will ensure seamless merchant settlements as before. We strive to continue to empower Indians, contributing significantly to the country's financial inclusion journey," a Paytm spokesperson said in a statement.
As per the RBI mandate, the intermediaries receiving online payments need to collect the money in a nodal account and payments to the seller happen from this account without delay.
Nodal account is a special purpose account created for receiving funds from participating banks and remitting to specific merchants, created as per the nodal account guidelines issued by the RBI. When it comes to an escrow account in India, it is a bank account with conditions on ownership of funds. In simple terms, an escrow account’s meaning is a safe house for assets while the transaction process is still ongoing.
“In case there is a need to shift the escrow account from one bank to another, the same may be effected in a time-bound manner without unduly impacting the payment cycle to the merchants. The migration should be completed in the minimum possible time and with the prior approval of RBI,” said the RBI.
The balance in the escrow account should, at no time, be lower than the value of outstanding prepaid payment instruments (PPIs) and payments due to merchants.
“The amount so maintained in the escrow account shall be used only for making payments to the participating merchant establishments and other permitted payments,” according to the RBI. For Paytm, a change in the nodal account is expected to allow merchants to continue accepting digital payments through the Paytm QR code or card machine.
Paytm has over 30 crore users, with around 11 crore monthly transacting users. It also has a network of around 1 crore merchants actively accepting payments. The company has reassured its users that its mobile app, including the QR code, Soundbox and Card Machine will remain operational even after March 15.