Won’t Fight Payments Bank Interest Rate War: Vijay Shekhar Sharma
Vijay Shekhar Sharma and Menaka Doshi. (Photo: BloombergQuint)
Vijay Shekhar Sharma and Menaka Doshi. (Photo: BloombergQuint)

Won’t Fight Payments Bank Interest Rate War: Vijay Shekhar Sharma

Paytm Payments Bank, which is looking to launch in February this year, will stay away from an interest rate war with the newly-launched Airtel Payments Bank or other payments banks set to launch later this year, Founder and Chief Executive Officer Vijay Shekhar Sharma told BloombergQuint’s Menaka Doshi on the sidelines of the World Economic Forum at Davos, Swtizerland.

Instead, the payments bank will compete on the basis of return on yields, and services provided to customers.

The government’s move to demonetise old Rs 500 and Rs 1,000 notes turned out to be a low-hanging fruit for the digital wallet company, which added 20 million new customers since 9 November.

The push for a cashless economy boosted Paytm’s reach into the least penetrated parts of the country.

Revenue contribution from towns with a population of less than 1 lakh people has jumped to just under 20 percent so far from 2 percent in the last two months, Sharma said.

The last two months of demonetisation have been a big boost to Paytm and other mobile wallet companies. But its also a couple of months that have raised questions about your ownership. It isn’t as though your ownership wasn’t already publicly known. But suddenly you become the Chinese owned digital payments company that got a big boost, thanks to Modi’s demonetisation move. Are you?

First of all, we are not owned at all by the Chinese. This is simply a financial investment. As far as the board is concerned and operations are concerned, there is no Chinese element here.

Secondly, we have also effectively converted our Paytm wallet into a completely Indian domicile company called Paytm Payments Bank. This is an Indian domicile bank which will inherit the Paytm wallet. So the questions of Chinese ownership ought to be out of the window for good.

It’s been a stellar few months for you in terms of business. What has it told you about the digital payments market in India?

One thing I was not sure of was how far digital payment can penetrate. If we were to talk about people who have not used internet, not used smartphones...would they be able to take a double leap, learn to use the internet, a smartphone and make a payment?

That has happened and that is a surprise.

Villages and towns which have a population of less than 1,00,000 contribute about 20 percent to our revenue. Before demonetisation, that number was less than 2 percent. So in a market where we are three times bigger, by our internal estimates, this number has grown 10 times which is amazing.

Digital is the future of this country. Nobody can oppose that. It will make this country stronger and better.

Do you think there are too many mobile wallet companies, digital payment companies? Then there will be several payment banks. Then there is the UPI. And you are not sure what works better. How do you pick?

It’s a great way for the market to expand. We have other wallet companies, there are card companies, then there are obviously other UPI or NPCI led initiatives. In a market and a country like India, we need all of them.

Obviously some of them will have a larger market share and all of them will benefit consumers in different ways but every one of them is needed. Look at the cellular or mobile business in India.

When there was one operator, BSNL, in India for giving telephone lines, it was a tough market because you as a consumer were not able to get it. Then private operators came...

It is a great analogy but what we have seen in terms of value destruction in the telecom business, the number of companies that have not found a good business model. And we have four or five leading companies. So we will go through the same cycle in the payments business?

Not really. Because payment is a bank’s domain. And these (payment) companies have many other business models to run with; it isn’t just payments as a business model. Payments as a business model will be zero-margin business model.

Paytm has benchmarked zero percent margin and we will make sure that this country knows that payments to merchants will cost zero percent. If it is zero percent it means everybody on the starting of the business model, they know that they have to build a business model with a zero percent revenue model.

So what will they earn revenue off?

You can earn revenue from the float; if you are a bank you can create assets; if you are a payments bank you can create transactions of other clients. People like us will create commerce as a by-product of business. So there is other business that will earn revenue. Payment as a business model is a zero price margin business. It is a starting point definer. I wish people don’t start with the assumption that it will be a money-making business.

When is your payments bank going to come up? Airtel is the first off the block. It is offering a fantastic interest rate. Are you going to be able to compete with that? How are you going to go about positioning your payments bank?

I am happy that Airtel (Payments Bank) has started. A payments bank is not an opportunity to start a bank in the country for business but an opportunity for India to give a new business model to the world in the world of banking, where assets are not created out of deposits and this means there are deposits which are secure and safer. I see Paytm Payments Bank as an opportunity to give a new business model to the world of banking where you are driving transactions which are making money.

(This article was originally published in BloombergQuint)