320 Mn+ registered users. 1 Bn transactions per quarter. $20 Bn (INR 1.3 Lakh Cr) annualised gross transaction value (GTV). 7 Mn offline merchant base. $2.3 Bn in total funding. The homegrown decacorn: Paytm’s journey, from a mobile recharge platform to launching an ecommerce arm to finally introducing Paytm Payments Bank, has been nothing short of spectacular.
Launched in May 2017, Paytm Payments Bank is the country’s third payments bank to go live, after Airtel and India Post. Its emergence has given Paytm a new identity of an umbrella organisation offering a host of digital payments services to its customers.
For the banking neophytes, conceptualised by the Reserve Bank of India in 2013-14, payments banks are essentially a new model of banks that can accept a restricted deposit of up to $1,533 (INR 1 Lakh) per customer. While they are barred from issuing loans and credit cards, these banks are allowed to operate both current and savings accounts and can issue services such as debit cards, mobile wallet, ATM cards and net-banking.
It was in 2016 that the RBI offered its in-principle nod to 11 entities for establishing payments bank operations. Among them were Fino Paytech, Airtel, India Post, Paytm, Cholamandalam Distribution Services Ltd, Tech Mahindra Ltd, Reliance Industries, and National Securities Depository Limited and others.
So far, while the founder Vijay Shekhar Sharma has been at the forefront of every other vertical Paytm is into, Paytm Payments Bank has got its ambitions driven by CEO and MD Renu Satti. Under her leadership, Paytm Payments Bank is now on a mission to bring digital and financial inclusion by enhancing access to banking services in rural India.
With a target of reaching 500 Mn bank accounts by 2020, the country’s third payments bank is aggressively trying to set up more than 100K banking outlets by the end of this year. It is also in the process of adding a wide range of financial products to reach a larger audience on both retail and the corporate ends.
During a recent interaction with Inc42, Paytm Payments Bank CEO and MD Renu Satti gave a glimpse of the company’s current projects, future plans and the core philosophy that has remained unchanged since Paytm’s inception in 2010.
The Beginnings Of Paytm Payments Bank
While Paytm was initially planning to launch its payments bank in November 2016, Airtel beat it to become the first payments bank in the country to go live. Paytm parent One97 Communications, on the other hand, issued a public notice in December 2016 that it would be transferring its wallet business, to the newly-incorporated payment bank entity. A month later, it received a nod from the Reserve Bank of India to formally launch the Paytm Payments Bank.
Incidentally, it was around the same time that India Post also received a final license from the central bank, in order to kickstart its payment bank operations. Finally three months after receiving the license, Paytm Payments Bank officially commenced operations in May 2017 and later in November 2017, it was formally inaugurated by Finance Minister Arun Jaitley.
Paytm Payments Bank is a mobile-first bank with zero charges on all online transactions (such as IMPS, NEFT, RTGS) and no minimum balance requirement. For savings accounts, the bank currently offers an interest rate of 4% per annum, which is slightly lower than the interest rates of Airtel and India Post.
Currently, of the eleven entities which received in-principle licences to launch payment banks, only six are operational. These include India Post Payments Bank, Airtel Payments Bank, Fino, Aditya Birla Idea Payments Bank, Paytm Payments Bank and newest entrant, Jio Payments Bank.
As of September 2017, Fino Payments Bank had 410 branches and over 25,000 touch-points across the country. As shared by MD and CEO Rishi Gupta with Inc42, the bank aims to ramp up the number to 100K banking outlets in the next three to five years, mobilise deposits worth $1.56 Bn (INR 10,000 Cr) and turn profitable by 2020. Airtel Payments Bank, on the other hand, currently leverages over 300K Airtel retail outlets as its banking points.
2017: Laying The Foundation And Building The Product Stack
“2017 was the year for building the foundation of Paytm Payments Bank. By that, I mean we wanted to put everything in place in terms of our processes, systems, policies and overall tech infrastructure. Because it is a bank, we also had to ensure that the compliance was done properly,” Satti avered.
While building the foundation, the bank also launched a number of products such as savings accounts, fixed deposit, current account, digital debit card and physical debit card, all in the span of six months. This, as per Satti, was in line with the company’s aim to become a complete digital payments solution that, in turn, enhances financial inclusion in the country.
In the months since its launch, Paytm Payments Bank has rolled out a number of other products and services, geared towards reaching more customers across India. In September last year, for instance, it unveiled the Paytm RuPay Debit Card. The Platinum RuPay debit card, which has to be ordered separately, is accepted across most online websites, apps, and stores.
The card is designed to allow users to make payments through Paytm even on rival ecommerce sites that do not offer the option. As per the details on the website, the debit card also includes free insurance cover of up to $3,116 (INR 2 Lakh) in the incident of death or permanent total disability.
In fact, according to Renu Satti, the limitations set by the RBI on payments banks have actually helped the company to think more innovatively in terms of the product offerings. For instance, as per the guidelines, a payments bank customer cannot have more than $1,533 (INR 1 Lakh) in his/her account at the end of the day. However, there is no intra-day limitation as such, which means that customers can transact much more during the course of the day.
In this regard, the company has created a wealth product in January 2018 that allows customers to transfer the excess money from their account to a fixed deposit (FD) that is created automatically by a partner bank. Unveiled in January 2018, in collaboration with IndusInd Bank, the facility ensures that a fixed deposit is created whenever customer balance exceeds $1,533 (INR 100K) at the end of the day.
As claimed by Satti, Paytm Payments Bank customers can redeem their deposits instantly, without paying any pre-closure or miscellaneous charges. Further, if a customer becomes a senior citizen before the maturity period, the FD will be auto-renewed under the senior citizen scheme, thus earning higher interest.
Renu Satti added, “Through this, the customer can now earn much more than what he/she would with a savings account. The interest rate on FDs is 6.85%. So, the innovation of the product is that an FD is getting created automatically, without having to physically visit a bank and set it up.”
How Paytm Payments Bank Is Gaining An Edge With Its Corporate Offerings
While the payments bank already has quite a few products and services in the retail segment and is also currently in the process of rolling out on-demand fixed deposits, corporate offerings are slowly becoming a major focus of Paytm Payments Bank, Renu claimed.
Elaborating further, she said, “Over the last several months, we have bolstered our corporate offerings and have launched an e-wallet in this segment. We already have a food wallet for our corporate customers.”
The food wallet by Paytm Payments Bank actually aims to replace the food coupons that employees have until now been issued by their employers. The offering, Satti averred, is the bank’s anchor product in the corporate segment. In this vertical, it has also rolled out another facility: the gift wallet.
By leveraging its tech infrastructure, it is now working to create a single solution that caters to all kinds of corporate spendings. “Whatever is happening in the corporate world, we want to turn them into digital. All the reimbursement products – from travel expenses, petrol to medical expenses, phone bills – will be covered by our corporate offering. And all of this is available through a single interface,” stated the payments bank’s CEO.
For the employer’s side, there will be one panel that controls everything, including food wallet, gift wallet, reimbursement services and rewards. At present, 500+ companies give the Paytm food wallet to their employees. Salary accounts for employees is another product that is currently in the making.
Shedding light on the rationale behind offering salary accounts, Satti said that all the use-cases that one’s salary is spent on – such as grocery, kid’s school fees, travel expenses, medical bills – have already been created in the Paytm ecosystem. So, essentially, with the help of the Paytm Payments Bank app, customers can deploy the money from their salary accounts seamlessly.
2018: Expanding Reach Through 100K Banking Outlets
While 2017 was the year for building the payments bank’s core foundation, 2018 will be the year to aggressively expand our banking outlets, Satti averred. With a target of setting up 100K banking touchpoints, the company is now actively leveraging its 7 Mn offline merchant base to reach people in rural and semi-urban areas across the country.
Here are some recent initiatives Paytm Payments Bank has taken to bolster its growth and put a groundwork in place for successfully scaling its branch network pan India.
- December 2017: Committed to invest $466.5 Mn (INR 3000 Cr) over the next three years to create an extensive network of offline consumer banking touchpoints.
- December 2017: Launched 3000 ‘Paytm Ka ATM’ outlets in cities such as Delhi/ NCR, Lucknow, Allahabad, Aligarh, Varanasi and Kanpur and more, roping in local retail shops and mom and pop stores, to provide basic banking facilities
- February 2018: Announced a partnership with Mumbai Dabbawalas, around 5000 dabbawalas have been equipped to collect instant payments for their ‘dabba’ service through Paytm QR.
As clarified by Satti, these shops will function as an ATM and a consumer can both deposit and withdraw the money from his savings account. Also, they will take in requests for the opening of new savings account in the Paytm Payments bank and link their Aadhaar details to their Paytm accounts.
She further stated,
“The Paytm Ka ATM banking outlets is our step towards ensuring every Indian has access to banking facilities. We believe this hyperlocal model of banking will play a crucial role in enabling hundreds of millions of under-served and unserved customers to gain access to quality banking services.”
The idea, according to the Paytm Payments Bank CEO and MD, is that people, especially in rural areas and smaller cities, will no longer have to walk five to six kilometres just to get access to banking services. Instead, there will be a Paytm banking outlet within one kilometre of every person.
In addition to setting up banking outlets, the Paytm Payments Bank is also in the process of launching more products and services, both for the retail and the corporate segments. Investment products constitute one such focus area. Last month, the bank’s parent entity announced that its wholly-owned subsidiary Paytm Money Limited received the official approval of SEBI (Securities and Exchange Board of India) to become a Registered Investment Advisor. This license will allow Paytm to roll out the investment and wealth management products to Indian consumers.
As per latest reports, the digital payments giant is planning to launch a dedicated app called Paytm Money to facilitate investments in mutual funds. On the topic, Satti said, “As per the payments bank guidelines, we can not offer investment products directly, but we can always partner up. For some of these products, we are leveraging our partner ecosystem.”
Leveraging Paytm’s User And Merchant Base To Bring Financial Inclusion
Since its inception in 2010, Paytm has evolved from being a wallet company to a full stack payments provider by offering multi-source and multi-destination solutions. Apart from mobile recharges, utility bill payments as well as travel, events and movie booking, the homegrown decacorn facilitates payments at kirana stores, enables school and college fees with Paytm QR.
At present, more than 7 Mn offline merchants accept payments using Paytm QR. The digital payments company has already achieved a run rate of 1 Bn transactions per quarter, recording a four-fold jump in its annualised gross transaction value (GTV) from $5 Bn in March 2017 to $20 Bn (INR 1.3 Lakh Cr) last month.
Additionally, over 50% of the company’s transactions are from tier II and tier III cities. As an online utility payments service provider, it is available in 3,000 cities and towns. Paytm’s vast user base has also helped its payments bank claims to attain up to 180 Mn customers, of which a majority are currently wallet users.
As claimed by Satti, as of February 2018, the payments bank has received more than $153.2 Mn (INR 1,000 Cr) in deposits. As stated by Renu Satti, so far, the bank has received debit card orders from 800+ cities across India. In a bid to reach out to 500 Mn bank accounts by 2020, the company has also committed an investment of $500 Mn in KYC (Know Your Customer) operations.
The Tale Of Numbers: Investments, Losses And The Road To Profitability
Since its conception, Paytm Payments Bank has received regular investments from founder Vijay Shekhar Sharma and One97 Communications. Presently, Sharma holds a 51% stake in the Payment bank, and the remaining 49% is controlled by One97. Till date, it has raised total funding of $61.78 Mn (INR 400 Cr).
Despite the continued investment, between August 2016 and March 2017, Paytm Payments Bank reported losses of around $4.6 Mn (INR 30.7 Cr). According to its MCA filings, the firm saw a turnover of $378K (INR 2.47 Cr) during the said period. The total expenditure touched $5 Mn (INR 33 Cr), while the bank’s authorised capital reached $61.2 Mn (INR 400 Cr). At the time, the bank’s net worth was estimated at $28.6 Mn (INR 187 Cr).
Satti, however, claims the losses were actually investments Paytm Payments Bank made before launching its operations. She said, “These are, in fact, the pre-launch numbers. The funding we raised was invested in technology, training, compliance and a bunch of other things. We will continue to invest aggressively in tech infrastructure, team building and KYC.”
While the losses were likely the result of increased expenses during the first year of the bank’s operations, Satti believes that Paytm Payments Bank could become self-sustainable and even hit profitability within the next two to three years.
Poised to reach $500 Bn by 2020 according to a report by Google and Boston Consulting Group, the digital payments segment in India has witnessed a sea change in recent times. As per the report, cashless transactions in the consumer payments segment is expected to double to 40% in the next three years.
Although there is an increased awareness about digital payments in the country, payment banks have not yet been able to attract huge deposits or traction. A report in Bloomberg Quint, based on an RTI request to the RBI, showed that the country’s first four payments banks had outstanding demand deposits worth $36.52 Mn (INR 236.45 Cr) as on September 30, 2017. A majority of the demand deposits were with Airtel Payments Bank which had deposits worth $34.6 Mn (INR 224.03 Cr) as of September.
Fino Payments Bank, which started operations in July 2017, held deposits worth $1.05 Mn (INR 6.8 Cr), while Paytm Payments Bank had outstanding demand deposits worth $502K (INR 3.25 Cr) as on September 30 last year.
Basically, demand deposits are the funds that customers hold in their savings and current accounts. For universal banks, CA/SA (Current And Savings Account) deposits from the base of low-cost funds which facilitate cheaper lending. But for payments banks, the RBI has levied certain limitations. Also, these banks are also not allowed to give loans and are required to park most of the deposits in government securities.
Are these restrictions on deploying deposits making it tough for the payments bank business to be profitable? The withdrawal of three out of the 11 recipients – Cholamandalam Distribution Services Ltd., Dilip Shantilal Shanghvi and Tech Mahindra Ltd.– from opening their payments bank might point to the fact that as customer deposits are hard to come by, the uncertainty on profitability remains a question.
Nevertheless, with nearly $62 Mn in its kitty and Paytm’s vast user and merchant base at its disposal, Paytm Payments Bank likely stands a good shot at breaking even and becoming self-sustainable, as India moves closer to a digital, cashless economy.