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On the Paytm Payments Bank launch: online vs offline, transaction fees, KYC and more

Update: This post has references to charges mentioned in a table published on the Paytm blog, which was removed a few hours after publishing. Thus, the comments and comparisons in this post may not be in applicable, in case Paytm charges rates that differ from the ones mentioned in the image below.

Earlier: Paytm’s land-grab of customers in the payments space continues with the launch of its payments bank, and it is making a conscious effort to get customers to make a switch to the Paytm Payments Bank, over other banks. Paytm recently got approval to launch its Payments Bank, with Renu Satti as its CEO; its CEO-designate Shinjini Kumar had resigned from Paytm Payments Bank’s board of directors on the 9th of February 2017.

Paytm is offering a cashback of Rs 250 on a deposit of Rs 25,000 into their back account, but that 1% cashback is immaterial: it’s a one-time thing.

Paytm’s competition now are incumbent banks, who have largely settled, operational businesses, many of them public listed and quarter-on-quarter scrutiny, overwhelming NPAs (Non Performing Assets: unpaid and probably unpayable debts), and thus the inability to change things drastically without hurting themselves. Customers aren’t very happy with banks: for example, HDFC Bank unethically opts customers in for an annual charge, without consent.

Thus the banking ecosystem is ripe for the taking, even though a Payments Bank can do much less than a bank can: 

The Paytm Payments Bank will invest money into government bonds, issue debit/ATM cards. Paytm will eventually offer Insurance, Loans, Mutual Funds offered by partner banks. Paytm Merchants can get a current bank account.

Paytm Wallet to Payments Bank

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– Invite only initially: Paytm Payments Bank available on an invite-only basis initially.

– Wallets are independent of bank account: While the ownership of the Paytm wallets is being moved to the Payments Bank, the Payments Bank account will be independent of the wallet, and it won’t be mandatory for users to open a bank account.

– KYC requirements: KYC Wallets will remain KYC wallets (with higher spending limits), and non-KYC wallets will remain non-KYC wallets. Those who haven’t used the wallet in the last 6 months, or have zero balance, will have to log in to move to the Payments Bank. Note that as of late February/Early March 2017, as mentioned in our Digital Payments report, there were 106.8 million wallets with money in them. At that time, Paytm had 200 million wallet users, so that’s a little less than half with zero balance.

At present, only KYC enabled Paytm users will be allowed to open Paytm Payments Bank accounts, and Paytm has set up an offline KYC center. While Paytm has Aadhaar eKYC enabled, it isn’t mandatory, and the company had said in December that it would accept Voters ID, PAN and Passport as ID proofs.

On how Paytm is approaching its Payments Bank:

1. Not about an interest battle: Paytm is giving users an annual interest of 4% for all savings accounts, paid monthly; most banks give interest on a quarterly basis. Note that the Airtel Payments Bank offers 7.5% interest, so Paytm has taken a conscious decision not to compete in terms of interest paid to users, which is probably a race to the bottom.

2. Zero transaction charges on online transactions: Just as telecom operators are shifting focus from revenue-per-minute to buckets of ARPU (Average Revenue Per User), Paytm is shifting focus from cost-per-transaction to total ARPU.

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This mirrors how Paypal is thinking globally. While talking about its platform partnerships in its most recent earnings conference call, Paypal pointed towards a similar approach, saying: “It also means that we’re not going to necessarily have revenue on all of those transactions, but we don’t have cost either. And that lets us have some of our transactions where we’ll make a good margin on those. Others basically are 0 revenue and 0 cost for us, and the benefit of that is that we can drive engagement across our consumer base. And you see this across other parts of our business where to take P2P as a good example. We do tremendous volume on P2P, and in many situations, those are free transactions. But those consumers that engage with us on P2P are more engaged overall and we find are some of our most profitable customers because we have higher engagement with them overall, across all other transactions where we monetize.”

Paytm’s current goal is to get its users to the bank with its Payments Bank, and transact – whether P2P, online or offline, using Paytm. It is currently in a habit-forming stage, and monetization will come later.

3. No minimum balance requirement: This is something that the government really wants: for people to shift away from cash, and keep money in bank accounts. Many banks have a minimum balance requirement because a zero balance account becomes a cost-center for them. They need consumers to contribute to a float of money that banks can then monetize by investing further. Paytm, by being a largely digital bank, would have largely lower costs, and will want to first get customers to create accounts, and then onboard them towards doing transactions. A large number of people rediscovered their Paytm accounts during demonetization, and who knows what events will transpire to force people to do this. Paytm will probably use triggers to build that user behaviour, and I’m a little surprised they didn’t position interest as cash backs.

Also read: On Paytm’s journey to a Payments Bank, 7.5 years after launch

4. Hate-selling digital: IMPS, UPI, NEFT, transfer money to a Paytm Payments Bank or Paytm Wallet are all free. Anything offline has charges: there’s an annual subscription of Rs 100 + delivery charges for an offline debit card (and replacement), and a Cheque book with 10 leaves costs Rs 100 + delivery charges. Free ATM transactions are limited: 3 free monthly if you’re in a metro, and 5 in a non-metro, and Rs 20 per cash withdrawal and Rs 5 per balance check/mini statement thereafter. Online statements and emailed statements are free, while offline statements are Rs 50 + delivery charges, unless you’re a woman, senior citizen or in the armed forces.

There might be changes in this image above, since Paytm subsequently deleted this image from its blog post

Paytm really doesn’t want its customers to use non-digital modes of payment, and in a sense, it is hate-selling digital to customers. The message that is going to you as a customer is: “If you’re banking with us, and you make the mistake of needing to use cash, you’ll have to pay us (to use your own money).” It is the stick part of carrot-and-stick. Paytm does make it much easier for customers to transact, and is incentivising usage of digital, but also disincentivising usage of cash. This, of course, is in line with Paytm’s Vijay Shekhar Sharma’s so-called “pious mission“.

5. UPI integration: It remains to be seen whether the NPCI will allow the Paytm Payments Bank to integrate with UPI. Remember that UPI, which is owned and operated by the NPCI, and built by a vendor called iSpirt, only allows partner banks on it. It doesn’t allow wallets, and there isn’t yet an instance of a Payments Bank being allowed on UPI. There are governance issues at the NPCI that need to be addressed. More on that here. Also read: Improve NPCI shareholding, governance within 60 days, says Watal Committee

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