Payment Banks Part 1 - Objective and competitive landscape in India

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Greetings from Yadnya!

Today, let’s see how the banking sector is witnessing a time of massive transitions. RBI (Reserve Bank of India) issued guidelines in November 2014, for setting up payment banks in the country. The Payments banks meet the growing needs of the young and tech-friendly public with some restrictions like authorization to open the savings/current accounts but to not issue any credit card to the customers, among others.

So, what are the objectives of these Payments Banks in India?

The requirement to open a Payment Bank: A minimum paid-up capital of Rs 100 crores is the prerequisite for launching a payment bank. The operational promoters should have ownership of at least 40% of the bank/venture, with the first five years locked in.

Key Features of Payments Banks:

PBs do practically all the work that is currently being done by traditional commercial banks, however, the payments banks will work under certain guidelines.

1. As the commercial banks, the payment banks accept the money of the people as a deposit, but the limit is fixed to a maximum of Rs. 2 lakhs from each customer

2. Payments banks are entitled to issue ATM/debit card to their customers but cannot issue a credit card

3. Payments banks are legally authorized to open both savings and current accounts of their customers

4. Payments banks cannot provide loans or lending services & solutions to customers

5. Payments banks will be allowed to make personal payments and receive remittances from the cross border on the current accounts

6. Payments banks cannot accept deposits from the Non-Resident Indians (NRIs)

7. Payments banks have to deposit the amount in the form of a Cash Reserve Ratio (CRR) with RBI as traditional banks do

8. Payments Banks will have to invest a minimum of 75% of its demand deposits in G-sec with maturity up to one year and hold a maximum of 25 % in currents and fixed deposits with other commercial banks for operational purposes

9. Payments banks are not allowed to open subsidiaries to undertake Non-Banking Financial Services activities

10. Payment banks can provide the Facility of utility bill payments to its customers and the general public

11. Payment bank can partner with other commercial banks and can sell products like mutual funds, pension products, and insurance products, post RBI approval

12. Payments banks are allowed to provide I-banking and m-banking functionality to their customers

13. Payments banks must use the word "Payments Bank" in their names to look different from other traditional banks

14. Payments banks can become a business representative of any other bank, but it will have to comply with the guidelines of RBI

15. The payments banks can easily accept remittances to be sent to or receive remittances from different banks through payment mechanism approved by RBI, such as RTGS / NEFT / IMPS.

On November 27, 2014; the Reserve Bank of India granted in-principal approval to 11 applicants to set up payment banks in the country. As of now, only 6 banks are working namely:

1. Airtel Payments Bank Limited
2. India Post Payments Bank Limited
3. Fino Payments Bank Limited
4. Paytm Payments Bank Limited
5. NSDL Payments Bank Limited
6. Jio Payments Bank Limited

Competitive landscape: Top Payments Bank in India

Airtel Payment Bank

Bharti Airtel (largest telecom provider in India) launched Airtel Payment Bank in January 2017 to support the India’s digital banking revolution. Airtel Payment Bank Features

• Individuals can open a Savings account at any branch (5 lakhs+ banking points)
• The customer is also eligible for free personal accident insurance cover of Rs 1 Lakh
• Rare of interest is 3.0% & Online debit card facility

Indian Post Payment Bank

IIPB (Indian Post Payment Bank) is backed by India's post offices; they have a network of over 1.5 lakh post offices across the length and breadth of the country and over 3 lakh employees to provide banking services. Key Features of IPPB is that one can open a zero-balance saving account. Your current post office savings account can be changed to a Payment bank savings account. This will ensure in a better interest rate and Aadhaar based Direct Benefit Transfer.

Fino Payment Bank

Fino Payment Bank Limited was launched in April 2017. They have impacted the financial needs of over 100 million customers over the years across over 25000 touch points in 499 districts across 28 Indian states.

Key Features of Fino Payment Bank are:

• Withdraw money from ATMs around the country.
• Transfer money instantly to any bank account across India
• Bank customers can earn up to 6.25% per annum by opting for Sweep account facility
• Shop at online and offline retailers with the Fino Payment Bank debit card. The Fino branches have ICICI ATMs installed
• Free cash deposit limits up to Rs 25,000 per month. Install the BPay app on your phone for easy payments

Paytm Payment Bank

Paytm has developed a separate, unique Passcode for each of its customers to ensure the protection of their money in Paytm bank. Every month, a customer will usually receive 2.75% interest.

Key Features of Paytm Payment Bank are:

• No account opening fees or minimum balance requirements
• The bank offers a free insurance policy of up to Rs 2 lakh in the case of death or permanent disability
• In Paytm Passbook, you can see your transaction and balance in real-time
• Make online transactions with your free virtual card at any retailer that accepts RuPay cards. Through the Paytm App, account holders may request a physical Debit Card

Jio Payments Bank

In November 2016, Jio with the State Bank of India started to support the ambitious Payments bank capacity-building initiative for all Indian citizens. Features of Jio Payment Bank are:

• There is no minimum balance requirement for the Jio Payments Bank account, however, no debit card will be issued by it.
• One can open a Jio Payment Bank account even without a Jio number.
• Once you open a Jio Payment Bank account, you will get a Jio UPI to handle transactions.

NSDL Payments Bank

In October 2018, NSDL Payment Bank (NSDL Jiffy) started operations to help the initiative to provide streamlined banking services to all Indians. The minimum average monthly balance to be maintained is Rs 10,000 for this payment bank. Free virtual debit card is made available to make online purchases. You can also request a physical debit card from your NSDL Jiffy App.

In part 2, we will see if Payment Banks is a sustainable model in India and what are the future avenues for these banks? Let’s keep learning, we are on this educational journey other.