With Paytm now at the forefront of the digital payments sector in India capturing millions of users during demonetization, the logical next question arises: how will the app begin to make money? There lies the obvious solution that Paytm can charge a small transaction fee within the app, but something truly revolutionary may be sitting right before our eyes. Traditional banks make money by giving loans and receiving interest; Paytm could follow their lead and build the next generation of payments through an app. Picture this, you need some money to buy food at the local grocery store, but you have no balance in your Paytm account. You could link your credit card and repeatedly add money to your balance, but this process is cumbersome and not ideal. If Paytm could somehow provide micro-loans in the app itself with interest rates that operate similar to a bank, Paytm could become one of the first digital banks, and turn a profit at the same time. These micro-loan interest rates could even competitively undercut banks by a significant margin seeing as Paytm being an app doesn’t have the same level of operating expenses as a traditional bank. Paytm also has one advantage as it is not a traditional bank. Unlike a regular bank, you receive no interest by saving your money on Paytm. A bank has to pay that interest out to customers, and its profit (which is calculated using the difference between interest received from loans and interest paid out on savings) is thus significantly reduced. Paytm, however, can solely earn profits from the interest on micro-loans, and this would attract more users seeking more feasible loans as well; most importantly though, it could finally make Digital India a reality.
Another possibility may lie in the use of investment. In order to explain this concept, it is necessary to follow the money trail on Paytm. Although it appears that your money is kept on your phone, it really isn’t; in fact, as soon as money from individuals is added to the app by linking a debit or credit card, the money simply goes to the company. The balance amount remains as a number in your app, and it may shift from one person’s Paytm account to the other, but the money never has to leave the grasp of Paytm until a user transfers it out. As an economy runs on this digital interface and money moves from one person’s Paytm account to another, technically the money never has to leave the company. And with all this money sitting idle, Paytm could easily invest it. One possibility even includes the creation of mutual funds that users can opt into so that both Paytm (which would earn a commission on earnings) and users can benefit.
Now let’s assume Paytm does all this and evolves into a bank of sorts. Already the convenience of digital payments stands out to customers, but now there would be the option for users to join a transparent mutual investment and earn money. Additionally, as micro-loans turn into a core feature, Paytm could seize this opportunity to finally earn a profit. And further down the road once these offerings begin to generate a sizable amount of revenue, Paytm could provide traditional savings interest on the app; thereby, attracting more users.
If Paytm could fit the role of being a digital bank with money kept in a central repository and balance numbers merely changing in users’ phones, the company could utilize this physical money more easily than a traditional bank would be able to. It wouldn’t need to constantly transfer money from user to user and it makes logical sense that the money should be put to some use. And as it transforms into a traditional bank, it could finally swing a profit.
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