Alibaba-backed Paytm is venturing into offering financial services in India as a “payments bank” after receiving an approval from the country’s central bank.
With its new license, Paytm would act much like a money transfer and payment service, such as Western Union, with many bank-like capabilities, such as offering savings accounts, issuing debit cards and providing online banking. However, unlike a typical bank, it won’t be allowed to roll credit line to customers or provide any loans.
For now, the company has been offered an “in-principle” approval, under which it would be observed for 18 months for compliance of regulations set under guidelines issued by the Reserve Bank of India, the central banking institution.
Upon fulfillment of all the requirements in the next 18 months, the bank would consider offering a permanent license, which may even have provisions to loans.
The extension of a payments bank license is part of the Indian government’s extensive effort to restructure its financial framework aimed at tapping into the country’s vast unbanked market and moving the country to a more digitally driven financial ecosystem.
Along with Paytm, the government also extended the license to 10 other companies, including three major telecom companies — Bharti Airtel, Vodafone and Reliance — and India Post, Aditya Birla Nuvo, Tech Mahindra, Cholamandalam Distribution Services, Sun Pharma and Fino PayTech.
Of the licensees, the three Indian telecom companies have a solid edge with their extensive cellular and kiosk networks across the country, which can support a whole range of payment banking services without requiring additional infrastructure buildup. The world’s second most populous country has over 915 million connections, which puts a mobile handset in the hands of every second Indian.
Meanwhile, Alibaba, which has over 25 percent ownership in Paytm, is reportedly planning to raise the game by buying up to 40 percent ownership in the company for an additional $600 million. With its current investment, Paytm stands at an evaluation of about $4 billion and 100 million mobile wallet users.