Majority of the people nowadays are becoming tech savvy and thanks to some of the extremely talented people in our country who have introduced the concept of payment banks in the country. As a result apps like Paytm, Bharti Airtel are providing services similar to banking transactions. This concept of payment bank not only inculcates everyone to use online mode of payments but also targets those people of India who are still left without having bank account. For example, a driver may receive his salary though digital wallets and rather than sending it to family members by other means, he can open an account with payment bank with minimum deposit as small as Rs. 100 and transfer the money through it. The need for payments bank erupted because approximately 30% of the population of India especially the rural side do not hold bank accounts. Out of the total population of 125 crores, almost 75% of the population are mobile subscribers. Thus payments bank will inculcate cashless economy and encourage a lot of people to open bank accounts like low- income households, labourers, small-business people.
Concept and features of Payments bank:
Payments bank is one of a kind that can accept demand deposits but cannot perform functions related to credit risk. In other words it functions on smaller scale accepting demand deposits for maximum up to Rs. 1 lakh, but cannot give loans or issue credit cards. They usually perform functions like mobile payments, transfer of funds give facilities of ATM or debit cards, etc. Investments by Payments bank can only be done into Government Securities and Treasury bills. Hence opening a bank account here does not normally involve any huge risk.
- Payments bank can hold a minimum equity capital of Rs. 100 crore.
- Payments bank can be a subsidiary to commercial banks.
- 75% of the savings of payments bank will be invested in Government Securities and treasury bills; and 25% will be used for current and fixed deposits.
- These banks will charge a nominal fee as commission.
- Payments bank cannot directly give loans but can have tie ups with different banks so as to make it convenient for people to get small amount of loans.
- Airtel Payments Bank- This Bank was the first payment bank of the country offering 7.25% on deposits and charging a nominal fee of 0.65% provided the withdrawal amount is above Rs. 4000. Mr. Shashi Arora, MD and CEO also introduced strategy of offering free talk time for every rupee deposited. For example if the amount deposited is Rs. 5000 then the Airtel customer will get 5000 minutes free talk time. Apart from other advantages, Airtel Money app can be used to access one’s account.
- India Post Payments Bank: This became the second entity to launch its operations in January by offering an interest rate of 5.5% on savings account. It charges a nominal fee of Rs. 15-35 per visit wherein provides banking service for amount below Ra. 10000.
- Paytm Bank: This was third in the list to be launched and was started by Vijay Shekhar Sharma in May 2017. Paytm Bank offers 4% interest on savings account. Within 12 months of launch bank has a target of 200 million accounts.
- Fino Payment Bank:- This one is the latest in the segment and was recently launched in July 2017 with 410 branches across 14 states. The company was initially launched under guidance of ICICI Bank and other leading banks however; it is now also getting funding from companies such as Bharat Petroleum, Blackstone, etc. Currently this bank offers 4% interest on saving accounts
Comparison of services provided by these payment banks
Initially RBI has given approval (in license) to 11 entities which is valid only for 18 months. The four launched banks are discussed already and other 7 entities are Aditya Birla Nuvo Limited., National Securities Depository Limited, Vodafone m-pesa Limited, Reliance Industries, Tech Mahindra, Sun Pharmaceuticals and Cholamandalam Limited. Out of these 3 have surrendered their license – First being Cholamandalam, then Sun Pharmaceuticals and latest in the list is Tech Mahindra.
This category of banks will give good competition mainly to NBFC’s in the smaller locations as the interest rate and facilities offered by some of the payment banks are good. However, in metro cities, mostly these apps would be used to make payments to merchants while shopping. It will be interesting to see how these payment banks will evolve themselves and contribute towards financial inclusion in our country.
Have you tried services of any payment banks? Let us know your experience.