Payment banks are a big game changing idea for financial inclusion. We see how E-commerce has revolutionised the entire retail industry in the same way payment banks are also expected to be revolutionised in the financial services. Innovation is always a form of opportunities, which finds a reflection in every facet of our functions. The bankers have constantly tried to develop new productswhich are suitable for the client’s perspective. The economy is evolving in a very rapid way and so as the aspirations of the people. This has driven the government to plan more innovative ideas. Now, the present market is moving in a very competitive manner so to create a stiff competition among conventional banks a new kind of bank is evolved called as payment bank.
Payment BankPayment banks have come up with their innovative models and a very good Digital approach. It has reached customers mainly through the mobile phones rather than conventional banks. It will be performing all the functions same as that of the conventional banks but except lending. We can deposit, pay bills, and even we can credit our cheques and drafts but provided lending are not allowed. Maximum balance validated is up to 1 lakh. These banks are expected to target, majorly to low-income groups and small business. Limited banking functions will only be entertained as per the Banking Regulation Act of 1949. They cannot lend credit cards to any of their customers. LPG, Kerosene and food subsidies which were initiated by the government can also be routed through payment banks.
BackgroundThese payment banks were proposed in the Nachiket Mor committee report stated as ‘Comprehensive Financial Services for Small Business and Low Income Households’. On 27 November 2015, RBI released the final guidelines for payment banks. A total of 41 applications were received by the RBI. After thorough, examination of applicant’s financial track record and governance issues, the RBI has given a final approval to set up 11 banks on 19 August 2015. In the Union Budget of 2014-2015, the Finance minister had announced that India post will use its large network to run a payment bank.
ObjectivePayment bank is a big approach towards financial inclusion by offering small savings account and payment settlement services to small businesses, unorganised sector, labour workforce and other users.
What they can do and what not?
- Loans will not be issued. Maximum deposit limit is 1 lakh and interest will be paid on our balances just like a savings account.
- Transfers and payments can be done through a mobile phone.
- We can do payments of bills, purchases in cashless, cheque few transactions through a phone.
- They don’t have any right to issue any credit cards. They will issue only debit cards.
- Money will be transferred directly to the bank accounts, at nearly no cost being involved as a part of the gateway that connects banks.
- They can sell mutual funds, insurances and pension products. They can’t accept NRI deposits.
- They can offer forex services at charges lower than banks.
Functions and Guidelines issued by RBI
- Minimum capital required should be Rs.100crore.
- 25% of the branches should be established in rural areas where banking facility is not feasible.
- They are ought to use ‘Payment bank’ so as to differentiate it from other banks.
- They are been registered under the Companies act, 2013.
- For the first five years, the promoter contribution should be 40%.
RBI has given approval for these payment banks for about 18 months and they need to follow the above guidelines in a stipulated timeframe, as mentioned by RBI.
Impact of TechnologyPayment banks are relied on the technology. It is providing such a platform that the phone is being used as a digital wallet. There are multiple wallets going around which are of no use as their validity period varies between six months to a year. The money which is stored in the wallet is ideal and it does not fetch any interest. As wallets accept very low values they do not require any KYC norms, so there is every possibility of fraud. To meet these challenges technology driven companies need to come up with more innovative ideas and they need to join with the payment banks to gain more advantage in the market. In fact, these payment banks and wallets can contribute together towards a financial inclusion.
Impact on Existing Banks
- Payments banks will play a key role in rural areas. By doing so they will bring the unbanked people under the ambit of banking.
- It will lead to more financial inclusion and they will also make the poor more financially literate.
- The existing top banks will not have any impact by the payment banks as payment banks are limited to only specific areas.
- Payment banks even act as a business correspondent, so now the major banks can tie with the payment banks so as to improve their reach in every part of the country.
- In fact, many of the banks have started tying up with the payment banks.
Features of the banks:
It will be promoted by prepaid card issuers,telecom companies, super markets, PSUs, Corporates.
It will be promoted by individuals or
professionals with 10 years, experience in
finance, local area banks, NBFCs.
They have to maintain a minimum capital of Rs.100cr. They need to maintain 75%deposits in government bonds. They need to have at least 26% investment by Indian. Fully networked and tech driven.
They have to maintain Rs.100cr. They need
to extend 75% of loans to priority sector.
They have a business correspondent
They offer Internet banking, sell mutual funds, insurance, and ATMs
They can sell forex to customers, sell
mutual funds and insurance.
They can’t offer credit cards and can’t accept NRI deposits.
They cannot deal in sophisticated financial
- Our mobile devices will play a key role as it promotes the cash-less banking. It clearly indicates that our mobile is preventing the need to many cash payments.
- It is connecting to rural areas, where poor people will become financially literate.
- Small business can operate their salary accounts in payment banks, instead of cash.
- Payment banks offer higher rate of interest on savings account.
- Everyone benefits from this account if you want to send the salary to your driver or watchman, then you can directly send it to their account by using this platform.
- In rural areas people are habituated to keep their money in the homes, which doesn’t fetch any interest to them so payment banks will change the entire scenario in rural areas by opening more bank accounts with simple KYC norms.
- Transfer of money is very fast. Parents can transfer money to their children’sm account who are living far away from the home so as to meet their expenses.
- Account will be easily opened in payment banks and there wouldn’t be any income level restrictions.
ConclusionThe central bank of our country is coming up with more innovative ideas and it is arranging more flexible financial services to the customers. Profitability would be a major challenge as their margins are narrow. If there is a surplus amount of creativity and passion then there will be a good growth in society. Innovation gives good success to the banking sector, it does not mean that our sole aim should be that, we need to have exemplary performance in getting customer satisfaction and fulfilling their requirements, by all means, is the only way to succeed in this sector.
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