Paytm Gets RBI Approval to Launch Payments Bank

Paytm has announced that it has received RBI approval to formally launch the Paytm payments bank. Vijay Shekhar Sharma, the founder of Paytm, wrote in a blog post that he intends to take a full time executive role in the Paytm payments bank. The company was one of the entities granted approval to launch a payments bank in 2015; it had been targeting a Diwali launch but missed its deadline a couple of times. The first payments bank in India was launched by Airtel in November, which is running a pilot in Rajasthan.

Paytm Gets RBI Approval to Launch Payments Bank“At Paytm Payments Bank, our aim is to build a new business model in banking industry, focussed on bringing financial services to 100’s of millions of un-served or underserved Indians,” Sharma writes in the announcement. “With power of technology and innovation-at-scale, we aim to become a benchmark in world of banking.”

Earlier on Tuesday, Paytm also announced the integration of the UPI as a payments channel to recharge its wallet balance. This means that you could theoretically recharge your Paytm Wallet with the BHIM app. Of course, that money now won’t have to be transferred to a bank account – Paytm had earlier announced that it’s going to merge its Wallet and Payments Bank, so your wallet balance will automatically become your bank balance.

A Payments Bank is – in case you’re not already familiar – a kind of bridge between prepaid wallets and full fledged bank accounts. The idea is that the companies selected for this licence would be able to reach deeper into India than banks, which are more infrastructure heavy, and this would help improve financial inclusion, something that’s become particularly important in a post-demonetisation India.

 

Payments banks can accept deposits restricted to Rs. 1 lakh per customer, and are allowed to pay customers interest on the money that is being deposited. Airtel is offering 7.25 percent per annum interest to customers through its payments bank. It’s not clear what Paytm payments bank will offer.

Unlike a regular bank, however, a payment bank can’t loan money to people or issue credit cards. Also, the payments banks are only allowed to invest the money customers deposit into government securities.

While payments banks can’t issue credit cards, they can issue ATM and debit cards – although again, Airtel, which is the only payments bank at present, has chosen not to do so. Payments banks can be integrated with your savings bank accounts via IMPS and NEFT transfers. This means that it’s a full part of the banking system, unlike a wallet. Payments banks should therefore be able to enable UPI payments – so you could have a Paytm account but still pay someone who does not use Paytm. The reverse would also be true – you could now have a Paytm account, but receive money from anyone with a working UPI app.

Paytm Waives Off Merchant Fees on Offline Transactions

Paytm Waives Off Merchant Fees on Offline Transactions

Paytm announced Wednesday that it is waiving off per-transaction merchant fees for wallet transactions made offline, to drive adoption of its wallet.

There are only 1.3 million PoS (point of sale) terminals in India, which are typically given to more established outlets that meet the bank’s stringent KYC norms, said Nitin Misra, head of payment products at Paytm. Merchants often ask customers for an extra two percent fee when charging by credit card, he said, explaining why 95 percent of India still transacts with cash. “That’s why you don’t see a credit card terminal with your paanwallah, sabjiwallah, and a lot of other places. There is a hardware requirement, you have to get the card machine, there’s a monthly rental to it,” He said.

Merchant costs for debit and credit card based payments range from 0.5 percent to 2.5 percent, based on the type of card, in addition to hardware costs. As per RBI norms, wallets users cannot add more than Rs. 25,000 in a month. Paytm’s merchant wallets can receive as much funds as they want, now without a transaction fee.

Paytm had rolled out a QR code based payment system in October 2015, which enables small stores and service providers to accept payments from customers using the its app. Its QR code solution doesn’t need a data connection, with the merchant receiving a transaction confirmation through SMS.

“We wanted to grow this ecosystem, and don’t want to levy any chargues on the consumer, or give merchants a reason to pass the charge back to the customer,” Misra said. While merchants won’t have to incur a per-transaction fee, Paytm charges between 1 percent to 1.2 percent when transferring funds to the bank, he said.

“We started first with the local markets in and around Paytm office, then we took it to autos, taxis, and we’ve tied up with Indian Oil gas stations. We’re tying up with fleet management solutions, we’ve already done a pilot with a couple of super marts, toll roads, mass rapid transport, metro, so we’ve been at it since August,” he said, adding that the company is testing a ‘sound pay’ option to make payments using sound waves.

Paytm said that it has nearly 120 million wallet users, and 150,000 merchants on board, and is doing 3.5 million O2O (Online-to-Offline) transactions every month.