Vijay Shekhar Sharma, founder of Paytm, was one of the two individuals, besides nine other entities, to be granted a payments bank licence. He believes that being a payments bank, Paytm can now provide its customers with a three-step life cycle comprising pay, buy and save.
"Our primary strategy is to double down on growth of mobile internet in this country. Paytm exists because of mobile internet," he says.
In an interaction with VCCircle, Sharma discusses plans to start payments bank operations and why he decided to go alone rather than tie up with a bank. He also points to his goal to add half a billion users to the Paytm platform by 2020.
From an e-commerce platform catering to mobile and utility bills, you have come a long way to be given licence for a payments bank. Tell us about Paytm’s journey.
When we started, we had a plan that we will start our journey from building customer trust and extending that trust cycle to many more use cases. We started with payments and then it grew towards buy, which is where the market place came in and now we have been given opportunity to make it to the third level which is save. Our platform will give customer a three-step life cycle—pay, buy and save.
Paytm claims to have 100 million mobile users. How many users are you adding each month?
When we add a user or create a user, he/she must have a done a transaction on the wallet. We today have over 100 million wallets and close to 30-35 million of them are transacting every month. Our target is to have half a billion Indians on our payment platform by 2020.
Paytm's e-commerce website has evolved from a mobile and utility bills payment platform to a full-blown shopping portal with an option for CoD as well. What is the share of traffic involving CoD?
There is no CoD option for digital goods like bus tickets. We divide the business in to two categories—digital and physical goods. For physical goods, 95 per cent of payments are done in advance and only 5 per cent are CoD.
You were one of the two persons to be granted a licence for setting up a payments bank. When do you plan to start payments bank operations?
We want to be the first one to launch payments bank in this country and we are excited about the opportunity that RBI has given us. Probably it should take 18 months but we hope to do it much before 18 months.
Why did you apply for a license in your name? Also, as the license is issued in your name, how much stake will Paytm have in the new company?
RBI had a requirement of payments bank to be majorly held by an Indian national and promoters to be Indians. Our company is foreign owned; so it could not hold more than 39 per cent. I own a majority stake and the rest is owned by the entity. The pitch that we gave was Paytm payments bank and Paytm will hold as much as 39 per cent in the venture.
Being a payments bank, you will be required to have Rs 100 crore as net worth. Will you be looking for new sources of funding for the payments bank?
We are well funded. We were well capitalised when we gave our business plan to RBI; we showed how much we will commit. We will put in more than Rs 100 crore.
Will Alibaba or Alipay be a stakeholder?
Alibaba or Alipay is part of One97 Communication; so they own certain percentage but they won’t be directly involved.
As per the conditions for getting a payments bank licence, you will have to give up your mobile wallet licence. Will all the wallets be converted into accounts?
It is not about giving up mobile wallet licence; as you become a bank, it is the bank that will issue the wallet. So our customers remain with us. For those who don't want their wallets converted will not get an account and will only get a wallet.
You have already tied up with Kirana stores for ensuring financial inclusion. How do you plan to enhance that process?
India has about 200 million bank users and about half a billion are those who should have bank accounts but don't have. In western countries, the financial system helps you transact more and based on that it keeps giving you more money to spend. While this country has had a deposit-led ecosystem, there are more than half a billion people without deposits. It will be an opportunity to provide a banking platform for them.
These people should get bank accounts because they have cash in hand but are not saving it. As they don't do transactions in banks, they can never be given loans or advances that they need. We aim to make access to banking as easy as to a prepaid phone.
Vodafone mPesa, which claims to have a network about 90,000 banking correspondents, also secured a licence. How many banking correspondents will Paytm be operating with?
We believe in a banking and financial service platform for this country; 90,000 is a good number but that is not our benchmark. If it takes a million people or so, we will get that. We have never had a banking correspondent-based model but I am sure we will be able to sign up banking correspondents in a short period of time.
Paytm has been successfully operating in tier II and tier III cities. How do you plan to penetrate rural areas where usage of mobile phones is less?
This country saw a revolution when mobile phone reached everybody. The revolution we are talking about requires mobile internet. Our primary strategy is to double down on growth of mobile internet. Paytm exists because of mobile internet. We wanted to be leaders in mobile internet services. The rates of devices have continued to fall; penetration of data has surged. We will figure out how to deliver services on feature phones but our primary experience will be driven by smartphones.
What are your hiring plans for the payments bank?
Delhi may not be the headquarters of the payments bank; we will go to either Mumbai or Bangalore which is a city of innovation. While we will be partnering with some technology companies for core banking, we will house a technology team as well. We will hire all positions in a few quarters.
You already have tie-ups with RuPay, MasterCard, etc. Are there plans for launching a virtual card in partnership with RuPay?
It is important for India to create its own clearing house. It is sad that when I am going to an ATM, the transaction is going to the US and then coming back. Whenever they cut the pipe, we become dependent on external platforms. RuPay is the pride of this country; we will support it as much possible. We are working with it, trying to find out how we can incorporate it in our wallet. If Paytm can bring it forward, it will help us not to depend on Visa, MasterCard and American Express. We need something to be built in this country for us.
With Paytm ready to move into the first domain of accepting deposits, can we see you tying up banks to provide loan and credit card services?
Payments bank’s scope is deposits and payment processing. Our core strength is payment processing and may be by this year-end we will be bigger than all Visa and MasterCard transactions in this country. Payment is a skill that we bring on the table and that is why we were sure we should operate independently rather than tying up with a bank. Paytm is a technology company; we are not a bank. We have been able to prove to RBI that we can bring a credible payments platform and we can be sincere with deposits too; so I don't yet see the need to bring bank in a partnership.
We would like to work as a partner, not necessarily as an equity partner, with as many banks, as our customers can become feeders to the mainstream banking system. We don't have a tie-up with a specific bank; we want to go solo and open up branches and an ATM network. India, while embracing technological revolution, missed on the financial revolution. If we want to remove poverty, we have to get that done.