Digital payments company Paytm is introducing gold purchases as its first “wealth management” product, allowing consumers to purchase gold online from MMTC-PAMP. MMTC is Government of India, public sector trading enterprise, and PAMP SA is a swiss company and a bullion brand. While, if consumers want delivery of gold, there’s a minimum purchase requirement of 1 gram of Gold, and an additional delivery cost, users can purchase gold in smaller denominations as an investment, and have it kept with MMTC-PAMP as gold balance. The virtual gold is backed by physical gold, the company said. The gold can be sold back to MMTC-PAMP, based on the market price. The approach that Paytm has taken to MMTC-PAMP products is very different from what Amazon India has done, where gold and silver bars and coins are being sold.
For Paytm and MMTC-PAMP, monetization of this service is built into the cost of purchase. It is, for Paytm, “break even on a unit basis”, if you exclude the money that the company is going to spend on marketing it.
This was supposed to be launched for the Paytm Payments Bank, but that seems to be delayed: the company said that regulatory approvals are still awaited. The service is being launched under One97 Communications Ltd. Digital Gold, as the service is called, is being pitched by Paytm squarely as an investment scheme. CEO Vijay Shekar Sharma said that current wealth management products are only for the rich where banks have advisors chasing high-net-worth individuals (HNIs). “It’s a funny situation where those who need them (advisory) don’t have wealth management products, and those who don’t need them have banks chasing them.” He said that for the common man, index funds, and funds with entry and exit loads are complex, “thought lets cut the fees for it. The money you store in Paytm in gold is called gold, not Paytm cash. We chose gold because it’s the most understood product.”
More than 232 million households in India own gold and 50% of rural India saves in gold, the company’s slides indicated. India is the largest gold consuming country in the world, with over 20,000 tonnes. One advantage that the company is pitching is that, when bought offline, the price of gold varies city by city while Paytm has a single price.
In future, Paytm will allow users to get a loan by pledging this digital gold.
KYC and Bank transfer
The Know Your Customer (KYC) requirement for the purchase of gold is being met by Paytm by using its wallet KYC, given that it is mandatory for usage of wallet beyond Rs 50,000 per month. The RBI is looking to bring this limit down to Rs 20,000. However, it’s worth pointing out that while one can purchase gold using the Paytm balance, post sale, money can only be transferred to a bank account. The idea, of course, is to have people transfer the money into their Paytm Payments Bank account, once it launches.
Paytm ran a pilot, opening up gold purchases to a limited set of users, limiting them to purchases of 1 gram during the pilot. Today it has been opened up to all users. Some data from the company: Most purchases have been for less than Rs 100, though the average purchase is for Rs 500. “65% of people on a lengthier horizon didn’t even redeem it in a physical format. they want to view this as a wealth store platform.”