May 23, 2017 / 2:48 AM / 2 years ago

Indian digital payments firm Paytm launches niche bank

MUMBAI (Reuters) - Indian digital payments firm Paytm, which is backed by Asian technology giants SoftBank Corp and Alibaba Group Holding, launched a niche bank on Tuesday, part of a plan to more than double its customer base to 500 million in the next three years.

An advertisement of Paytm, a digital wallet company, is pictured at a road side stall in Kolkata, India, January 25, 2017. Picture taken January 25, 2017. REUTERS/Rupak De Chowdhuri

Paytm Payments Bank will help the firm reach tens of millions of Indians who use mobile phones and cheap data services in the world’s fastest-growing internet services market but do not have access to the formal banking sector.

The payments bank will open 31 branches and 3,000 customer points in its first year, the company said in a statement.

A payments bank is an institution that can take deposits and remittances but cannot lend.

Paytm became a household name across India after New Delhi’s shock move to ban high-value currency notes late last year resulted in a cash crunch and boosted the use of its electronic wallet.

Paytm says more than 220 million clients use its e-wallet.

Its success has attracted deep-pocketed investors such as Japan’s SoftBank, which last week invested $1.4 billion in Paytm parent One97 Communications.

The firm’s digital wallets will fold into its payment bank.

The bank will offer an interest of 4 percent a year on savings accounts and also provide current account facility to merchants.

It will have no minimum balance requirements and all online transactions will be free, the company said.

The bank accounts will initially be available only through an invite.

Chairman Vijay Shekhar Sharma, who owns a majority stake in the banking firm, said Paytm Payments Bank will invest its deposits in government bonds.

“None of our deposits will be converted into risky assets,” Sharma said in the statement.

In 2015, India’s central bank gave preliminary approval to 11 entities including Reliance Industries and the country’s top three telecom operators to set up payments banks.

Bharti Airtel and the Indian government’s postal service have already launched payments banks.

Reporting by Sankalp Phartiyal; Additional reporting by Devidutta Tripathy; Editing by Sunil Nair and Muralikumar Anantharaman

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