Could Paytm emerge as the world’s largest digital bank?

India’s Paytm Payments Bank could emerge as the world’s largest digital bank as it positions itself to service one of the world’s largest unbanked population.

India’s leading digital wallet, Paytm launched the Paytm Payments Bank in last November last year.

Based on recent data from the RFi Group India Payments Council study, Paytm remains the leading digital wallet in the country with 51 per cent of the mass market (those with less than INR 500,000 in investible assets) using the platform for making payments.

In a report on the bank, RFi Group director - consulting Mobasher Zein Kazmi, noted a number of factors that could drive Paytm to become the world’s largest digital bank.

Such factors include India’s large unbanked population, the payments infrastructure deployed across the country and the regulatory framework – both institutional support from the government and its demonization program.

“The introduction of the payments bank is a key milestone in the development and sophistication of India’s financial architecture as Paytm seeks to effectively build the world’s largest digital bank,” Kazmi said.

Low-cost alternatives

Financial inclusion remains a core pillar of the bank’s acquisition strategy as India retains the largest proportion of unbanked globally at 21 per cent.

Indeed, the vision for Paytm is to become the world’s largest digital bank establishing 500 million accounts, specifically by targeting those Indians without any formal banking relationship.

“Within market they have quickly established themselves as a trustworthy and credible brand particularly within e-payments.

“The value proposition they offer to the lower-end of mass market in terms of cost is a strong pull factor for acquisition,” Kazmi said.

This value proposition includes no transaction fees on online transactions and zero balance accounts with guarantees from CEO and Founder Vijay Shekhar Sharma “to never charge for either – ever”.

According to the RFi Group researcher, Paytm has also been effective in reaching out to new to bank customers having 280 million registered users across the country in addition to 180 million wallets.

“This makes for an exciting offer especially for the large unbanked segment that is seeking a low-cost alternative to access banking and financial services.”

They are also making the right moves in terms of extending credit to NTB (new-to-bank) customers.

“This has translated into financial access and empowerment, previously unthinkable, which has strongly resonated in the local market.

“Essentially, they are a solving a need which most public and private sector banks in India have either been unable to to or with limited success,” he said.

Paytm’s payments platform could also expand into global markets, particularly in markets with large non-resident Indian populations (UAE, UK, Canada and Australia) or Indian travel destinations.

“My sense is that they will focus on their home strength before looking at overseas markets,” he said.

However, one issue to consider is that Alibaba is a shareholder in the business and Kazmi suspects that there could be issues in terms of competing with Alibaba’s digital bank MyBank.

“In terms of strategy two things may happen – position Paytm as a facilitator of inbound and outbound remittances in conjunction with its domestic offering and/or form a strategic partnership with MYBank.

“This could be unlikely but what a combination. Now that would shake up the industry, but this is purely my speculation.”

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