Paytm seeks licence to set up public deposits fund

Firm plans to invest $1.6 bn over the next five years to expand the bank's wealth management

India’s largest digital-payments company, Paytm, is seeking a licence to set up a money market fund where users can store cash and earn interest, in competition with the country's banks, according to a person familiar with the matter.

Paytm has applied to the Reserve Bank of India to start the fund and increase its offerings to its over 250 million users, said the person, asking not to be named because the matter is private. It's another step in the startup's push to disrupt the country's financial services industry after it secured a banking license and began offering gold trading earlier this year. The company is now officially called Paytm Payments Bank and is allowed to take deposits and pay interest but not lend money.

Paytm is following the path of Alibaba Group Holding's financial affiliate, which set up its Yu'E Bao fund less than five years ago in China and saw it become the world's biggest such fund with 1.14 trillion yuan ($167 billion) in assets. Both Alibaba and its affiliate Ant Financial are investors in Paytm.

India's finance sector has long been dominated by traditional, government-backed banks, much like China's. The country's leading money market funds are currently run by state-owned and private banks including the State Bank of India and ICICI Bank.

Paytm founder Vijay Shekhar Sharma recently told Bloomberg that he plans to invest $1.6 billion over the next five years to expand the bank's wealth management, insurance and lending businesses. Paytm, a unit of One97 Communications, received $1.4 billion in funding from SoftBank Group Corp, in a round that is the biggest from a single investor in any Indian startup. SoftBank was an early investor in Alibaba and continues to hold a significant stake.

Like traditional money market funds started in the 1980s, the Paytm money market fund will sweep leftover digital cash into a fund and pay users interest on it. The rate of interest is not immediately known but the fund will offer better returns than the interest rates banks offer on savings accounts currently, the person said. Paytm, which expanded rapidly after the government banned high-denomination currency notes last November, recently began offering digital gold trading to its users. 

That has quickly swelled to volumes that rival those at India's largest traditional jeweller. With over 250 million users, the digital payment startup founded in 2010 dwarfs its competitors and has more users than the top four credit card companies in India. By offering a wide suite of financial services, Paytm aims to get customers to increase their reliance on its mobile app.
© Bloomberg