PayTm has been aggressively working towards the launch of its payments bank through hiring new executives and striking partnerships to strengthen the platform. The launch, which was supposed to first take place in the beginning of this financial year, will now take place before November this year. This was revealed by Vijay Shekhar Sharma who plans to start the bank with an initial capital of 300 crores.
PayTm will be the first of 11 companies, who had got a license for payments bank from RBI in last year, to start the payments bank. It is noteworthy that 3 companies out of those 11 have already withdrawn their applications citing doubt over the business model and profitability of these banks.
These companies include Tech Mahindra; Sun Pharma promoter Dilip Shanghvi and his partners IDFC Bank Ltd and Telenor Financial Services; and Cholamandalam Investment and Finance Co.
However, PayTm is expecting its payments bank to break even in three to five years. It also expects the business to become the second largest contributor of revenues after its core payments business in about two years.
It is not an easy business and is a long-term game. It should take any payment bank three to five years to make money. If you have enough volumes, you could reach there faster.
said Vijay Shekhar Sharma in an interview.
He further added that he along with One 97 Communications will continue funding the bank till it becomes profitable. Sharma holds a 51% share in the payments bank whereas One97 owns the remaining 49% share.
Payments banks are first of its kind initiative in India aimed towards increasing financial inclusion of rural areas, poor population, and other non-banking population in the country.
The idea is to use the extensive coverage of mobile phones in the country to enable basic banking transactions in remotest areas of India where it is not feasible to set up bank branches.
People can store a maximum amount of 1 lakh in these payments bank and can get an interest on balance just like a normal saving account. These banks cannot issue credit cards or loans but can issue debit cards and ATM cards which can be used on any bank ATM all over the country.
PayTm claims to provide an interest more than any saving bank account of other banks. Since it cannot lend money, PayTm has partnered with non-banking finance companies, banks, and insurance firms to sell cross-banking products such as insurance and wealth management products to drive most of its revenues.
This is particularly useful for the targetted customers of payments bank which include people from rural areas, poor population, and nonbanking population. Explaining about the same, Sharma said,
A common person’s savings is the money kept in his savings bank account. He does not have the luxury of wealth management… we will bring some incredible wealth management tools and we will create a money market fund here, which will not have any lock-in period or any penalty for breaking the bond.
Moreover, these products will be priced at affordable rates, some investments can be even as low as 10 to encourage more and more people towards using payments bank.
In addition to this, the company is also exploring an option to offer financial services integrated with its marketplace e-commerce business. So, one can buy insurance on products that are purchased on PayTm’s marketplace if this becomes reality.
PayTm is aiming to have 200 million accounts including mobile wallets, current accounts, and savings accounts, within 12 months of the launch of payments bank. It already has close to 130 million mobile wallets, so it needs another 70 million accounts to reach its initial target. By 2020, it expects to reach half a billion accounts.
The company will focus on 12 cities in north-east and central India during the first year of payments bank. It will particularly focus on smaller markets such as regions in Bihar, Madhya Pradesh, and Uttar Pradesh during this period.