Inside Paytm’s mini-bank and its plans to go where banks don’t

Photo credit: olegdudko / 123RF Stock Photo.

Across the street from Paytm’s office in Noida is a man selling chai. The company’s signature blue and white sticker is pasted on the back wall of his store. I scan the accompanying QR code and transfer INR20 (US$0.30) from my wallet into his for a steaming hot cup.

He can use that money to top-up his phone, pay electricity bills, or buy things on Paytm’s ecommerce site. Once Paytm officially rolls out its payment bank – from a license granted by the Reserve Bank of India (RBI) that lets it hold up to INR100,000 (~US$1500) per customer – he’ll also have the option of earning interest on that money or taking it out in cash.

For the chaiwalla, earning interest is another incentive to encourage his customers to pay digitally with Paytm. The list of incentives is already long. Money is easier to track and it doesn’t require spending on hardware like card machines.

Sated with chai, I quiz Narendra Yadav, who is the general manager for strategic initiatives at Paytm. Is Paytm trying to replace banks?

It’s more about filling the gaps where payment is a problem, Narendra retorts. “Banks want customers. Customers want banking facilities. So why are there customers without banking facilities?”

Filling in the gaps

The payment bank is set to release in November – “if the RBI is okay with what we’ve created,” interjects Narendra – and will operate a current and savings account. Interest will be earned on money placed in the savings account. Its e-wallet service will continue to exist.

Interest rates haven’t been set, but founder Vijay Shekhar Sharma has stated in the past that they will match or exceed those of savings accounts in other banks. In India, fixed deposit rates usually range around 7.5 percent.

While earning interest is an opportunity for newcomers to learn more about the benefits that come with saving money, Narendra is quick to assert that Paytm will not involve itself in an interest war to attract customers.

Photo credit: Jon Collirt.

Unlike regular banks, payment banks can’t lend money. There’s not much that Paytm will get out of holding onto it – the company’s profits come from customers paying for things with its many services.

Narendra adds that encouraging the movement of money will answer some of the bigger questions that come with financial inclusion.

Bank account numbers have increased between 2011 and 2014, from 35 percent of the population to 53 percent – an increase of 175 million people – but 43 percent of those accounts were classified dormant in 2015.

Faster to sign people on

For the merchants

Challengers on all sides