Banking to Help Alibaba-Backed Paytm Lure 500 Million Users

  • Customer sign-ups to reach 200 million in a year: CFO
  • Central bank gave Paytm approval for payments bank in 2015

Indian digital-payments provider Paytm intends to launch its banking operations within two months, a move that would bolster its push to sign up more than a third of India’s 1.3 billion people as customers, according to its chief financial officer.

The roll-out of its so-called payments bank by March will help the firm backed by Alibaba Group Holding Ltd. reach 200 million customers within a year, CFO Madhur Deora said in a phone interview earlier this month. The company is seeking as many as 500 million in the medium term, he said, without being more specific.

“We are adequately capitalized as of now and the focus is on executing our plans,” said Deora, 38, who joined Paytm in August. He had previously worked with Citigroup Inc. for more than 17 years.

The payments-bank concept was introduced in India as part of a broader government push to give more citizens in the world’s second-most populous nation access to financial services. In August 2015, the Reserve Bank of India gave approval to 11 applicants including Paytm and companies controlled by billionaires Sunil Bharti Mittal and Mukesh Ambani to set up these banks, which are allowed to take deposits and pay interest on the money, but not lend it out.

In this way, the payments bank will bolster Paytm’s digital-wallet services by providing account holders with returns on their deposits and with financial products like mutual funds and insurance policies, Deora said. The company will be moving its digital-wallet accounts into the payments bank, he said.

Demonetization Boost

Payments banks need to have a capital buffer of at least 15 percent of assets and will need RBI approval during their first five years in operation to open branches, guidelines issued by the central bank show. Regular commercial banks are required to hold capital buffers of 9 percent.

The launch of the payments bank offers another boost to a firm that saw usage of its platform soar after Prime Minister Narendra Modi’s November decision to ban high-value currency notes. Within hours of Modi’s announcement, Paytm saw a 1,000 percent surge in money added to customers’ digital wallets, the company said the day after the ban.

Vijay Shekhar Sharma

Photographer: Anindito Mukherjee/Bloomberg

Of the 177 million people that had used Paytm’s wallet as of Jan. 1, about 80 million made transactions in the month of December itself, data provided by the company shows.

Vijay Shekhar Sharma, Paytm’s founder and chief executive officer, holds a 51 percent stake in the payments bank, while the rest is held by One97 Communications Ltd., information available on Paytm’s website shows. Alibaba and its financial affiliate bought a 40 percent stake in One97 in 2015.

Sole Rival

So far, the only competitor to Paytm’s payments bank is Airtel Payments Bank, operated by Mittal’s Bharti Airtel Ltd.

With a presence across the country Airtel Payments Bank offers interest of 7.25 percent on deposits, according to an e-mailed statement from the company. That compares with interest of 4 percent or less at the country’s largest banks including State Bank of India and HDFC Bank Ltd.

Paytm will not seek to attract customers by offering higher interest rates than others, Deora said. Airtel Payments offers free personal accident insurance to each of its account holders.

“Extraordinarily simple technology, a full suite of financial products and India’s largest network of merchant acceptance points are going to differentiate Paytm’s offering,” Deora said.

— With assistance by Saritha Rai

    Before it's here, it's on the Bloomberg Terminal.