Page 33 - Banking Finance February 2018

ARTICLE

Payment Banks' Role-Opportunities and

Challenges
Payment banks will complement banking services offered
by commercial banks and are expected to play its role in
promoting financial inclusion. The main activities of these
banks are i) opening of bank saving bank and current deposit
accounts for those that have never had one and ii) allowing
people to send and receive money easily, but however
cannot carry out lending activities. Thus, they can issue
ATM/debit cards, but cannot issue credit cards. These banks
aim at bringing the unbanked masses such as migrant
labourers, low income households, small businesses, and
other unorganised sector entities under the ambit of formal
banking and expedites financial inclusion by making it easier customers from just three future payments banks. India
for them to get a bank account. Payment banks may make Post, with 1.39 lacs post offices, which is nearly three
handling cash a lot easier through mobile phone and point- times of bank branches in rural areas, can serve several
of-sale (POS) terminals. hundred million customers from its branches.

Payments banks have the potential to be more agile and Pay TM already has 25 million e-wallet customers, who
nimble, and hence are more responsive to changing market are all potential targets for its payments bank.
trend. Innovation with technology, they can provide Payments banks will essentially rely on technology using
optimum and highly efficient banking services. With few or mobile as the vehicle of banking. Physical bank branches
no legacy constraints and greater responsiveness to or ATMs will still be needed for some functions like
customer needs they may attract a large pool of well served, opening an account, depositing cash, etc. but day-to-
underserved as well as unserved customers in the banking day payments and peer to peer payments can be done
space. remotely. More people in India have a mobile phone
subscription than a bank account. Mobile phones are
Opportunities & Role the new tools of banking .

1) RBI has granted "in-principle" approval to 11 applicants The mobile phone will become the virtual ATM. It will
to set up payments banks under the Guidelines for perform the same role as credit and debit cards,
Licensing of Payments Banks issued on November 27, avoiding the need for too many cash payments. In all
2014 (Guidelines). RBI has issued licenses to Companies probability, ATM expansion may slow down in cities and
which are into supermarket chains (have a large focus on remote villages or towns. Thus, together the
distribution network), mobile operators (have a large payments banks can easily double the base of banking
customer base), or the postal services which taps in a customers.
large number of customers. The savings and remittance 2) E-commerce is another big opportunity for these banks.
services of payment banks, target people living in rural This is because more and more customers are using
areas, or have limited/no access to banks. digital wallets, which are faster and more secure,
Since these Companies have a vast distribution network instead of punching card details every time they transact
or a customer base, they help in financial penetration online. The $7.69 billion Indian e-commerce industry
and ensure banking services to reach every nook and is expected to grow to $ 17.52 billion by 2017 and
corner in the country. This promotes financial savings around 70% of the business is based on the cash-on-
among the poorest of the poor in the nation. Airtel's delivery model. This may change in future after the
228 million customers, Vodafone's 184 million and Idea's entrance of Payment Banks. Many new payment banks
160 million adds 572 million potential payments bank are keen to tie up with universal banks and vice versa.

BANKING FINANCE | FEBRUARY | 2018 | 33

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