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Paytm plans to start India's first payments bank

Economic Times:  September, 2015

New Delhi: Paytm wants to launch the country's first payments bank by the end of this financial year and is counting on its mobile wallet experience to give it a clear advantage over established business houses that will be its main rivals.

"We have sorted payment on walletand we want to leverage that. We will drive and scale up payments business even today, while others have to build payments business," cofounder Vijay Shekhar Sharma told ET. Paytm expects to touch Rs 10,000 crore in deposits in the next three years, building on existing consumer base and technological and costefficient set up, Sharma said.

Paytm has more than 104 million mobile wallets and expects that to touch 150 million by March 2016. "We have an edge on timeline. The next year or a year and half, when these companies get started, we will still be playing the business," Sharma added.

Paytm, the youngest licensee, Reliance Industries, Bharti Airtel, Vodafone, Aditya Birla Nuvo, Sun Pharma founder Dilip Shanghvi, Fino PayTech, Tech Mahindra, National Securities Depository, Cholamandalam Finance and India Post were among the 42 applicants that got approval for starting payments banks. These entities will take deposits,convey remittances and dispense payments to recipients, making them ideal for migrant workers who need to send money home. They can't lend to their customers, though. The business potential from serving millions of unbanked Indians to further the financial inclusion initiative of the government and the Reserve Bank had attracted most of the top business houses. Sharma said telcos such as Vodafone, Airtel and Idea, which have experience in mobile remittances businesses, will start on a near-equal footing.

"We don't do remittances, but our capability is in merchant transactions and personto- person payments," he said. He was confident that Paytm will be the first off the lock with its payments bank. "We want to be the first payments bank in the country. We have technology on our side, simple organisational structure to create, we have people recruitment on, which is critical, as we speak."

Paytm, which officially got the licencelast Monday, is scouting for a CEO with financial services and consulting background. Sharma is ooking for someone with a fresh outlook rather than someone with a banking background who is likely to bring in a traditional approach. The company is hiring 100 staff a month to kick-start its new business. Paytm Payment Bank Ltd, the new company formed to house the payments bank, will also house the mobile wallets business. The wallet license will be surrendered shortly to the RBI and will operate under the payments bank licence. The escrow account, which today is on a thirdparty nationalised bank, will move to the Paytm Payment Bank.

By the end of March, Alibaba Group-backed One97 Communications, he holding company of Paytm's businesses, will have streamlined its operations into payments bank and wallets, commerce and marketing, Sharma said. For its mobile commerce business, which is an online marketplace, Paytm expects to touch a gross merchandising value (GMV) of .`1 lakh crore by 2020 from .`12,000 crore currently. GMV is a measure of the maximum price of goods and services sold on a company's platform and is higher than actual revenue.

Sharma is now focused on the payments bank. He holds 51% in Paytm Payment Bank, One97 Communications owns 39% and 10% is held by a subsidiary of One97 and Sharma. After another round of expected fund infusion of about $400 million by Alibaba Group, which is slated to increase its stake in One97 to 40% from 25% now, the Chinese giant will own roughly 20% indirectly inPaytm Payment Bank. Sharma said the payments bank doesn't need an equity relationship with a financial services firm. Rather, it needs banks as partners because customers would like to feed into a main bank due to restrictions on what payments banks can offer.

One area that could set Paytm apart from its rivals is the experience and expertise gained from its mobile wallets business in checking fraud, which is the primary reason for the failure of such initiatives, Sharma said. "Anybody who gets beyond 50 million customers will go through a huge level of fraud attempts, which can make or break a company," he said. Paytm has built a dedicated team in Toronto.