Revised rules on NEFT pave lead for Paytm in payments space

Amidst uncertainty over the business model of payments bank in India, a couple of players have shut their business while rest are mulling pivot to small finance bank.

Paytm, which has been lagging behind Google Pay and PhonePe in the race of UPI, is also planning to try a different route to avoid the identity crisis in the digital payments bank model.

While aiming to become small finance bank requires five years of operations for any payments bank, the One97 Communications-owned company has got a push from the Reserve Bank of India's latest move on NEFT.

The new rule allows customers to perform transaction round the clock with increased transaction limit.

Customers of Paytm Payments Bank(PPB) can pay up to Rs 10 lakh per transaction instantly from their Paytm app using NEFT without any charges. Now, Paytm has become the only payments app offering three modes payments - UPI, IMPS and NEFT.

The move by RBI will increase the use case of PPB, which so far used to allow transactions via IMPS and NEFT in a limited manner. It also gives a lead to Paytm over its arch rivals Google Pay and PhonePe in terms of payments market share.

G-Pay and PhonePe allow a maximum of Rs 2 lakh per transaction via the peer-to-peer model, i.e. UPI.

As far as corporates and businesses who hold Paytm Payments Bank current account are concerned, they can pay up to Rs 50 lakh per transaction 24x7, said Paytm in a press statement to several media.

With over 19% market share in payments bank ecosystem, PPB had become the first company in this segment to taste profitability. Started operations in late 2017, PPB reported a profit of Rs 19 crore for the financial year ending on March 31, 2019.

During the period, the company's revenue jumped 2.3X to Rs 1,668 crore in FY19 from Rs 772 crore in FY18. Only 8.5% ~ Rs 142.5 crore of this income was generated through interest earned on government securities and the rest Rs 1525.5 crore or 91.5% through commission and brokerage earned on transactions.

Notably, Rs 925 crore of the latter was earned by providing wallet and payment services to One97 communication.

On the expenses front, the bank saw its operational expenses rise similarly to the income and grew 2.2X to Rs 1,620.1 crore in FY19 from Rs 737 crore in FY18. Importantly, 86.7% of theses operational expenditures were incurred for availing payment gateway and customer access services availed from its parent One97 Communications.

Overall, out of eleven payments banks, only five (Paytm, Airtel, Fino, Jio and India Posts) are operational. Aditya Birla Idea Payments Bank and Vodafone m-Pesa have already shut down their operations.