Amazon Pay Payment Gateway : Paytm 'abandons' payment bank model, bids to switch to lending for MFIs

Vijay Shekhar Sharma, founder and CEO of Indian mobile payments platform Paytm, recently said that Paytm plans to transform its payments bank into a mini-finance bank, according to foreign media reports. The company aims to boost profitability by offering loan services to consumers.

Raghuram Rajan, former Governor of the Reserve Bank of India (RBI), introduced the concept of a "payments bank" model.

It was noted that India's "Payments Bank" model aims to provide financial services to people in remote areas of the country. Payment bank services can be accessed through unstructured supplementary service data (USSD) and interactive voice response (IVR) technology on non-smartphones.

However, at present, these payment banks offer only simple financial services such as deposits and withdrawals.The RBI has set a deposit ceiling of Rs 100,000 (about Rs 9,848) for payment banks to ensure that they do not attract urban dwellers and the affluent who already have access to banking services. To mitigate risks, the central bank has also banned payment banks from lending money to users.

RBI has issued 11 payment bank licences, of which three applicants, including Sun Pharma founder Dilip Shanghvi, have withdrawn their applications. Apart from Airtel and Paytm, Indian fintech startups Fino, Reliance Group and India Post Payments Bank are also operating payments banks.

However, recognising the shortcomings of the payments bank model, India Post Payments Bank quickly decided to apply for conversion into a small finance bank and is now awaiting approval from the RBI.

Following in the footsteps of India's Post Payments Bank, Paytm has also decided to tweak its payments bank model.

Sharma said Paytm's payments bank will apply for a small finance bank licence from the government and banking regulators, leveraging its strength in technology to create a low-cost operating model.

According to reports, Sharma currently holds a stake of 511 TP3T in Paytm Payments Bank, while One97 owns the remaining 491 TP3T.

Earlier this year, Paytm is learnt to have submitted its feedback to the central bank highlighting the need for small financial banks following the release of a public consultation paper on small financial banks by the Indian regulator.The RBI has agreed in principle to transform the payments bank into a small financial bank under regulatory guidance.

Media reports indicate that the payments bank model is subject to strict government controls.

In contrast to payments banks, MFBs can provide small loans, issue credit cards and accept deposits of more than Rs 100,000. In addition, MFIs are able to reach groups that are not covered or adequately served by traditional banks, especially micro, small and medium-sized enterprises and farmers.

Sharma said, "We need payment banks to provide microfinance services. Eligible payments banks should be allowed to upgrade to microfinance banks. With low-cost operations brought about by our technological edge, we can cover a wider scope."

According to reports, Paytm recently raised $1bn (roughly Rs 7.07bn) in a new round of funding, mainly for the company's lending business and financial services.

However, global investors have become more cautious in recent months.

Paytm's parent company, One97 Communications, is looking to reduce its operating losses by a third in the current financial year, equivalent to about $350 million to $400 million.

According to a regulatory filing by business intelligence platform Tofler, Paytm's total revenue for the last fiscal year ending March 2019 was Rs 16.68 billion (roughly Rs 1,642 million). In May this year, The Times of India (TOI) reported that most of the company's revenues and profits came from treasury receipts, with cash deposits of just Rs 5 billion (roughly Rs 492 million). In addition, the payments bank entity also runs Paytm's e-wallet business, which in the financial year ending March 2019, accumulated deposits to the tune of Rs 17 billion (roughly Rs 1,574 million).

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