Paytm Payments Bank To Turn Into Small Finance Bank

Paytm likely to turn its payments bank into a small finance bank to provide services to businesses and farmers in rural and semi-urban India.

Paytm CEO and founder Vijay Shekhar Sharma told TOI that the company is looking to become a small finance bank if regulators grant approval, just like how India Post Payments Bank had recently changed its course by converting to a small finance bank.

Sharma further added that Paytm sees the need to offer small-value credit to customers which small finance banks are permitted to do, while payments bank are not. He added that the small finance bank model would enable Paytm to provide financial services to the underserved market, especially small businesses and farmers.

Earlier this year, the RBI had notified a discussion paper called “Draft Guidelines for ‘on tap’ Licensing of Small Finance Banks in the Private Sector,” asking industry stakeholders and the public for suggestions. Paytm has submitted its feedback to the central bank highlighting the need to allow payments bank into a small finance bank. The RBI, on the other hand, had said that it will allow payments bank to convert into small finance banks if the model meets its guidelines.

Paytm last week raised $1 Bn in a financing round led by US-based asset manager T Rowe Price. The round also included existing investors such as Ant Financial and SoftBank Vision Fund and Discovery Capital among others for total funding of $ 3.5 Bn. This is the largest amount raised by an Indian startup in 2019, valuing the digital payments company at $16 Bn.

Paytm said it would be investing around INR 10K Cr ($1.39 Bn) to acquire customers and merchants in smaller towns. Sharma said, “The primary agenda is to become more inclusion-centric and provide financial services for the underserved and unserved by leveraging technology as a distribution platform.”

Payments banks can accept deposits of up to INR 1 lakh, offer remittance services, mobile payments or transfers or purchases and other banking services like ATM/debit cards, net banking and third party fund transfers but cannot advance loans or issue credit cards.

The crucial difference is that small finance bank license can provide basic banking and lending services. RBI has till date approved 10 small finance banks which include Au Small Finance Bank, Equitas Small Finance Bank, Ujjivan Small Finance Bank among others.