paytm

Paytm, a leading Indian mobile payment platform that is backed by Alibaba’s Ant Financial, is one of 11 Indian payment banks that has been granted “in-principle” approval to set up payment banks.

The newly minted payment banks will go through an 18 month provisional period before they can receive a full license, according to the Reserve Bank of India. The new banks will have the ability to provide debit card services, online banking and online transfers. The newly approved licenses are tipped to stimulate e-commerce in India, where credit card penetration is still comparatively low. 

Alibaba’s banking affiliate Ant Financial owns a 40% stake in Paytm, which like Alipay is a payment wallet system aimed at facilitating ecommerce. Paytm currently holds around 60% of the mobile wallet market share in India, with over 20 million users. While the transaction rate is still relatively low (compared to Alipay’s 300 million users and 80 million daily transactions) it’s hoped the partnership will help Paytm extend their lead in the underserved Indian online payments arena.

Alibaba and its affiliates have taken a strong interest in India’s burgeoning e-commerce sector. Earlier this week, they led a $500 million USD investment in Snapdeal, which has some similarities with Alibaba’s core retail business. Also involved in the round was Taiwan’s Foxconn and Japan’s Softbank.

Snapdeal is one of three dominant e-commerce platforms, along with Flipkart and Amazon, which are vying for top spot in an increasingly competitive market. The introduction of the new banking licenses is expected to revitalize the payment ecosystem, which will hopefully see a range of new players develop in the coming years.

In the meantime, many of the large retail sectors remain primarily offline, including the smartphone market, which has become a focus for Chinese companies of late. This week Lenovo-backed Motorola announced that it would be extending into brick and mortar stores in an attempt to tap into the 75% (approx.) of consumers that buy smartphones offline. Smartphone giant Xiaomi made a similar commitment earlier this month.

The Reserve Bank of India is looking to give out further licenses pending the success of the current round. Given the initial 11 were selected from a group of 42 applicants, it appears there are many companies who have faith in the growth of the payment banking sector in India.

@CateCadell

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