Taking on traditional lenders, the new players are able to take deposits of up to Rs 1 lakh, issue debit and ATM cards, and facilitate online transactions - but are not allowed to lend money.
Paytm parent company One97 Communications received provisional approval from the Reserve Bank of India to launch a Payments Bank back in January. With the final approval in the bag, the company is set to commence operations next week, appointing Renu Satti, vice-president of business at Paytm as chief executive officer.
All active wallet accounts will now be transferred to the new entity. Users who do not wish to have their business moved will need to submit a written request by 23 May and transfer their account balance to their own bank.
The new bank has set a goal of opening 200 million current and savings accounts over the next 12 months, rising to half a billion by 2020. It will target underserved segments of the country with its mobile app, aiming squarely at rural areas where bank branches and ATMs are in short number.
The news comes as Paytm confirmed a $1.4 billion investment from SoftBank Group Corp. to help it fulfill its ambitions as it enters the banking market.
Indian mobile wallet giant Paytm is to open its new Payments Bank on 23 March, joining telco Bharti Airtel as one of the first non-banks to take advantage of the Government's relaxing of restrictions on bank licensing in an effort to boost financial exlusion.