Indian financial technology (fintech) giant Paytm is planning to transform its payments bank into a small finance bank, which it believes is a more profitable growth model, according to a report by The Times of India.
Paytm founder and CEO Vijay Shekhar Sharma told TOI that that the payments bank – Paytm Payments Bank – will approach the government for an license to allow it to lend to consumers using technology-enabled low-cost operations. Sharma holds 51 per cent share in the bank.
Small finance banks can offer micro-loans and issue credit cards to their customers aside from accepting deposits of over Rs1 lakh ($2,000). Payments banks, a new model of banks conceptualised by the Reserve Bank of India, cannot issue loans and credit cards.
One of the priorities for small finance banks would be to serve basic banking to the under-served and unserved population, specially small businesses, and farmers, in India.
Sharma stressed that differentiated banks have been introduced to further promote financial inclusion. To achieve that goal, he said there is a need for payments banks to offer small value credit to its customers.
He sees small finance as a profitable growth business model and aims to drive higher distribution outreach through Paytm’s technology-enabled low-cost operations.
Paytm Payments Bank formally began operations in 2017. It posted its profit of Rs19 crore ($3.7 million) in fiscal 2019. The said bank and Airtel Payments Bank account for over 88 per cent of the deposits in payments in India as of 2018.
Paytm’s plan to convert its payments bank into a small finance lender follows the firm’s $1-billion financing round led by US-based global asset manager T Rowe Price and backed by existing investors Ant Financial, SoftBank Vision Fund, and Discovery Capital.
Sharma earlier disclosed that Paytm will make an aggressive push in the financial services business, with lending, insurance, and new-age banking as focus sectors.
He said the company will consider listing only after 2021, when it is expected to start generating cash.