New Delhi: Paytm Payments Bank Limited (PPBL), a subsidiary of the digital payments giant Paytm, has been barred from issuing FASTag, an electronic toll collection system, by the National Highways Authority of India (NHAI). This decision affects around 2 crore users of Paytm FASTag in the country, who will have to buy a new FASTag from another authorized bank.
The NHAI, through its toll collection arm Indian Highway Management Company Limited (IHMCL), has issued an advisory for FASTag users on February 16, 2024. The advisory, posted on the social media platform ‘X’, urges highway users to buy their FASTag from 32 authorized banks, excluding PPBL. The advisory also encourages FASTag users to complete the latest Know Your Customer (KYC) process under the Reserve Bank of India (RBI) guidelines.
Why did it happen?
The NHAI’s move comes after the RBI directed PPBL on January 31, 2024, to stop accepting deposits or top-ups in any customer account, prepaid product, wallet, FASTag, and other instruments after February 29, 2024. The RBI’s action was based on a system audit report and compliance validation report of external auditors, which found several irregularities and violations in PPBL’s operations.
According to the RBI, PPBL had failed to comply with the licensing conditions and operating guidelines for payments banks. Some of the issues raised by the RBI include:
- PPBL had not maintained the minimum net worth of Rs 100 crore at all times, as required by the payments bank license.
- PPBL had not segregated its banking and non-banking businesses, as mandated by the RBI.
- PPBL had not obtained prior approval from the RBI for appointing its board of directors and key management personnel.
- PPBL had not implemented adequate systems and controls to ensure the security and integrity of its customer data and transactions.
The RBI’s directive allows PPBL customers to still use Paytm for digital payments as long as their account remains connected to an external bank. However, PPBL cannot issue new FASTag or accept any deposits or top-ups in its existing FASTag accounts after February 29, 2024.
What are the implications?
The NHAI’s decision to remove PPBL from the authorized list of FASTag issuers is a major setback for the payments bank, which had a market share of around 25 percent in the FASTag segment. PPBL had issued over 2 crore FASTag, out of the total 8 crore FASTag users in the country. PPBL has also partnered with over 20,000 dealers across India to sell FASTag.
The removal of PPBL from the FASTag list means that its existing FASTag users will have to buy a new FASTag from another authorized bank before March 1, 2024, to avoid any inconvenience at the toll plazas. PPBL has assured its customers that they can continue using the existing balances on their Paytm FASTag, and that it is working on effective solutions to ensure a seamless customer experience.
The NHAI’s decision also affects the other authorized banks that offer FASTag services, as they will have to cater to the increased demand from the PPBL customers who will switch to a new FASTag. The authorized banks will also have to ensure that their FASTag systems are compatible and interoperable with the other banks’ systems.
What is FASTag?
FASTag is an electronic toll collection system implemented by the NHAI in December 2019. It uses Radio Frequency Identification (RFID) technology to enable automatic deduction of toll charges from the linked bank account of the vehicle owner. FASTag is affixed on the windshield of the vehicle and is scanned by the RFID reader at the toll plaza. FASTag eliminates the need for cash transactions and reduces the waiting time at the toll plazas.
FASTag is mandatory for all four-wheelers and commercial vehicles in India. The NHAI has made FASTag free of cost for vehicle owners till February 29, 2024. The vehicle owners only have to pay a security deposit of Rs 150 and a minimum balance of Rs 100 to activate the FASTag. The toll charges vary depending on the type of vehicle and the toll plaza location.
