23 Jan Payments Banks
In September 2013, the Reserve Bank of India constituted a Committee headed by Dr. Nachiket Mor to study comprehensive financial services for small businesses and low income households. The objective of the Committee was to propose measures for achieving financial inclusion and increase access to financial services. The Committee submitted its Report to RBI in January 2014. One of the key suggestions of the Committee was to introduce specialized banks or payments banks to cater to the lower income groups and small businesses.
What is a Payment Bank?
A payment bank is similar to any other bank operating on a smaller scale.RBI introduced it in 2014 to increase the scope of financial inclusion.Its main focus is on small savings account holders, low income households, small businesses, unorganized sector entities and migrant labour force.It can accept a restricted deposit of up to Rs. 1 lakh per customer and will pay interest on those balances just like savings bank account.It can enable transfers and remittances through a mobile phone and provides debit cards and ATM cards to be used on ATM networks of all banks.It cannot provide loans and credit cards to its customers.Entities like Non Banking Finance Companies, Business Correspondents, Mobile Telephonies, supermarket chains and public sector entities are eligible to start a payment bank.The minimum capital requirement to set up this bank is Rs.100 crore.The RBI has issued that 25% of a Payment’s Bank’s branches must be in the unbanked rural area.As of now, RBI has granted license to launch Payments Banks to Aditya Birla Nuvo Limited, Airtel M Commerce Services Limited, Cholamandalam Distribution Services Limited, Department of Posts, Fino PayTech Limited, National Securities Depository Limited, Reliance Industries Limited, Dilip Shantilal Sanghvi, Vijay Shekhar Sharma, Tech Mahindra Limited, Vodafone m-pesa Limited.Cholamandalam Distribution Services Limited, Tech Mahindra Limited and Sun Pharmaceuticals have surrendered their licenses.
It was in 2007 that this system started in Kenya. A telecom giant used its outlets across the country to enable people to transfer money basically from city to the villages. The system picked up very fast within a month. Rather than keeping this money with themselves and spending it on celebrations and drinking, they preferred to save it. The cost of transaction by usual means was very high and the amount people were sending was quite small.
RBI has done a great job by opening the menu for different sorts of banks. This will create an ecosystem where people can come in to use the financial instruments which satisfies them. There are 233 million unbanked people in India. They need the banking system but what they don’t get is the appropriate product which reaches them. The conventional banks have been allowing fluctuations in the savings rate but people have not switched from one bank to another. Therefore, it is unlikely that a higher interest rate can attract too many people towards payment banks. Payment banks and mobile wallets are extremely savvy set of groups technologically. They are filling the space abdicated by universal banks. People have to be made aware of the new technology.
Previous NDA Government had brought in Grameen Sanchar Sewak but it did not take off. What is available today in the form of payments banks is an extension to that programme with the difference that private players have been brought in. In the current system, an easy access is being provided along with safety.
However, this seems to be more of an urban product than being a rural one. Loans are required by farmers and workers for different purposes and this feature is absent with payments banks. There is general tendency among rural people to put up money in safe hands of SHGs or micro finance groups which have been working there with them rather than going for a bank.
Airtel has a subscriber base where people are depositing money every month and it is stretching itself a little further. Airtel has said that it will invest Rs.3000 crores in its payments bank as it became the first off the block to launch the new model for banks aimed at taking financial services to the people. The basic aim of the private players is to ensure their profit and this is the reason why three of them even surrendered their licences.
Market Developments post Demonetization:
As far as digital payments are concerned, there are enough security keys to ensure safe transactions. Cashless economy is more of a mindset and acceptance. It is still at a nascent stage. 99% of the population is linked with the Aadhar Number based on which a person can interact with the bank. This is a huge technological advantage. Digital cash gives convenience and lot of people have not experienced the advantages of digital cash. Cash in the physical form has been a major source of subjugation of people in the countryside. In most of the rural households, mobile phones are registered with the name of the male member thus giving them more access to e- transactions. There is a fair chance for Government here to provide cell phones to women, make them aware and since most of them have an Aadhar Number, there is a way to include them directly into the economy with a payments bank account.
Migrant labourers move from one spot to another. Their ability to respond to emerging job situation is very important. Their employers often hold them back saying their payments will be done next month in cash. This unfair advantage to the employers can be nullified. The payments banks will allow rapid number of transactions especially of these types in semi-urban and rural areas. The cash crunch has also pushed people towards cashless transactions up to a great extent. Some sort of exemptions from Government might act as an incentive for people.
Misselling is the deliberate, reckless, or negligent sale of products or services in circumstances where the contract is either misrepresented, or the product or service is unsuitable for the customer’s needs like in insurance sector. This is a negative impact that rural or semi urban people might face regarding payments banks.
An institutionalized system will help consumers to get an easy payment system in the long run. The basic aim here is to help in financial inclusion and give an immediate banking system to the people.