HDFC Bank's Aditya Puri has slammed payment banks or e-wallet companies in India saying that financial-tech companies that incentivise customers only through freebies such as cash-backs cannot become profitable businesses.
Payment banks like Paytm have seen their customer base explode in recent months after the government's demonetisation drive last year.
However Puri, managing director of the private sector lender HDFC Bank, said e-wallet companies, with low margins and high customer acquisition costs, would find it difficult to compete with banks.
"I've got nothing against them. I'm just saying a wallet or a simple payment device because there's not that much margin is not something you can turn into a profitable business," Puri told Boom's Govind Ethiraj in an exclusive interview on Friday.
And Puri posed another serious challenge to the e-wallet companies. "I can say this with confidence that no fintech fellow can offer any service apart from cashback faster and better than us," said Puri on the sidelines of the IT summit NASSCOM held in Mumbai
Interestingly, Paytm's Vijay Shekhar Sharma reacted in two words after listening to Puri's views
Puri also admitted that HDFC Bank had been slow to react to competition from e-wallets but had now caught up with new technology.
"If an existing dominant player can provide the same service, then people return to trust," said Puri.
"When I talk to consumers they say only till he (e-wallet companies) gives us the cash back, we'll go there. That's a 1600 crore loss for some of these guys," Puri said referring to Paytm.
Puri also said payment banks would have to spend on building their brand and expanding their products if they wanted to compete with incumbent banks and remain profitable.
Addressing several critics that he is pushing his customers to use more online services even as he himself doesn't use a mobile phone or email, Puri said that he wants his customers to get the same user experience like they get on Netflix, Uber or Facebook.
"I have 45 people checking to reduce user friction.Don't let him come to the website and hunt around all over.. You type loan and I will give it to you in ten seconds if you have a demat account with me."
Digital payment banks are the latest threat to Indian banks and have been accused by some of stealing the banks' lunch money.
The country's banking sector has been roiled by the government's shock move in November to scrap 86 percent of the currency in circulation leaving banks scrambling to provide new currency.
Banks have also been saddled with record bad debt as a large chunk of loans to the corporate sector have gone sour.