NEW DELHI: Indian digital payments giant Paytm, also known as One 97 Communications, has been granted a third-party application provider license by India's payments authority.

This move comes as Paytm's banking arm faces imminent closure due to regulatory non-compliance, posing concerns about the continuity of its services.

The license enables Paytm to ensure uninterrupted payments for its customers through India's Unified Payment Interface (UPI) even after the cessation of its banking operations.

Under this arrangement, Axis Bank, HDFC Bank, State Bank of India, and Yes Bank will serve as payment system provider banks for Paytm, as confirmed by the National Payments Corporation of India (NPCI).

Furthermore, Yes Bank will take on the additional role of a merchant acquiring bank for both existing and new UPI merchants affiliated with Paytm.

The NPCI has directed Paytm to swiftly migrate all existing handles and mandates to the designated payment system provider banks to ensure a seamless transition for its users.

The significance of this development is indicated by the growing prominence of UPI as India's preferred real-time payments system.

Despite facing a decline in transaction volume and value from January to February, Paytm remains the third-largest app for UPI payments in the country.

In February alone, Paytm processed a staggering 1.41 billion transactions, amounting to a total value of 1.65 trillion rupees.

However, this marked a decrease from January's figures of 1.57 billion transactions worth 1.93 trillion rupees. PhonePe and Google Pay retain their positions as the top two UPI payment apps in India.

The journey towards obtaining the third-party application provider license has been fraught with regulatory scrutiny.

Last month, the Reserve Bank of India (RBI) instructed the NPCI to review Paytm's request for this license diligently.