One 97 Communications, the parent company of digital payments provider Paytm , is preparing to merge its wallet service with the eponymous payments bank—the licence for which is owned by its founder Vijay Shekhar Sharma —once it receives regulatory approval.The Noida-based company had incorporated Paytm E-commerce Pvt Ltd and Paytm Payments Bank Ltd as separate entities in August. The company also operates an ecommerce marketplace, which is expected to be spun off and serve as an entry pad for online retail operations of Chinese ecommerce giant Alibaba , according to sources aware of the plans within the company.“As per the directions of RBI, the company will transfer its wallet business to the newly-incorporated Paytm Payments Bank Limited ( PPBL ) after receipt of necessary approvals,” a spokeswoman for Paytm told ET. She declined to comment on the entry of Alibaba into the Indian ecommerce sector through the Paytm marketplace, terming it as 'speculation'.Alibaba’s digital wallet Alipay is in a technology-sharing partnership with Paytm. The combined entity of Alibaba and its subsidiary Ant Financial hold 40% stake in One97 Communications, having invested about $680 million in the company.“The (payments bank) is in the process of obtaining final licence from RBI and will commence operations after obtaining due approvals,” the Paytm spokeswoman said.The central bank has granted an ‘in-principle payments bank licence’ to Sharma, who holds a 51% share in the payments bank, with the balance owned by One97 Communications. Sharma, in an earlier interview with ET, said he had made an Rs 112 crore investment for his majority stake in the payment bank. The Chinese conglomerate Alibaba does not directly own a stake in the soon-to-be launched payments bank."Banks have their own mobile wallets , so it should not be a problem for Paytm to have its wallet business merged with the payments bank business. However, in line with regulatory requirements the company has had to segregate its ecommerce business from the payments business,” said Bhavik Hathi, managing director of consultancy firm Alvarez & Marsal.Paytm has been one of the main gainers in the push towards digital currency following government's move to demonetise higher value currency notes.Wallet companies like Paytm have registered a spike in user base as well as the number of transactions. According to data shared with ET, Paytm claims over 5 million transactions on a daily basis with a peak of Rs 120 crore worth of transaction in a single day.A recent report by consultancy and research firm EY India on ‘Alternate Revenue Models for Payments Banks in India’ states that “adjacent revenue opportunities for payments banks would be to explore expanding this ecosystem by partnering with ecommerce players and offering assisted services to customers through their business correspondent network,” allowing for micro savings accounts and increasing the use case for associated digital wallets.Paytm recently came under public scrutiny as the debate on demonetisation and increase in wallet signups brought to fore claims of Chinese investors benefitting from the move in India.ET had reported that Swadeshi Jagran Manch, which has been campaigning against inflow of Chinese goods into India, had said it will ‘study’ the relationship between Paytm and Chinese internet company , Alibaba Group. Alibaba’s digital wallet Alipay is in a technology-sharing partnership with Paytm.