Can India’s biggest mobile wallet challenge traditional banks in new move?

Photo credit: Thomas Leuthard.

India’s biggest digital wallet Paytm is finally on the way to becoming a bank.

Not a full-fledged bank, but a “Payments Bank” – mini-banks that cannot give loans or issue credit cards, but can take deposits.

In 2015, the government of India issued an approval to various conglomerates, telcos, as well as startups like Paytm to set “banks” up, aimed at granting millions of Indians access to basic banking.

On Tuesday, Paytm founder and CEO Vijay Shekhar Sharma said the startup had received the final go-ahead from the Reserve Bank of India (RBI) – the country’s central banking institution.

Vijay Shekhar did not announce a launch date, but said he was going to be fully invested in the move.

Paytm founder Vijay Shekhar Sharma. Photo credit: Wikipedia.

“This is our chance to build something that every Indian can be proud of. No other role or responsibility means as much to me as the privilege of building Paytm Payments Bank, and I intend to take a full-time executive role in the Bank,” Vijay wrote in a blog.

See: Paytm founder: ‘I’m paranoid about scale. We don’t want to be spread too thin.’

“At Paytm Payments Bank, our aim is to build a new business model in banking industry, focussed on bringing financial services to 100’s of millions of unserved or underserved Indians [sic],” he said.

Paytm was one of the 11 recipients of the RBI’s in-principle payments bank licence. In November, telecom major Bharti Airtel became the first payment bank to start operations in the country.

The move allows Alibaba-backed Paytm to expand in a way that will be hard for rivals to replicate. The company recently launched a mobile point-of-sale in its app aimed at helping small time retailers. Once Paytm, which has over 170 million active users, is able to back that up with basic banking services, it is likely to see an unprecedented uptick in acceptance and usage.

After Paytm has turned into a fully-fledged Payments Bank, its digital wallet can even be used in places which didn’t accept the service before. Users are also likely to be able to convert digital money into cash once Paytm launches debit cards.