Third-Party Application Provider (TPAP)

Context

The National Payments Corporation of India (NPCI) has authorised One97 Communications Limited, the owner of Paytm, to operate as a Third-Party Application Provider (TPAP) for Unified Payments Interface (UPI) services in the multi-bank model.

About Third-Party Application Provider (TPAP)

• A Third-Party Application Provider (TPAP) refers to an external organisation or entity that offers specialised services or technologies to another company under a contractual agreement. 
• These providers often contribute to various aspects of business operations, enhancing efficiency and allowing the primary company to focus on its core competencies. 
• TPAPs can be involved in several domains, including software, cloud services, analytics, customer support, marketing, and e-commerce platforms.

Key Features

• Integration with Various Systems: These applications are designed to work within multiple operating systems, allowing easy installation and valuable automation.

• Types of Applications: They can be standalone programs or plugins enhancing existing programs’ functionality.

• Wide Range of Use Cases: TPAPs cater to diverse needs like software development platforms, payment processing, cloud hosting, and customer relationship management.

Advantages

• TPAPs (Third-party application providers) focus on the development of particular elements such as analytics and customer relationship management, thus making their applications more efficient than those built within the institution.
• Outsourcing TPAP certain functions improves the company’s performance, saving time and resources in the process needed for core competencies.
• In addition to TPAPs, scalable and easily adoptable solutions that can handle the changes adaptable to the shifting business needs is another benefit that is applicable, especially for fast growing industries or business.

Disadvantages

• The businesses may give up some of the functionality by the use of third-party service providers, where they can be confronted with the challenges of suffering the providers downtime and poor performance if they rely on the provider.
• A provider faces a fair risk of outcomes becoming unfavourable if s/he encounters some problems. The fact that you can run third-party apps sometimes poses a very significant risk especially when working with delicate information, since there exists a chance of information leakage and even violation of data protection regulations.
• The third-party apps might provide out-of-the-box solutions that are not specific to the company’s needs. There may be some difficulties with the integration of these applications with current systems.
• Streamlining customization is a problem point for applications developed externally with less choice.
• It is challenging especially for a startup not to feel like third-party applications can help them save money only to find out they have unseen subscription fees which pile up for later.
• The TPAPs can have different qualities and reliability, and sometimes the poor applications might give problems or even be avoided by using more resources.

Impact of NPCI’s Approval of Paytm as UPI TPAP

• Paytm will be able to continue offering UPI services to its app users even after its banking unit, Paytm Payment Bank Limited (PPBL), closes. 
• As a result of regulatory action against PPBL, Paytm is transitioning to the TPAP model and will collaborate with several banks, including Axis Bank, HDFC Bank, State Bank of India, and Yes Bank, to facilitate UPI transactions.
• This move increases competition in the digital payment space, encouraging innovation and benefiting consumers. 
• Additionally, allowing Paytm to operate as a TPAP promotes wider access to digital payments, contributing to efforts towards financial inclusion. 
• A strong UPI ecosystem is crucial for India’s economic growth, making transactions easier, supporting business growth, and creating more opportunities for entrepreneurship.

Conclusion

The approval granted by the National Payments Corporation of India (NPCI) to One97 Communications Limited (OCL), the parent company of Paytm, to function as a Third-Party Application Provider (TPAP) for Unified Payments Interface (UPI) services under the multi-bank model, marks a positive and strategic advancement in the digital payments domain in India.

Source: The Indian Express

UPSC Prelims Practice Question

Q.Consider the following statements about Third-Party Application Providers (TPAP) in the context of the Unified Payments Interface (UPI)

1. TPAPs are entities that facilitate UPI transactions without actually holding a user’s bank account.
2. The National Payments Corporation of India (NPCI) is responsible for granting approval to entities to operate as TPAPs.
3. TPAPs are allowed to directly debit and credit user bank accounts during UPI transactions.

Which of the statements given above is/are correct?

a. 1 and 2 only           b. 2 and 3 only

c. 1 and 3 only           d. All of the above

Ans – “a”

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