Payment Banks : A Step Closer Towards Financial Inclusion

Good Morning Readers,

A debate sparked on wednesday about the RBI giving License to the Payment Banks. This might sound new to you, but yes there is a different catageory called Payment Banks. Payments bank licence will allow companies to collect deposits (initially up to Rs 1 lakh per individual), offer Internet banking, facilitate money transfers and sell insurance and mutual funds. It is new stripped-down type of banks, which are expected to reach customers mainly through their mobile phones rather than traditional bank branches.

The objectives of setting up of payments banks will be to further financial inclusion by providing small savings accounts and payments/remittance services to migrant labour workforce, low income households, small businesses, other unorganised sector entities and other users. Such banks will ensure more money comes into the banking system and will help reach out to people in rural areas. Moreover, the payments bank licence will enable the network of 1,54,000 post offices (including 1,30,000 rural post offices) to offer banking services to the masses in the country.

List of the companies who got the license to run payment banks :

• Aditya Birla Nuvo Ltd
• Airtel M Commerce Services Ltd
• Cholamandalam Distribution Services Ltd
• Department of Posts
• Fino PayTech Ltd
• National Securities Depository Ltd
• Reliance Industries Ltd
• Dilip Shantilal Shanghvi
• Vijay Shekhar Sharma
• Tech Mahindra Ltd
• Vodafone m-pesa Ltd

The next question that arrives in ones mind is that what is the need of payment bank and "Kya baaki banks kam hain" but there is only one answer to all the questions that this step is one of the major step towards Financial Inclusion. These banks have limited services as compared to the other banks. Let's see what these banks can or can't do :

• They can’t offer loans but can raise deposits of upto Rs. 1 lakh, and pay interest on these balances just like a savings bank account does.
• They can enable transfers and remittances through a mobile phone.
• They can offer services such as automatic payments of bills, and purchases in cashless, cheque less transactions through a phone.
• They can issue debit cards and ATM cards usable on ATM networks of all banks.
• They can transfer money directly to bank accounts at nearly no cost being a part of the gateway that connects banks.
• They can provide forex cards to travellers, usable again as a debit or ATM card all over India.
• They can offer forex services at charges lower than banks.
• They can also offer card acceptance mechanisms to third parties such as the ‘Apple Pay.’

This is for the first time in the history of India's banking sector that RBI is giving out differentiated licences for specific activities. RBI is expected to come out with a second set of such licences — for small finance banks — and the process for those is in its final stage. The move is seen as a major step in pushing financial inclusion in the country.

It’s a step to redefine banking in India. The Reserve Bank expects payment banks to target India’s migrant labourers, low-income households and small businesses, offering savings accounts and remittance services with a low transaction cost. It hopes payments banks will enable poorer citizens who transact only in cash to take their first step into formal banking. It could be uneconomical for traditional banks to open branches in every village but the mobile phones coverage is a promising low-cost platform for quickly taking basic banking services to every rural citizen. The innovation is also expected to accelerate India’s journey into a cashless economy.

India’s domestic remittance market is estimated to be about Rs. 800-900 billion and growing. With money transfers made possible through mobile phones, a big chunk of it, especially that of the migrant labour, could shift to this new platform. Payment banks can also play a crucial role in implementing the government’s direct benefit transfer scheme, where subsidies on healthcare, education and gas are paid directly to beneficiaries’ accounts. Also, this is the first time since banks were nationalized, that private sector business groups have bagged the RBI’s nod for banking services.

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