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UPDATE 1-India's Paytm plans messaging service to rival WhatsApp

(Updates to add analyst comment, WhatApp user numbers)

MUMBAI, Aug 1 (Reuters) - India's leading digital payments firm Paytm plans to launch a messaging service by the end of this month to compete with Facebook Inc's WhatsApp, a source familiar with the matter said on Tuesday.

Paytm, which is backed by Japan's SoftBank and China's Alibaba, wants to attract people in India to use a messaging service embedded in its payments app, which many already use to buy everything from food to plane tickets.

Paytm's messaging service will let users send audio, video, pictures and texts, said the source, who declined to be named.

"Paytm wants to become a digital universe for Indian commerce where consumers can communicate, shop and use financial services," said Pavel Naiya, an analyst at tech research Counterpoint.

Paytm has more than 225 million users in India.

WhatsApp, which had 200 million monthly active users as of February in India, its biggest single market, has also been looking at moving into digital payment services there.

Earlier this year, another Indian messaging platform, Hike, rolled out an electronic payments service in its app to cash in on the growth in digital transactions in the country.

E-payments in India surged after the country banned old, high-value currency notes late last year. Firms such as Paytm have since rapidly increased their market share.

Digital payments in India will jump nearly 10 times by 2020 to $500 billion, according to a 2016 report by Boston Consulting Group.

The Wall Street Journal was first to report Paytm's plan to launch a messaging service.

Paytm did not respond to an email seeking comment. WhatsApp was not immediately reachable for comment. (Reporting by Sankalp Phartiyal; editing by David Clarke)