The move ends a prolonged regulatory freeze and marks a significant turnaround for the fintech major, which has faced a series of restrictions over the past three years.
The RBI’s nod marks a regulatory reset for Paytm, clearing the way for growth in merchant acquisition and aggregator services. (Source: AI Image)
In a major positive development for Paytm, the Reserve Bank of India (RBI) has granted in-principle authorisation to its arm Paytm Payments Services Ltd (PPSL) to operate as a payment aggregator, paving the way for the resumption of new merchant onboarding. The move ends a prolonged regulatory freeze and marks a significant turnaround for the fintech major, which has faced a series of restrictions over the past three years.
With the in-principle approval, the central bank has withdrawn the merchant onboarding ban imposed on PPSL, enabling the company to once again sign up new businesses for its payment services. Paytm disclosed receiving the approval on Wednesday in an exchange filing.
The development comes after a turbulent regulatory history. In March 2022, the central bank barred Paytm Payments Bank from onboarding new customers for any of its services, citing persistent non-compliances and material supervisory concerns. In March last year, the bank was further prohibited from accepting deposits and processing credit transactions.
In November 2022, PPSL’s initial application for a payment aggregator licence was rejected due to non-compliance with Press Note 3, requiring the company to reapply.
Press Note 3 of 2020 was issued by the government to regulate Foreign Direct Investment (FDI) from countries that share a land border with India, requiring prior government approval for such investments. The policy was initially introduced as a measure to curb opportunistic takeovers of Indian companies during the Covid pandemic.
The fresh approval, however, now signals that the company has met the necessary compliance and operational standards.
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According to experts, the new licence could help Paytm rebuild momentum in the payments business.
“With an established presence in offline merchant acquiring, this development could support their broader acquiring operations and contribute to increased competition in India’s digital payments market. Their approach to expanding into the cross-border payments space, which offers higher revenue potential, will be one to watch,” says Ranadurjay Talukdar, Partner and Payments Sector Leader, EY India.
Paytm has played a significant role in expanding merchant acceptance in India, including through products like the Soundbox. Following the RBI restrictions, the company was unable to onboard new merchants, which led to the need for a separate approval as an online payment aggregator, while existing merchants were also transitioned to new sponsor banks, said Talukdar.
Ashutosh Sharma, VP, Research Director, Forrester, says getting a payment aggregator license is a step in the right direction. “Payment aggregator is a super set of everything that you do in the payment space. Hence, its licence allows Paytm to kind of build services on that,” he tells FE BFSI.
Moreover, the new licence also comes at a time when UPI is moving towards a monetisation model.
“The new licence is going to be positive for business, especially with the whole UPI becoming chargeable. Eventually, we’ll see UPI turning into just another payment mode. That is good for the aggregator business for sure,” a fintech expert told FE BFSI, requesting anonymity.
While most UPI transactions are free of charge currently, including peer-to-merchant (P2M) and peer-to-peer (P2P) transfers between bank accounts, a 1.1 per cent interchange fee is charged on transactions over Rs 2,000 made through Prepaid Payment Instruments (PPIs).
According to NPCI data, India now processes around 18 billion UPI transactions per month, valued at over Rs 24 lakh crore.
In June 2025, market share data had PhonePe with the highest -- around 46.5 per cent share with 8.55 billion transactions involving Rs 11.99 lakh crore followed by Google Pay with around 35.6 per cent share with 6.54 billion transactions amounting to Rs 8.41 lakh crore. At a distant third position was Paytm with around 6.9 per cent share with 1.27 billion transactions involving Rs 1.34 lakh crore.
While the in-principle approval is a critical step forward, it comes with compliance preconditions, including cybersecurity audits and risk management checks. Paytm will also have to contend with entrenched competition from PhonePe and Google Pay, which dominate the UPI space.
Further, monetisation of payments may face resistance from merchants and consumers unaccustomed to fees in the UPI ecosystem. Effective pricing and service differentiation will be key.
The RBI’s nod marks a regulatory reset for Paytm, clearing the way for growth in merchant acquisition and aggregator services. With its offline merchant network, a diversified payment suite, and the prospect of UPI monetisation, Paytm is positioned to regain momentum in the digital payments market. However, sustained success will depend on execution, including meeting regulatory conditions, scaling merchant onboarding efficiently, and capturing a greater share of India’s expanding UPI pie.
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