Jio & Airtel to use customer bank to challenge Paytm

Reliance Jio and Bharti Airtel are set to declare war on Paytm — king of mobile wallet business that launched its payments bank in May. The telcos are leveraging their mobile customer base and distribution network in trying to compete with Paytm. 

Jio is already signing up a large number of merchants on its soon-to-be-launched payments bank. It is targeting at least 33 million merchant establishments, a majority of which do not use mobile wallets for making transactions. The upcoming payments bank would be a joint venture with State Bank of India, with the latter having a minority stake.

To get the volumes in the initial stage, it is leveraging its retail business. The plan is to get its 3.5 million members, who use cash-and-carry services through Reliance Market to the payments bank platform. According to sources close to the company, these small shop owners come to one of the 42 Reliance Market stores across the country at least seven to eight times a year and already have an established relationship with the company. It will also cash in on the over 1.5 million merchants selling Jio services and SIM cards. That will provide them with over 5 million merchants under its belt to take on the strength of Paytm, which has a similar number of offline merchants. 

Jio is planning to launch its services soon, initially to its employees — replicating the mobile launch model — and then to its 150-million mobile customers. Paytm Payments Bank declined to share details of its business. It only said it had over 280 million registered users on its wallet. Jio and Airtel also declined to share details

Airtel, which launched its payments bank services nearly a year ago, has already garnered 25 million customers. The game plan is clearly to convert a large portion of the under-300 million Airtel customers. Many of these customers already use its digital wallet for paying mobile bills and are involved in a million transactions every day. Airtel Payments Bank (APB), is a joint venture between Bharti Airtel Ltd and Kotak Mahindra Bank Ltd.

Airtel has also converted one third of its 1.5-million Airtel franchise stores into banking touch points, were users can withdraw and deposit cash if they want to. It has also signed up 2 million offline merchants on to the platform. To woo customers it is also offering a high interest rate of 7.25 per cent on any deposit in its payments bank.   The trick in this business is to raise the volume of transactions, experts say, as margins are wafer thin and mostly come from fee for the transactions (money transfer for instance, or e-commerce), which range from as low as 0.5-1.5 per cent. 

“You might have a large customer base, but to increase their frequency of transactions, they need to have a large base of merchants. After all, you won’t be buying air or train tickets every day, but you will buy fuel or groceries every day or every second day. That will give volumes,” says a senior executive of a leading mobile payments bank.

That is because payments banks are not allowed to lend its deposit money but have to keep 75 per cent of their deposit mandatorily in government bonds with one-year maturity. Also, the deposits are limited to Rs 1 lakh. 

That is the key reason why four out of 11 players, who were given licences to launch payments bank, decided not to pursue the business. Those who backed out were Tech Mahindra, Vodafone, Cholamandalam Finance and a consortium led by IDFC and Telenor. 

Apart from Airtel, Paytm and Jio, Fino Payments Bank also launched its payments bank app a few months ago, targeted at the rural market. And Indian Post Payments Bank, which also launched this year, is gearing up to leverage its 155,000 post offices as well as its 300,000 employees to create a vibrant payments bank infrastructure. 

Telcos point out that after the initial phase, they would offer value-added services were margins are much higher. Both Jio and Airtel have plans to offer insurance, mutual funds and tie up with banks to refer their customers for loan products at a service fee. In the third phase, many are looking at monetising data like the customers’ profile for credit rating or even go for targeted advertising. 

A survey by Morgan Stanley points out that while 65 per cent of the merchants and customers they interviewed were aware of mobile payments, only 5 per cent of their transactions were completed through it, even though 28 per cent did use a wallet. Also, only 42 per cent of the merchants aware of mobile wallets actually used it.