Things are afoot in the payments industry. Its all started in August when RBI approved payment banks licenses for Airtel, Reliance, Paytm, Vodafone and Aditya Birla Nuvo. Several other entities which have been given ‘in-principle’ approval. Mobikwik, Oxigen, Citrus, and Novopay Itz Cash Card also applied for the licence but failed to get the nod from RBI.
Alibaba-backed Paytm wants to be the first one out of these 11 who will start its Bank. Payment banks differ from conventional banks as they are not allowed to lend to customers or issue credit cards. They can, however, accept deposits of up to Rs 100K and can offer current and savings account deposits. They can also issue debit cards and offer internet banking.
Importantly, payment banks allow mobile firms, supermarket chains, and others to cater to individuals and small businesses. Following the approval, the Payments Bank will be set up as a differentiated bank and will confine its activities to acceptance of demand deposits, remittance services, Internet banking, and other specified services.
This can have a profound impact on Indian citizens. There is huge number of Indians are unbanked, and private companies can boost the financial inclusion on ground level. Companies like Airtel, Vodafone can build stronger trust within a larger consumer base.They can provide payment services and small savings accounts to a migrant labour workforce, low-income households, small businesses, and others.
In 2013, RBI had outlined a need for niche banking in the country and announced that a structure will be put in place to allow differentiated banks serving niche interests, local area banks, and payment banks etc. to meet credit and remittance needs of small businesses, low-income households, farmers and migrant workforce.
“This is indeed a great moment for us. We have managed to significantly reduce the cash usage in the economy. With this nod from the RBI, we will be able to further drive our overall commitment to financial inclusion for the unbanked segment, modernize payment systems and build more trust for our services. We have sorted payment on wallet and we want to leverage that. We will drive and scale up payments business even today, while others have to build payments business,” Paytm’s co-founder Vijay Shekhar Sharma said.
Currently, the Alibaba-funded company has over 104 million wallet users, which is double of Visa and Maestro’s India penetration put together. They expects that to touch 150 million by March 2016.
“We have an edge on timeline. The next year or a year and half, when these companies get started, we will still be playing the business,” Sharma added.
The company is determined to be the first and they’re banking on their technology and have already started recruiting. They are looking for a non banking CEO, and 600 employees for the bank at various levels. The new firm would be registered in the next three months. The wallet licence with One97 will be rolled over to Paytm Payment while its e-commerce business will continue to be housed under One97 Communications. While Paytm’s headquarters might shift from Noida to Bangalore, as that is where the best talent in start-ups and e-commerce is considered to be, the payments bank is likely to be based from Mumbai, Sharma said in an interaction.
They’ve been the youngest of the lot to get the license, and are also being the quickest to take up the opportunity immediately after gaining license few days ago. One area that could set Paytm apart from its rivals is the experience and expertise gained from its mobile wallets business in checking fraud, which is the primary reason for the failure of such initiatives, feels Sharma. “Anybody who gets beyond 50 million customers will go through a huge level of fraud attempts, which can make or break a company”, he said.