The Impact of Yes Bank Crisis on Other Payment Networks
Recent developments have seen significant repercussions for the entire payment network ecosystem, particularly following the collapse of Yes Bank in March 2023. This article delves into the multifaceted effects of the crisis on various digital payment systems and other banks.
Effects on Digital Payment Systems
The collapse of Yes Bank had immediate and widespread repercussions on digital payment systems, particularly those that relied on the bank for processing transactions. Among the affected services were card payments at terminals, Unified Payments Interface (UPI), Immediate Payment Service (IMPS), Real Time Gross Settlements (RTGS), and third-party payment applications such as PhonePe and BharatPe.
The stoppage of card payments and UPI transactions at terminals deployed by Yes Bank began around midnight on March 5th, disrupting millions of customers' daily transactions. Additionally, QR codes deployed through Yes Bank ceased to function, causing significant inconvenience for small merchants.
Transition to Other Banks
The shift of accounts from Yes Bank to other banks like ICICI Bank, HDFC Bank, and Kotak Mahindra Bank caused considerable disruption. BharatPe has initiated efforts to transfer its merchants from Yes Bank to ICICI Bank, its main banking partner. However, this process is not straightforward, requiring the replacement of QR code bases and renegotiation of agreements.
PhonePe, despite being a direct competitor to BharatPe, also embarked on a transition to a new banking partner. An interesting development was Paytm Payments Bank's offer to use their platform, which was rejected by PhonePe. This move could potentially benefit Paytm, similar to a second demonetization, as it might lure away merchants who were using PhonePe or BharatPe for UPI payments.
API Banking and Startups
The crisis also had a significant impact on API banking. Startups previously using Yes Bank’s APIs for customer verification and test fund transfers now face the challenge of switching to alternative providers. Many startups, especially those that were part of Yes Bank's accelerator program, expressed disappointment over the loss of access to their best-in-class API infrastructure.
Impact on Rural Banking Services
Yes Bank had approximately 31 business correspondents, providing banking services in rural areas, including facilities like AePS. These services, which facilitated cash-out and remittance services, experienced disruptions during the transition period. As these services resumed, rural areas and domestic remittance services faced temporary setbacks.
Overall Impact on Digital Payment Ecosystem
Yes Bank's leadership in digital payments was evident from its dominance in UPI, IMPS, AePS, and government-to-citizen payments. The last financial year saw Yes Bank handling over 27 crore UPI transactions and Rs 2.3 lakh crore in UPI values. Additionally, they processed 15 crore AePS transactions in 2018-19. Therefore, the current crisis could potentially nullify these gains.
In conclusion, the Yes Bank crisis has had multifaceted impacts, affecting not only the bank itself but also other banks and the wider digital payment ecosystem. The transition period will be crucial in assessing the extent of these impacts and how quickly the market can adapt to the new landscape.