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Paytm to launch Indian bank using mobile technology, biometrics


In 2015, Paytm received a license from the Reserve Bank of India to start India’s first payments bank. The bank intends to use Paytm’s existing user base to offer new services, including debit cards, savings accounts, online banking and transfers, in order to enable cashless transactions.

Paytm is an Indian e-commerce company headquartered in Noida, India. It was launched in 2010 and is owned by One97 Communications, India’s leading mobile Internet company. Paytm, an acronym for “payment through mobile”, was founded in 2010 as a prepaid mobile service. The firm ultimately added bill payment and e-commerce services, offering products similar to Flipkart, Amazon, and Snapdeal. Recently, the firm added a bus travel booking service and plans to launch a movie ticket booking service this year.

In 2014, the company launched Paytm Wallet, which is now India’s largest mobile payment service platform with over 100 million wallets and 10 million app downloads. The platform has been well-received because of its many features, which include: secure payments, fast checkout, instant money transfer, buyer protection, instant cashback and refunds and discounts from popular retailers. The company now plans to integrate its wallet service with its new payments bank.

Last year, India unveiled plans for a centralized electronic payment system and released a set of APIs designed to encourage the country to transition over to electronic transactions via smartphone and biometric technology. Initiated by the Reserve Bank of India in 2008, the National Payments Corporation of India was ordered to consolidate and integrate the country’s many retail payments systems. NPCI thus published a unified payment interface API and technology specifications to be used by banks, merchants and other institutions to send and receive payments.

Plans for the unified system come as smartphones continue to have a rapid adoption rate in India and the Unique Identification Authority of India (UIDAI) works towards registering all citizens with an Aadhaar number.

Aadhaar, recognized as the world’s largest universal civil ID program and biometric database, is currently used by the Indian government to provide social services. To date, Aadhaar has issued over 900 million Aadhaar numbers, and has enrolled approximately 850 million people, with a goal of ultimately enrolling 1.28 billion people. The national government has been encouraging industry to find new use-cases around the Aadhaar authentication service, in order to widen the marketplace for Aadhaar services and expand the potential of startup companies to build services centered upon the authentication system. The implementation of payments bank is one such new application.

NPCI’s new unified payment interface is designed to enable all Aadhaar registrants to send and receive money from their smartphones with a single identifier, either an Aadhaar number, mobile number and virtual payments address, without entering any bank account information. The NPCI said that the payment interface will be based on a two-factor authentication method, which will create an ecosystem that will allow banks and other institutions to support growing e-commerce applications.

The main challenge for the new Paytm payments bank, as acknowledged by Paytm CEO and founder Vijay Shekhar Sharma in an interview with The Hindu will be implementing a “know your customer system” (KYC) utilizing Aadhaar-based biometrics, along with the new unified payment interface.

“There is a ‘wallet to account’ procedure that requires us to use KYC,” Sharma told the Hindu. “We are targeting biometric KYC, digital KYC and Aadhaar-based KYC. I have a personal aspiration that the Paytm Payments Bank should be India’s first and only payments bank where every person’s KYC is identified through biometrics. To build an infrastructure of that kind, throughout all the nooks and crannies of the country is the kind of challenge we are looking at. First of all, we are going to roll out the payments bank in few cities throughout north-east and central India, which is our priority space. We have committed to that with the RBI in our application. Distribution is the primary key factor. As far as technology and resources are concerned in terms of funding and deployment, we are good on that.”

Sharma said the company’s payments bank, which is targeting to begin operations by November, will start with a goal of signing up approximately 200 million accounts and obtain US$45 million in deposits in its first year. The payments bank will be a separate entity, in which Sharma will hold 51 percent, One97 Communications will hold 39 percent and 10 percent will be held by a joint subsidiary controlled by both One97 and Sharma.

Due to its entry into full banking services, the company has been attracting investment. In March 2015, Indian industrialist Ratan Tata made a personal investment in the firm. That same month, the company received a US$575 million investment from Chinese e-commerce company Alibaba Group, after Ant Financial Services Group, an Alibaba Group affiliate, took 25 percent stake in One97 as part of a strategic agreement. Paytm also borrowed US$45 million from ICICI Bank in March 2016 for its payments bank’s working capital.

The attraction of capital to new Aadhaar-based technology companies has been a goal of the Indian government, according to former UIDAI chairman Nandan Nilekani, who previously claimed that India is now on the cusp of transformation in banking and payments due to the expansion of the biometric database.

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