That quote can send chills throughout the banking community, but perhaps there is something to learn that can be used to expand operations. Alibaba, the Chinese equivalent of Amazon, which sells worldwide, has invested in PayTM as a means of selling to people who do not have bank accounts.
PayTM is launching a payment bank which will make it the most important financial institution in India. Why? They are trying to get licensed to distribute loans. Their purpose is to provide:
This creates a financial platform for those who are “asset-light”. PayTM now operates over 100 million virtual wallets, and has become India’s digital store of value. The reason is because it is based on something every person who deals economically in any way has – recurring financial obligations. An individual’s monthly bill obligations and payments allow for that person’s inclusion in a payment platform. To pay an obligation there has to be a secure store of funds. Up until now, the definition of “secure” was a bank, a brick-and-mortar-type location where people could deposit money.
By using a payment platform instead, it is possible to build up a “credit” record of a person. In other words, the history of a person paying one or more obligations every month becomes a traceable record. That record can be used to create a transaction history. When someone begins to think of a purchase for a small business, the track record of prior payments becomes a type of credit evaluation. All this is done through an app, independent of an actual physical bank. This brings PayTM to the place where it can be a banking solution.
By recognising those with good payment ratings, the next logical step is to incentivise users to keep an account balance. Since auto-debit has been blocked from credit cards by RBI (Reserve Bank of India), there is now a market for online wallets to hold funds from which payments are made. With at least 100 million wallet users, regulatory agencies have had to recognise the value of PayTM. They can now move into offering payment bank accounts. Various considerations are being worked through the system. This opens the door for banking options to those who are lower on the economic scale. This is one of the innovative approaches for credit scoring for largely unbanked populations.
Photo Credit: Alibaba Group