Monday, December 22, 2014

Paytm to apply for payment banking permit

Paytm becomes the first entity to launch a service that is part of the RBI's financial inclusion initiative.

Paytm, a fast-growing mobile wallet company, is set to apply for a payment banking permit, becoming the first entity to formally announce interest in launching a service that is part of the Reserve Bank of India's financial inclusion initiative. The company also plans to expand services overseas, starting with Singapore. 

Paytm is planning to go solo on the application and won't be partnering with any banks, Amit Lakhotia, vice-president of business at Paytm, told ET. "Out of the total of 30 million mobile wallets in the country, 18 million are Paytm wallets and we feel we are better poised to do this on our own." 

He said the company doesn't have the cost structures which banks have. This should allow it to offer incentives, including higher interest rates compared to banks, to attract customers.
A mobile wallet is a prepaid payment instrument. It allows customers to digitally store money in a secure virtual wallet and use it for transactions such as DTH service top-ups, mobile recharges, paying utility bills and buying movie tickets. 

RBI rules do not permit cash withdrawals from mobile wallets, something a payment bank will be allowed to offer. A payment bank will be allowed to take deposits of up to Rs 1 lakh. But it will have to invest the money in government securities and cannot lend. The deadline to apply for payment banking licence is January 16. 

"This is a very high growth area. A country like Kenya already transacts billions of dollars through a similar model and this along with other schemes like Jan Dhan Yojna (the government's financial inclusion programme) could be a game changer for India's financial inclusion," said Prashant Singhal, global telecommunication leader at EY. 

Paytm wants to provide the semibanking services especially to mobile phone users, pitting it directly against top telecom providers such as Airtel and Vodafone which have a much deeper and wider distribution network and also offer mobile wallet services. 

According to industry estimates, Paytm records close to Rs 1,500 crore transactions annually in value terms, compared with Bharti Airtel which, through Airtel Money, does around Rs 2,500 crore. 

Meanwhile, Paytm is set to enter the Singapore market, where it will start offering recharge facilities for taxi and transportation services by early next year. After gaining experience, other possible countries for expansion could include Indonesia, Malaysia and Thailand. 

"Being a highly penetrated smartphone market, it (Singapore) will be a great second market (after India) for Paytm," said chief executive Vijay Shekhar Sharma. One97 Singapore will operate as a wholly owned subsidiary of the Indian parent. 

In Singapore, Paytm aims to reach up to two million customers in the first year of operations. 

The Paytm app is likely to be used for payments for telecom services, power, broadband, seasonal parking and prepaid card services. The company also expects its product to become the recharge app for EZ-Link, the smartcard used by Singapore's residents for paying transportation fees in metros, trains and buses.

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