Paytm aims to disrupt the payments banks space

Paytm is one of the 11 entities that has got in-principle nod from the Reserve Bank of India (RBI) to set up payments banks. In an interaction with Deccan Herald, Amit Lakhotia, Vice President, Payments, Paytm, says payments banks will make transactions easier.

“Almost half of Indians do not have bank accounts and most of them, nearly 90-95 per cent of them, use ATM cards to withdraw money and use cash for transactions. Payments banks come with a specific purpose to make transactions easier. The typical banking model is the CASA model. It is like you take deposits from one set of consumers and lend it to a different set of consumers and you keep the difference. But the payments bank model is primarily the payment model where you make money in every transaction,” adds Lakhotia.

According to the RBI, “The ‘in-principle’ approval granted will be valid for a period of 18 months, during which time the applicants have to comply with the requirements under the guidelines and fulfil the other conditions as may be stipulated by the Reserve Bank.”
When asked about the proposed bank’s target and focus, Lakhotia said he would not be able to comment on this because RBI has to approve everything before launching the bank. “We have to submit a plan to RBI, and once we get the final approval, we will take things forward,” he said, adding Paytm already has 100 million consumers. “So we expect a lot of these consumers to the payments bank part. Then gradually get these consumers to start transacting everything using the Paytm payments bank account,” he said.

Margins of these banks will be less since payments banks cannot lend the money and have to depend on the interest from its deposits in government bonds and other transaction fees. On margins, Lakhotia said, “This is a completely different model. Yes, the margins will be low, at least on the traditional grounds. But at the same time our cost will also be lower. But only after we roll out will we know how it works. Typically, the margins would be between 1-2 per cent and also it depends on the volume. Gradually, if we make around Rs 10,000 crore in deposits, then two per cent of it would become Rs 200 crore.”

Payments banks require only physical access points than full-fledged branches, and licensees who are mobile phone operators such as RIL, Aditya Birla, Airtel and Vodafone have many access points across the country. When asked whether this would be a disadvantage for Paytm, Lakhotia replied that it is okay as these people have also worked over a period of time for these access points. “It also depends on what kind of business form you are building up. We will have physical access points and in future they will grow as branches and ATMs,” he said.

Synergies from Paytm, Alibaba

Lakhotia said the bank would get synergies from Paytm. “Users are comfortable transacting with Paytm. While at a company level we are different, but the trust associated with one brand is more important. Alibaba has been in this business for long. They have operational as well as strategic experience. While building it all along, it has seen a very sharp growth in this segment,” he said. What kinds of services are expected from payments banks, and especially from the Paytm payments bank? “We can’t reveal it before we receive the final nod from the RBI. As far as maintaining KYC is concerned, we will be focusing a lot more through technology, Aaadhar and so on. A lot more will happen at the technology level,” he said.

How different Paytm payments bank will be when compared with other payments banks? “Every bank is playing a different game. If you look at us, we have 10 crore customers on the first day to begin with. So, we might be a little ahead, if you look at it that way. It is an open sea,” he said. There are so many Indians who don’t have a bank account and there are enough Indians who don’t transact digitally. Only five per cent of the total transactions happen through electronic medium, and the rest is all done in cash. So there is a lot of scope, he added.

‘It’s a game of execution’

Though RBI doesn’t visualise branchless banking, it allows that payments banks to set up only a controlling office for a cluster of access points. Isn’t this advantage mobile phone players? “It finally depends on execution and who executes it better. There are different companies with different kinds of advantages. Some are already serving customers, and some have a strong distribution network. Every company has different kinds of advantages and it’s about figuring out the execution,” he said.

Since payments banks cannot provide credit cards, their focus will only be on ATM-cum-debit cards. When asked about coming out with more number of cards, he said, “It is not about the number of cards. The question is about the usability of the card. Almost 95 per cent of the cards are used only for withdrawing cash from the ATM. So there is a big opportunity out there and we will have to figure out the right ways of getting the customers to use them,” he said.