Paytm's PPB becomes India's first profitable digital payments bank

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Paytm’s payments bank (PPB) has become India's first profitable business of its kind, posting a net profit of Rs19 crore ($2.7 million) in fiscal year 2018-19. PPB says that it accounts for nearly a third of all mobile banking transactions in India and processes over Rs3 lakh crore worth of digital transactions per year, second only to India's top lender State Bank of India. With over Rs 500 crore deposits in its savings account, PPB is the top payments bank in India in terms of deposits.

The swing to profitability marks a stark contrast to PPB's first year of operation. PPB recorded a net loss of Rs 20.7 crore for the fiscal year ended March 31, 2018, according to regulatory filings.

Analysts say that wide adoption of Paytms solutions across a wide variety of industry segments helped PPB reach the black after just two years of operation. Since payment banks aren't yet allowed to lend in India, they must earn revenue primarily from transaction fees - they also can invest in government securities, in which returns can reach 8%.

Since India's payment banks don't yet regularly handle large consumer purchases, they have to rely to a large extent on high transaction volume to reach profitability. PPB has been able to achieve that by expanding swiftly into retail payments, utility payments, travel booking, entertainment and mobile games.

Digital payment platforms are pushing into a wide variety of offline industry segments as they work to build up their physical merchant base, analysts say. "In some cases, adjacent industries like food delivery and entertainment are creating digital payments demand pull," Vivek Belgavi, a partner at PwC India, told LiveMint.

PPB is currently the most successful of a slew of payments banks which launched after India's RBI began issuing licenes in 2015 to boost financial inclusion. PPB's main competitors include Jio Payments Bank, Airtel Payments Bank, Fino, NSDL, India Post, and Aditya Birla Payments Bank.

"One thing that seems to have worked in the favor of Paytm (Payments Bank) is the large captive base [300 million users] they had from to their wallet service,” Ashvin Parekh, an analyst, told Quartz in May.

Looking ahead, Paytm has ambitious expansion plans. In 2019-20, it aims to double its transaction volume to 12 billion from 5.5 billion in 2018-19. 

"We have a strong reach and presence across the country and we believe that there is a big opportunity for us to do more," Satish Kumar Gupta, chief executive officer of Paytm, told Your Story in April. The company hopes that the regulator will further relax restrictions on its business, so that it can grow a larger deposit base and introduce lending services, he added.