Payment Banks in India, Meaning and Services - Banking Revolution on Cards

Banking, is gearing up for an upheaval. The Reserve Bank of India gave nod to 11 entities among 41 applicants - including Govt. run department of posts, Reliance Industries and Aditya Birla Group, telecom bigwigs like Airtel and Vodafone, and different technology and finance companies - to set up 'payments banks' in India.

What are Payment Banks?
A payments bank is a type of non-full service niche bank in India. Payments banks will be able to accept deposits up to only Rs 1 lakh and they cannot grant loans as compared to the traditional and present world 'universal banks' or regular banks. The money can be deposited in government bonds. These payment banks can issue debit cards but not credit cards. Rest they can provide all the services of a universal bank.

Payments banks will be largely depend and base on mobile and ATM infrastructure to offer transaction banking services. If you wish to open an account with any of these payment banks, it could be like purchasing a pre-paid mobile number. This is expected to bring down charges for remittances, fund transfers and other banking transactions due to intense competition. Customers who could not maintain the minimum balance required will be welcomed into these payment banks as revenue will be earned not through the spread of interest between deposits and loans but through transaction charges.

The new payments bank to be started up by the department of posts will have ready access to the 1.55 lakh post offices in India. State Bank of India (SBI) will pick up a 30% stake in Reliance's set up payment bank and Airtel will hold a 19.9% stake in the payment bank because of the backing of Kotak Bank. After releasing the list of successful applicants which would be setting up payment banks in the Country, RBI said it would be difficult to predict which model will be successful in this future business of payments.

The following is the list of successful applicants who will be setting up Payment Banks in India:
Department of Posts
Reliance Industries
Aditya Birla Group
Airtel
Vodafone
National Securities Depository
Tech Mahindra
Dilip Shanghvi owned Sun Pharma
Paytm (founded and owned by Vijay Shekhar Sharma)
Cholamandalam Distribution Services
Fino PayTech

The unsuccessful entities include Videocon and Kishore Biyani, Vakrangee Software and other digital payment companies.

RBI's in-principle approval granted will be valid for a period of 18 months, during which time the applicants have to comply with the requirements under the guidelines and fulfil the other conditions as may be stipulated by RBI. On being satisfied that the applicants have complied with the requisite conditions laid down by it as part of in-principle approval, RBI would grant a banking licence.

Payments Banks Services
Payment banks can accept deposits (other than FDs) of up to Rs 1 lakh, and issue ATM/debit cards. But they cannot provide loans or issue credit cards. Customers can avail of payments and remittance services through different channels. These payment banks can become business correspondents of universal banks, distribute mutual funds and insurance.

A cash reserve ratio with Reserve Bank of India and 75% investment of their deposits in government bonds would have to be done by the payment banks. They can have a maximum of 25% of deposit funds in current and time/fixed deposits with other scheduled commercial banks.

The payment banks will not be dependent on branches but more on alternate channels like mobile, ATM and internet, or even point of sales terminals. Some of the requirements to setup payment banks should be fully networked and tech-driven from the beginning, conforming to generally accepted standards and norms and besides that have a high-powered customer grievances cell to handle and monitor customer complaints. The payment banks will ensure more money comes into the banking system and will help reach to the masses in rural areas.