Payment banks and the opportunity at the bottom of pyramid

Payment banks and the opportunity at the bottom of pyramid

The Reserve Bank of India yesterday announced it was granting 11 licences for setting up of payment banks.

The central bank last year had mooted the idea of a payment bank, an entity that would serve functions such as allowing customers to open small savings accounts (up to Rs 1 lakh deposit limit), have debit cards issued against them, make transfers and carry out internet banking transactions.

The RBI yesterday granted licences to a clutch of companies and individuals of various backgrounds: ranging from telecom firms (Airtel, Vodafone, AB Nuvo, which runs Idea Cellular, and Reliance Industries, which is to launch Reliance Jio this year) to financial services companies (Chola, micro lender Fino Paytech, depository NSDL) and tech startups (Paytm) to the Indian postal service.

Calling it "one of the most exciting spaces" for the banking system, RBI Governor Raghuram Rajan today said payments bank would complement the core banking sector by improving last-mile connectivity services and help push financial inclusion.

(Payment banks will differ from traditional banks in three ways: they cannot lend or issue credit cards and customer deposits will have to be necessarily kept in safe SLR securities.)

But very clearly, the most exciting part of the development is no one knows how business models of payment banks will evolve. Governor Rajan was the first one to admit that and it shows in the central bank's thinking when it gave away licences to companies and individuals belong to diverse fields.

For instance, stats available till before the Pradhan Mantri Jan Dhan Yojana rollout showed more than half the country's residents did not have access to formal banking services, but nearly everyone today has a mobile phone.

The reason for the above situation is simple: wieldy banks found it unprofitable to foray into the hinterland in a big way (imagine the cost of putting up even a small bank branch) butnimbler telecom companies -- through their mom-and-pop retail channel -- did.

That's exactly where payment banks come in: a cross between technology and financial services. The tens of millions of telecom customers in the country, with their KYC requirements already cleared, may automatically qualify to become an account owner.

Telecom companies have already expressed a desire of tying with traditional banks in order to expedite rollout of services.

Paytm, which started off as a payment service before rolling out an ecommerce service, has about 100 million registered users, with many turning into a potential payment bank customer.

The joker in the pack is India Post, with its 1.5 lakh branches almost entirely spread across rural India, which could adopt technology in a big way and make a financial services foray into areas where banks have feared to tread.

But one thing is clear: the idea of a payment bank will have to be led primarily by a technology push rather than a banking push. (Since payment banks cannot lend, their profit margins will also be low, making it even more necessary for the need to use greater technology.)

"I believe technology companies find it easier to learn other about other business than other business can learn about technology," Paytm co-founder and CEO Vijay Shekhar Sharma told CNBC-TV18, adding that such companies will help make a resolute push towards reaching out to the unbanked.

Sharma also said traditional banks had been slow to adopt to changing customer preferences.

His argument is borne out by the fact that banks have shied away from rolling out services to those at the bottom of the pyramid.

It shows in the fact that almost all staple savings account services, especially from private banks, have hefty balance maintenance requirements. The KYC process, too, remains cumbersome with only a handful opting for use of greatertechnology.

"Consumers are readily adopting mobile as a way to transact. So consumers are changing. Maybe it is the banks that need to catch up," he said.

Perhaps it will be innovations such as payment banks that will force them to change.

India Post Says Open to Partnerships for Payments Bank

MUMBAI:  Having secured RBI's nod to set up a payments bank, the Department of Posts has said it is open for partnership in this new venture and is in talks with some telecom companies.

"We are very excited about it. We have our own strength in terms of ubiquity which we will be leveraging. We are going to induce digital technology. We are looking for partnership where it will be a win-win situation for all," M S Ramanujan, Member Banking, Postal Services Board told PTI.

The Reserve Bank last evening gave in-principal approval to 11 entities, including Reliance Industries, Aditya Birla Nuvo, Vodafone, Airtel and Department of Posts, to set up Payments Banks.

Other applicants which received approval for Payment Banks are Cholamandalam Distribution Services, Tech Mahindra, National Securities Depository Limited (NSDL), Fino PayTech, Sun Pharma's Dilip Shantilal Shanghvi and PayTM's Vijay Shekhar Sharma.

Ramanujan said India Post is in talks with other telecom companies which has received approval to set up Payment Banks.

"We are in talks with telecom companies which have already received in-principle approval today (for payment bank)," he said.

"Payments bank is not to be viewed as adversarial competition but as a collaborative competition," he added.

With 155,015 post offices across the country, of which 139,144 are in rural areas, India Post offers its partner a wider reach.

India Post can take advantage of the digital platform provided by telecom players.

Another applicant, Cholamandalam Distribution Services which also received in principle approval said it is also open for partnership.

"We are exploring partnership but before that we would like to know RBI's view about the idea," Vellayan Subbiah, Managing Director, Cholamandalam Investment and Finance said.

Source : The New Indian Express

Postal Department Should Become Vehicle of Financial Inclusion: Ravi Shankar Prasad

 

File Photo: Communications and IT Minister Ravi Shankar Prasad

 

New Delhi:  Armed with a payments bank licence now, the postal department should gear up to become a vehicle of financial inclusion in the country, Communications and IT Minister Ravi Shankar Prasad said today.
   
The minister said that the postal department should prepare itself properly and effectively for this opportunity.  

The payments bank licence will enable the Department of Post (DoP) to offer banking services to the masses through its vast network of 1,54,000 post offices, of which 1,30,000 are in rural areas.
   
"This is a very proud moment for the postal department. I have been trying since I became minister to energise and make the vast network of the department for financial digital inclusion and e-commerce activity," Mr Prasad told PTI.
   
"I am very happy to learn that the postal department has been given a payment banking permission by the RBI. I thank the RBI, governor and his team," Mr Prasad said.
   
RBI today decided to grant "in-principle" approval to 11 applicants, including DoP, National Securities Depository Ltd and RIL, to set up payments banks.
   
As per RBI guidelines, payments banks would offer a limited range of products such as demand deposits and remittances. They will not be allowed to undertake lending activities and will initially be restricted to holding a maximum balance of Rs. 1 lakh per individual customer.
   
They will be allowed to issue ATM or debit cards as also other prepaid payment instruments, but not credit cards.