SoftBank’s billion dollar baby Paytm becomes a bank, tucks wallet into it

Paytm founder and CEO Vijay Shekhar Sharma posts a selfie with SoftBank chairman Masayoshi Son. Photo credit: Paytm.

Tomorrow Paytm launches its payments bank, which has much bigger scope than its wallet.

The payments bank is a special entity created in India to ease digital payments. The Paytm wallet required frequent replenishment for heavy users because of a low cap on the amount it’s allowed to hold – US$310 currently. It also had limits on monthly transaction amounts.

The payments bank will enable higher deposits – up to US$1,550 as of now. It can issue ATM and debit cards, and enable netbanking and mobile banking. However, it cannot give out loans or issue credit cards like a normal bank.

Paytm’s wallet merges with the payments bank tomorrow, and all current user accounts will be automatically transferred to it. However, users will have to provide KYC (know your customer) identification to avail of the higher deposit ceiling – otherwise their payments bank account will function with the limits of a wallet. The KYC is similar to what’s required for a bank, but it can be done electronically with India’s new Aadhaar citizen identity number.

Balancing China and Japan

Paytm recently split into two entities – Paytm E-commerce and Paytm Payments Bank. Paytm founder Vijay Shekhar Sharma diluted his stake in the parent company, One97 Communications, to invest in the payments bank and personally hold 51 percent stake in it. This was aimed at allaying concerns over Chinese control in a payments bank in India, because Paytm has backing from Alibaba.

It paved the way for launching Paytm’s payments bank with a license from the Reserve Bank of India. Indian telco Airtel had earlier launched a payments bank, and a few others are in the pipeline.

Paytm last week also announced an investment of US$1.4 billion by Japanese giant SoftBank in its parent company, One97 Communications, which holds 49 percent share of the payments bank. The SoftBank investment reduces Paytm’s dependence on Alibaba and strengthens its bid to disrupt banking in India. “This investment will help us grow our leadership in the country’s payment ecosystem, expand our user base, and build a suite of financial services products for our customers,” Paytm says in a blog post.

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Paytm reported 1.5 billion transactions for FY 2016-17 – three times higher than in the previous financial year. More than half of its transactions were from tier-2 and tier-3 cities of India, where it has made efforts to help merchants and users come aboard. “The core mission of Paytm Payments Bank will be to cater to the requirements of the unserved and underserved communities of India, and bring them to the mainstream economy,” says Paytm, announcing the launch of the payments bank.

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Meanwhile, Alibaba made a fresh investment of US$200 million to take the lead in the ecommerce arm of Paytm. This prepares the ground for a direct face-off with global rival Amazon and India’s Flipkart, which also raised US$1.4 billion last month in a round led by Alibaba’s Chinese rival, Tencent.

Converted from Indian Rupees. Rate: US$1 = 64.59 Indian Rupees.