May 29, 2017
In 2016, India’s banking regulator opened up the banking sector to nonbank finance companies (NBFCs) and approved 11 of the 41 applications to set up payments banks in India as part of its ongoing initiatives to increase financial inclusion in the country. So far, PayTM, Airtel, and India Post have launched payments banks. They cater to different customer segments, have slight variations in their offerings, and offer significantly different interest rates.
Source: Airtel press release, November 23, 2016
Source: India Post Payments Bank corporate brochure, February 2, 2017
Source: PayTM website
All three firms have vast customer reach, owing to their existing customer networks, and the potential to amplify the financial inclusion agenda. Forrester believes that PayTM’s payments bank is most favorably positioned to leverage its adjacent financial services ecosystem of retail merchants, utility providers, eCommerce platforms, and mobile wallets.
Currently, customers use PayTM to make microtransactions and municipal payments; pay utility bills, school and tuition fees, highway tolls, and traffic tickets; and even to purchase gold. The customer-facing mobile platform not only integrates PayTM’s eCommerce platform, online travel and hotel booking, events and entertainment booking, and others, but also actively promotes these services with a constant stream of discounts and offers through its merchants and partner tie-ups. PayTM already has about 200 million active customers across the country; to fulfill the needs of these customers, PayTM has about 5 million merchants on board.
The payments bank will put PayTM in the position to serve some serious financial needs of its customers, including mutual fund investments, insurance products, pension products, interest on deposits, and cash withdrawals. Most importantly, PayTM’s payments bank will now have access to India Stack capabilities such as eKYC, Aadhaar-based authentication, UPI, AePS, and ABP, making it potentially disruptive to the business of:
- Retail banks. Banks like Kotak Bank and Digibank have just started to use digital customer onboarding leveraging Aadhaar eKYC capabilities as a differentiator. While Kotak’s 811 app has reached 5 million downloads on Google Play, Digibank has onboarded more than 1 million customers using eKYC. In comparison, PayTM has a starting base of its existing 200 million customers, which it has started transferring to its payments bank. Moreover, it is tapping into its network of merchants in tier 1 and tier 2 cities; it plans to use these merchants as business correspondents to expand its reach to offline customers.
- Online marketplace giants. While PayTM Payments Bank is a separate legal entity and can have no connections with its marketplace platform (as per the regulators), this marketplace can still seamlessly encompass all of the services that PayTM offers. This enables it to cater to customers’ banking, shopping, travel, utility, and other needs. Online giants such as Amazon and Flipkart are expected to feel the competitive heat.
- Other mobile wallets and third-party payment providers. With access to UPI, ATMs, and AePS, PayTM Payments Bank will have true interoperability enabled in payments, allowing both its own customers and potential customers to transfer money, pay bills, withdraw and deposit cash, and fund mobile wallets.
- Financial product aggregators and distributors. The combination of offers and the easy product application process from PayTM will threaten the business model of financial aggregators such as PolicyBazar.com and Bankbazaar.com.
These facts suggest that PayTM Payments Bank will have impact beyond banking, but PayTM’s ability to build on its current offering, reach, and customer base remains to be seen.
Customers have so far used PayTM for convenience and money-saving offers. PayTM will quickly find that in addition to convenience, today’s digital customers look to their banks to fulfill a variety of needs. Financial services firms need service these needs through multiple digitally enabled channels, in a responsive manner, and in the customer’s immediate context.
Indian banks such as ICICI Bank and Axis Bank have been working hard to improve their digital banking capabilities. For example, they offer a variety of ways just for customer servicing such as live chat, actionable service links, direct access to 24×7 available phone banking agents, in-app contextual help guidance, and a universal in-app search tool. In comparison, PayTM’s customer service efforts are basic and restricted to few service links and an IVR.
Indian banks are also continuously working to improve their mobile touchpoints, enrollment and login abilities, money management tools, and digital marketing and sales capabilities, and PayTM has significant catching up to do here. We recently concluded our 2017 India mobile banking benchmark report, which highlights the best practices adopted by Indian banks in their efforts to win, serve, and retain their digital customers.
Forrester clients can read our full report here to see the detailed analysis of individual Indian banks’ digital services along with best practices and where we think digital teams can further improve. Feel free to let us know your thoughts in the comments section.