Paytm Bank mess stirs up fintech regulation worries.

**TLDR:**

– The Reserve Bank of India (RBI) has directed Paytm Payments Bank to stop taking deposits or providing banking services after the end of the month due to irregularities in controls and checks.
– The action will have ripple effects across the digital payments ecosystem, affecting the millions of users who have Paytm wallets and FASTags.
– Paytm Payments Bank has been found non-compliant with RBI’s rules multiple times since its establishment in 2017.

The directive from the RBI to Paytm Payments Bank has raised concerns about fintech regulation and highlighted the need for tighter surveillance on such entities. The RBI has asked the bank to shut down its operations and has severed the link between Paytm Payments Bank and its parent company, One97 Communications. This will have a significant impact on the digital payments ecosystem, as Paytm accounted for a substantial portion of UPI transaction volumes. The episode also highlights the lax policies adopted by payments banks and other fintech payment gateways when onboarding new customers, which has led to the creation of fake accounts with fake IDs. The RBI’s action against Paytm Payments Bank signifies the importance of regulatory oversight and the need to review the role of payment banks in the financial system.