Sunday, June 25, 2017

India's Payments Banks - Will they Change India's Banking Sector?

Payments banks are predicted to change our country's poor banking system in coming days. As majority of payment bank licensee, approved by Reserve Bank of India are directly or indirectly related to Telecom industries, it can be assumed that India's telecom industry can be a partner in changing the banking landscape or banking system can be revamped by telecom majors-owned, stripped down version of conventional banks, which are in turn known as Payments Bank.

As per RBI norms, Payments banks have to focus on providing basic financial services, including social security and utility bill payments, remittance functions, and can mobilise deposits of up to Rs 1 lakh.

Payments banks differ from traditional banks, as they don't offer any credit card or loans. Also you can keep maximum of 1 lakh rupees in the payments bank account. Experts believe payments banks are not replacement of traditional banks but they can be the bridge between people without banking facilities and digital banking system, paving a way towards Digital India. Payments banks will be better than the e-wallet systems (Citrus Pay, Ezetap, Freecharge, Mobikwik, Citi MasterPass, Ola Money, Jio Money, HDFC PayZapp, ICICI Pockets, JusPay Safe, PayUMoney, LIME, MoneyonMobile, MomoeXpress, Mswipe, Oxigen, PayMate, State Bank Buddy, Vodafone M-Pesa, mRupee, ItzCash etc) which almost offers the same except interest, ATM cards and some other facilities like pure banking services like ATM usage, cheque book use etc. Interestingly e-wallet business got an escalation after demonetization (banning of old Rs 500 and 1000 rupees notes), though many think digital wallet business model is not viable.

In 2015 RBI has approved 11 companies to operate payments bank in India. They are : 

  • Aditya Birla Nuvo
  • Airtel M Commerce Services, launched as Airtel Payments Bank
  • Cholamandalam Distribution Services (Chola), 
  • Department of Posts, launched as India Post Payments Bank (IPPB)
  • FINO PayTech
  • National Securities Depository
  • Reliance Industries
  • consortium of Sun Pharmaceuticals-IDFC Bank-Telenor Financial Services, 
  • Paytm, launched as Paytm Payments Bank
  • Tech Mahindra, 
  • Vodafone M-Pesa.

Post that three companies already dropped their ambitions to launch payments bank – Chola, Telenor-Sun Pharma-IDFC Bank consortium and Tech Mahindra. 

The reason of dropping by Telenor consortium was simple, Telenor which is a pioneer in mobile banking in developing countries is in the verge of leaving India, and later Telenor’s telecom assets were acquired by Airtel. 

It has been heard that Vodafone may also drop their license as Vodafone will merge with Idea Cellular and the merged entity will offer payments bank under one license and therefore Birla’s payments bank has been delayed.  

India has its first payments bank on November 23, 2016 when Airtel has launched its payments bank on pilot basis. On January 30, 2017 India Post had started their own, and paytm Payments Bank started invite based payments bank. 

We just made a comparison table of three payments bank which has been launched so far. The facts can be changed as the companies change their terms and conditions. 

From the table below you can see that Airtel offers highest interest but charges on every txn and there is no ATM card also. While India Post's payments bank is offering more mature services - ATM cards and banking points with 5.5% interest (which is more than interest of most of the regular bank's saving account). And Paytm is just a new entrant - hardly we can comment on them. However as other companies will launch their pBanks and the whole ecosystem will turn more mature - it can herald a new age of banking in india. 

Airtel Payments Bank India Post Payments Bank Paytm Payments Bank
Owned by Bharti Airtel & Kotak Mahindra Bank Department of Post, Government of India. Punjab National Bank (PNB) is a partner in the venture. One97 Communications, funded by SoftBank Group, Alibaba Group, Ant Financial Services Group, Ratan Tata
Launched on Nov 23, 2016 – first payment bank in India January 30, 2017 May 23, 2017
How to open account Anyone with an Aadhaar card and a mobile number (e-KYC will help to open account in seconds) Anybody with proper ID proof
There are 3 types of accounts : Safal, the regular account; Sugam, a basic savings bank deposit account (BSBDA); and Saral, BSBDA-Small.
Initially it’s invites only
Minimum balance Rs 10 Nil* Nil
Maximum balance limit 1 lakh 1 lakh 1 Lakh
Interest rate 7.25% 5.5% 4%, payable monthly
Transaction charges Cash withdrawl – 0.65% of the amount
Within Airtel Payments Bank (Internet banking, Mobile App & USSD) and to another Bank (Internet banking, Mobile App & USSD) - up to & including Rs 1,000 - FREE
From Airtel Payments Bank to another Bank (Internet banking, Mobile App & USSD) - for amounts > Rs 1,000 - 0.5% of amount transferred **
Branch banking: 4 free transaction, after that Rs 20 per transaction
ATM transaction: free at India Post, PNB ATMs; other ATMs: 3 free for metros, 5 free for non-metros. After that Rs 20 for each transaction
Online fund transfer: Rs 2.5 – 5 for NEFT, IMPS at bank branch*
IMPS, UPI, RuPay transactions and NEFT payments : FREE

Balance check, Mini statement: Rs. 5/txn
Debit card, Cheque book and No ATM card or Cheque book as of now. Here your Airtel mobile no becomes the account no.** * Free Virtual Debit card
Rupay Debit card: Free + Rs 100 for annual subscription + delivery charge
Lost card replacement : Rs. 100 + delivery charges
Cheque book (10 leaves) Rs. 100 + delivery charges
Others IPPB will sell mutual funds, insurance schemes by 2018.

My take: Initially I made this post for Telecomtalk (which has an excellent video made by Shree), and it's already live there. But there I found that the story has quite lukewarm response, and very few comments - mostly saying negative of the concept of payments bank.

In my honest opinion payments banks are relatively new concept, and to explain it to general people is hard. So by going by basics, payments bank or simply pBanks are extension of e-wallets, where main UPS can be interest on the money saved on wallet. Now see you use Uber, and to pay for Uber cab rides you put money on Paytm, say for example Rs 3000 every month. That Rs 3000 is laying flat - here with pBank of Paytm you will earn some interest (4% as of now). That's a good news, right? But same is not applied for India Post's pBank. The better comes with Airtel pBank where interest is 7.25% (maximum at present) and probably there is no extra charge when you pay to Uber by Airtel pBank account.

It should be noted that Uber integrated Airtel Money as a payment mode in August, 2015 and right now it has been disintegrated (happened in Dec '16 or Jan '17 - can't confirm). The second payment option (other than Paytm) Uber leaves to credit/debit cards. Now I believe airtel-uber partnership will be continued after airtel's payment bank launches physical/virtual debit card.

So putting money on e-wallet turned pBank from Paytm makes a good deal now. While India Post & Airtel pBank, though offers more interest, they are not worth as of now.

Disclaimer : The banks' policies can change anytime, also all terms and conditions are not mentioned in this article. Before opening account, you have to read out all clauses, terms and conditions, policies. 

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