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Indian payments company Paytm seeks license for a small finance bank

One97 posted a loss of USD 552.1 million for FY19, up 165.5% from USD 207.9 million reported in FY 2018.

Image credit: Avanish Tiwary

Amidst the mounting losses, Vijay Shekhar Sharma, founder and CEO of India’s most valuable startup One97, which owns and runs payment service Paytm, is scrambling to figure out new revenue channels.

In an interview with local media Times of India (ToI), Sharma said he wants to convert Paytm’s payments bank into a small finance bank that will allow the company to lend to its consumers. Paytm, he said, would soon approach the government and the banking regulator for a small finance bank license.

“We are keen to be a small finance bank. If the regulator gives the nod, we will definitely want to pursue this,” he told ToI.

Currently, Paytm operates a payments bank under which it can accept restricted deposits and offer services like debit cards, net banking, and mobile banking. However, it cannot issue loans or credit cards. With a small finance bank license, it would be able to provide basic banking services such as deposits and lending. This would essentially mean it can start offering loans on its own to individuals as well as small business entities.

Sharma said operating a small finance bank will lead to a profitable growth model.

At present, the company claims, it has over 450 million users and 15 million merchants on the platform. So far, Paytm has been providing loans by partnering with non-banking financial companies (NBFCs), to its users through Paytm Postpaid and to its merchants through its Paytm Business Loans. It’s lending partners include Clix Capital, Tata Capital, Indefi, and Flexiloans among others.

In line with its plan to offer loans to businesses at large, and not just to its own ecosystem of merchants, the Noida-based USD 16-billion startup is loading its war chest to take on rivals like Walmart-owned PhonePe, Amazon, and Google Pay which are increasingly digging their claws deeper into India’s USD 200 billion digital payments market.

Paytm has recently raised USD 1 billion from Ant Financial and Softbank Vision Fund, T Rowe Price, Discovery Capital, and D1 Capital, and is reportedly in talks with multiple investors including former UK Prime Minister David Cameron to raise another USD 1 billion, according to wire service Press Trust of India (PTI).

The last funding round, the company said in a statement, would be used to bring mobile-enabled financial services to rural India.

“The company will invest and support millions of rural Indians towards self-sustainability through job creation,” it said.

The next USD-1 billion-fund from the upcoming investment round is likely to be used to “to expand the merchant offerings across India to equip them with technology and various other services,” the PTI report said.

This comes at a times as One97 posted a loss of USD 552.1 million for the year ended March 2019 (FY19), up 165.5% from USD 207.9 million reported in the financial year (FY) 2018. The company could have saved its face if revenue would also have risen significantly along with the losses. But the company only saw a 2% increase in revenue which stood at USD 425.2 million in FY19 as compared to USD 416.5 million a year ago.

Little surprise then the company has been diversifying into various models such as opening up its platform for advertisements, entering the healthcare space to enable payments, and heavily focusing on gaming, among others. However, industry experts and veterans believe the end-game for all the payments firms is to offer financial services, primarily lending, to users and merchants.