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Alibaba-backed Paytm is splitting into two; plans to form its own bank

Mobile commerce
platform Paytm is splitting into two, its co-founder Vijay
Shekhar Sharma said in an 
interview with PaymentEye.

Mobile commerce
platform Paytm is splitting into two, its co-founder Vijay
Shekhar Sharma said in an 
interview with PaymentEye.

According to the
report, the split will involve Paytm creating its own payments unit
called Paytm Payment Bank Ltd, while its parent company One97 will run the
e-commerce side of the business.

This news
follows the recent announcement that the Reserve Bank of India had
approved the creation of 11 new payment banks to help address financial inclusion.
Because it’s more popular to own a mobile phone than a bank account (about 2 to
1 ratio), that’s why the mobile money banking has taken off.

Among those
given permission was Sharma, who said he will create Paytm Payment Bank,
which will be the company that oversees it primary product, Paytm’s mobile
wallet. Alibaba-owned One97 Communications, which still owns a 49 percent stake
in Paytm, will continue to operate the e-commerce business. As Paytm looks to
get deeper into the finance sector, Sharma explained why it was so important to
gain approval from the RBI.

‘‘License brings
us the third part of our business model: Pay, Buy and Save. And by savings, I
mean that consumer deposits can now come, which will make payments far more
seamless as the cash will be immediately available within your wallet,” Sharma
was quoted in the report as saying. “Earlier, consumers did not have the
incentive or the intent to keep balance in wallets. But now, with consumers
getting interest on their deposits, it will be like any other savings bank
account.’’

We reported
earlier that Paytm is venturing into offering financial services in India as a
“payments bank” after receiving an approval from the country’s central
bank. With its new license, Paytm would act much like a money transfer and
payment service, such as Western Union, with many bank-like capabilities, such
as offering savings accounts, issuing debit cards and providing online banking.
However, unlike a typical bank, it won’t be allowed to roll credit line to
customers or provide any loans.

At present, the
company has been offered an “in-principle” approval, under which it would be
observed for 18 months for compliance of regulations set under guidelines issued by the Reserve Bank of India, the central
banking institution. Upon fulfillment of all the requirements the bank
would consider offering a permanent license, which may even have provisions to
loans.

Along with Paytm,
the government also extended the license to nine other companies, including
three major telecom companies — Bharti Airtel, Vodafone and Reliance — and
India Post, Aditya Birla Nuvo, Tech Mahindra, Cholamandalam Distribution
Services, Sun Pharma and Fino PayTech.

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