Meaning of paytm’s Payment bank entry

The financial system is changing big. Digital wallets and payment technologies are disrupting the sector and the growth of local firm paytm is a remarkable episode in recent times especially in the supportive environment of demonetisation.

Now, Vijay Shekhar Sharma has got RBI approval to launch its payment bank business.  Sharma declared that his company can’t wait too long to launch its bank activities.

What will be the impact of paytm’s payment bank entry when it is having the digital wallet business? More than that, what will be the its impact on the banking industry and on competition?

Paytm can now issue multipurpose cards

The sweep shot is that paytm can now issue the ultimate high grade digital wallet called multipurpose cards or Open System Payment Instruments. Multipurpose cards are high end Prepaid Payment Instruments that can be used for money transfer and cash withdrawal from ATMs.

According to the present RBI regulations on Prepaid Payments Instruments, only banks can issue such cards. An example for multipurpose card is Vodafone MPesa where Vodafone partners with ICICI. Money transfer is possible with MPesa. Similarly, SBI has partnered with Jio to launch Jiomoney.

Interesting competition with Paypal

The titan in the field is Paypal. The US company is like the Amazon in ecommerce and understandably paytm is like a flipkart. Paypal has set new products and industry standards. It is the global leader in cross national money transfer. But paypal can’t hold people’s money in India for the purpose of transferring money as it is not a bank in India. Now for paytm, it can hold people’s money in the form of savings and it can be transferred through its digital wallets. At present, paytm money is added from bank account held by the customer in a bank.

A payment bank license helps the paytm to deal with two products- deposit and payment. While coupling its payment bank license with digital wallet business, paytm can emerge as a powerful entity in digital payments.