‘Only 2 to 3 payments banks will succeed’

Paytm will continue with its plan to start a payments bank, says its CEO

Indian mobile commerce platform, Paytm, continues with its plan to start a payments bank and is unfazed by other companies backing out after being granted a licence, Vijay Shekhar Sharma, founder and CEO of Paytm, said.

“There is a strong case for Paytm running a payments bank. We are looking forward to the launch of our bank,” Mr. Sharma said in an interview. A payments bank would help the the Alibaba-backed payments platform to build a scalable financial services company, according to him. “It allows only a few to succeed. The payments business will have two or three players, and not 20,” he added.

Drop-outs

The Mahindra group’s IT arm, Tech Mahindra, on Tuesday said it was dropping plans to start a payments bank – the third to back out after Cholamandalam Investment and the Dilip Shanghvi-led joint venture.

“I am a little surprised that a lot of people are giving up. It may be because the business model didn’t turn out to be the way they expected it,” he said. One of the reasons why these players have withdrawn is stiff competition amid wafer-thin margins so volume becomes crucial.

In the telecom industry, two to three players, who were aggressive in the beginning, cornered a significant proportion of the market. At the same time, there is a difference in the payments industry as compared to the telecom sector.

“When I say three players, it is like a telecom business model. People who will be aggressive early on will be able to corner a large market. However, banking is not a zero sum business. It means customers can use a second bank and a third app. It is not like telecom where a subscriber is one company’s customer and doesn’t need another network. It (payments) has far more opportunities,” he said.

The company, whose current value is around $3 billion, thinks innovation is the key to succeeding in the payments industry as technology is evolving at a fast pace.

“With the opportunity that exists in India, you can build a large user base on a low-cost business model. Therefore, innovation is needed for the distribution, and the cost too remains low,” he said.

“Payments have to be a core operation of a payments bank. To make sure people are using their payments bank for all payments applications, one has to have a payment app,” Mr. Sharma said.

Distribution

The other important aspect is the distribution network, which also has to be low cost.

Paytm is ‘happy’ with the framework provided by the Reserve Bank of India, which does not allow payments banks to offer loans.

The main objective of the payments bank will be to offer remittance services while they can also sell simple insurance and mutual fund products. “I am very happy with the current business model and there is an opportunity to build a scalable financial services company,” he said.

With the opportunity in India, you can build a large user base on a low-cost business model

Vijay Shekhar Sharma

Founder and CEO of Paytm