<div><em>This will be a huge industry in five years and will add 300 million new customers, say <strong>Vishal Krishna </strong>and <strong>K Chandra Mohan</strong></em></div><div><br><div>There have been several payment, money transfer and wallet solutions that have been cropping up over the last six months. Snapdeal along with Freecharge has launched a wallet service. Novopay, funded by Vinod Khosla, launched its wallet service recently. Private banks such as HDFC and ICICI have launched their own wallet services. What is interesting is that Flipkart has stayed away from this business, instead, it has chosen the advertising business to bring in additional revenues.</div><div> </div><div>Why does finance make sense to technology companies like Snapdeal and PayTM? It's because the government has granted permissions to these companies to apply for payment bank licences. PayTM was one of the first companies to apply and get a license. But the licences are just one part of the game. Today 160 million smart phones have been sold in India and the number is expected to hit 600 million by 2018. The bet is on the new customers that will be added on the payments bank platform. Acquiring these new customers will increase the valuation of each of these businesses 50 fold. The financial payments industry is expected to hit $1 trillion by 2020. So the money raised for payments banks will be far higher than the money spent on etailing.</div><div> </div><div>Today, these six odd technology companies that are vying for payment banks licences are focused on a market that is not more than 40-million-strong. Their wallet businesses, where phone bills and cable bills can be paid, along with their etail platforms are suffering from low margins. They are burning money and customer acquisition cost is high and the margins are less than one per cent per transaction. This will take these businesses more than a decade to break even and meanwhile they will have to survive on the money raised. But being a bank could increase their transaction customer base to a population the size of the USA, which is 300 million, in less than 18 months. The payment banks will be a combination of the best of banking services (where there will be high margins) along with etailing services. Finally there could be a business model that could take these companies to profitability.</div><div> </div><div>Today none of them have sketched out a market strategy for being payment banks. They have to get people to download their apps on smartphones. They need to work on local language technologies and sync in even text message based money transfers. They also have to tie up with local folk, certified to collect money, to on board people.</div><div> </div><div>A payment bank carries money on the app and it becomes a deposit account. People can remit upto Rs 1 lakh in to this smart phone based app. The companies can issue debit and credit cards. They can also pay interest on deposits. What they cannot do is to disburse loans. The government expects at least 150 millions new accounts to be opened on these platforms.</div><div> </div><div>These six startups together have raised $1 billion just to build wallet solutions. Experts that Businessworld spoke to say there will be an additional $1 billion raised to make payments banks work. The answer, to the question about technology being disruptive to add new customers on to the mobile, in smaller towns, will be found when smart phones truly replace the business correspondents that banks deployed to win new account holders in rural towns. Perhaps cash will be burnt here by these tech companies. This will also answer a teething question; what is the real size of smart phone transactions in India. Perhaps funds have to commission a study based on the hypothesis that payment banks transactions could be their answer to big valuations.</div><div> </div></div>
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