Project Report on Payment Banks

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CHAPTER 1
INTRODUCTION OF THE
PROJECT

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1.1 CONCEPT AND SIGNIFICANCE OF THE STUDY
1.1.1 Definitionof Payment Banks
A payment bank is a differentiated bank that will undertake only certain
restricted banking functions that the Banking Regulation Act of 1949 allows. These
activities include acceptance of deposits, payments and remittance services,
internet banking and function as business correspondent of other banks.
Payment Banks
 Payments banks are a new model of banks conceptualized by the Reserve Bank of
India (RBI).These banks cannot issue loans and credit cards. Both current account
and savings accounts can be operated by such banks.
 A payments bank is like any other bank, but operating on a smaller scale without
involving any credit risk. In simple words, it can carry out most banking operations
but can't advance loans or issue credit cards. It can accept demand deposits (up to Rs
1 lakh), offer remittance services, mobile payments/transfers/purchases and other
banking services like ATM/debit cards, net banking and third party fund transfers.
 Payment Banks are banks which will reach their customers mainly through mobile
phones rather than traditional bank branches. They can be thought of as mobile
wallets. However, they can also have physical branches. Not anyone can ask for
license for these banks. One has to fulfill some conditions; one of them being is that
the minimum capital requirement is Rs 100 crore to open up a Payment Bank.

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1.1.2 How do Payment Banks work?
The Smart Payment Bank may not Look like Bank
 Payments banks need to envisage themselves as a multilayered platform that not only
facilitates financial transactions, but also drives continuous engagement.
1.1 Smart Payment Bank Model
E-Commerce Payment through Smart Payment Bank
 India’s e-commerce market was worth about USD 3.8 billion in 2009, it went up to USD
17 billion in 2014 and to USD 23 billion in 2015 and is expected to touch whopping USD
38 billion mark by 2016 (According to Assocham ) Unlike the Western countries, online
shopping in India is mostly done through Cash on Delivery payment method. In India,
CoD is used as the mode of payment for 5 out of 10 online transactions.
1.2 Smart Payment Bank Model

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 On the contrary, the situation is completely reversed in western countries where
approximately more than 80% of the online transactions are made by debit or credit cards, net
banking or any other alternate channel of online payment. CoD transactions are expensive for
the seller, especially in case of product returns. Instances of product returns are also higher
in CoD transactions - approximately 35% more.
 Nearly all courier companies charge some extra amount for collecting cash. This cost is
divided in two parts fixed and variable cost. Fixed cost margins are INR 20 to 150 and
variable cost is 1% to 3% of the CoD amount. This is for high priced product such as laptops
and mobile phones. If the item is priced low then the CoD charges at times exceed one's
margin in the product and if the item is priced very high then the percentage CoD charge
turns out to be in hundreds or even thousands. To encourage customers to pay digitally
companies are offering discounts or freebies: ecommerce companies are run promos or
discount offers only for consumers who are paying online.
1.3 Product/Business Model

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1.1.3 SIGNIFICANCE OF THE STUDY
 This study gives information about banking industry and payment bank industry.
 It also tells about difference between small banks and payment banks.
1.2 OBJECTIVE OF THE STUDY
 To analyze the functions of payment banks.
 To study its effect on Indian economy.
 To give brief idea about benefits available from payment banks.
 To make reader aware about licensed payment banks.
1.3 SCOPE OF THE STUDY
 The present study is an attempt to understand working of payment banks and why India
needs it.
 The study is based on research papers and articles.

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1.4 Literature Review
Singh R (2003), in his paper Profitability management in banks under deregulate
environment, IBA bulletin, No25, has analyzed profitability management of banks under
the deregulated environment with some financial parameters of the major four bank
groups i.e. public sector banks, old private sector banks, new private sector banks and
foreign banks, profitability has declined in the deregulated environment. He emphasized
to make the banking sector competitive in the deregulated environment. They should
prefer noninterest income sources.
Singla HK (2008), in his paper, ‟ financial performance of banks in India,‟ in ICFAI
Journal of Bank Management No 7, has examined that how financial management plays a
crucial role in the growth of banking. It is concerned with examining the profitability
position of the selected sixteen banks of banker index for a period of six years (2001-06).
The study reveals that the profitability position was reasonable during the period of study
when compared with the previous years. Strong capital position and balance sheet place,
Banks in better position to deal with and absorb the economic constant over a period of
time.
Prashanta Athma (2000), in his Ph D research submitted at Usmania University Hyderabad,
“Performance of Public Sector Banks – A Case Study of State Bank of Hyderabad, made an
attempt to evaluate the performance of Public Sector Commercial Banks with special emphasis
on State Bank of Hyderabad. The period of the study for evaluation of performance is from 1980
to 1993-94, a little more than a decade. In this study, Athma outlined the Growth and Progress of
Commercial Banking in India and. analyzed the trends in deposits, various components of profits
of SBH, examined the trends in Asset structure, evaluated the level of customer satisfaction and
compared the performance of SBH with other PSBs, Associate Banks of SBI and SBI. Statistical
techniques like Ratios, Percentages, Compound Annual rate of growth and averages are
computed for the purpose of meaningful comparison and analysis. The major findings of this
study are that since nationalization, the progress of banking in India has been very impressive.
All three types of Deposits have continuously grown during the study period, though the rate of
growth was highest in fixed deposits. A comparison of SBH performance in respect of resource
mobilization with other banks showed that the average growth of deposits of SBH is higher than
any other bank group. Profits of SBH showed an increasing trend indicating a more than
proportionate increase in spread than in burden. Finally, majority of the customers have given a
very positive opinion about the various statements relating to counter service offered by SBH.

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CHAPTER 2
INTRODUCTION TO
INDUSTRY

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2.1 OVERVIEW OF INDIAN BANKING INDUSTRY
2.1.1 History of Indian Banking
1. Types of Banks during Pre-Independence
Apart from SBI, another noted bank that has survived till now is the Punjab National Bank.
Established in 1895 in Lahore, the bank is still working in the country. During pre-
independent era, three types of banks were noticed in the banking industry. These are:
 Presidency Banks, which operated as quasi-central bank and was owned by the
government of the pre-independence era.
 Exchange Banks, which were under the British merchants and tapped the foreign
exchange market.
 Indian Joint Stock Banks, where the bank was owned by private groups. They were
basically shareholders. The bank issued the stock. The profit was shared by the
shareholders.
2. Banking Industry Post Independence
After India became independent, a lot of changes took place in the Indian economy and the
banking industry. The British were no longer a part of the Indian economy. The Indian
government took proactive measures to streamline the economy and boost industrialization. For
stability in the economy, it created banking regulations, such as:
 The Reserve Bank of India (RBI) was created in 1949 as the central bank of India under
the Reserve Bank of India (Transfer to Public Ownership) Act. It had the authority to
direct other banks. The RBI could regulate, direct, or inspect other banks.
 No two banks could have common Directors.
 No bank could open another branch without the permission from the RBI. A license
would be issued if permission is granted.
3. Major Events in the Indian Banking History
After the Indian government formed RBI, a series of changes followed. Till date, here is a gist of
some important events in banking:
 RBI was formed in 1934.
 The Indian government passed the Banking Regulation (Amendment) Act 1949.
 Nationalization of banks was accomplished in 1955.
 SBI sub groups were nationalized in 1959.
 Government implemented insurance cover for people who deposited money in banks in
1961.
 The Indian government passed the Banking Regulation (Amendment) Act 1965 where
RBI was given immense power to handle financial services.
 Rural banks were created in 1975.
 Major changes in the economy and banking were seen in 1991 reforms.
 Tech-savvy foreign or private banks got license for banking in India. These include
HSBC, ICICI, UTI, Axis Bank, and HDFC.
 ICICI was the first bank to introduce Net-Banking services.
 Banks with foreign investors got opportunity to in Foreign Direct Investment after
reforms in post 1991.

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So, after liberalization in 1991, there are three types of banks – government owned, private, and
foreign banks in the commercial banking sector. There are also Rural Banks, Co-operative
Banks, and Developmental Banks.
4. Banking System 2014 Onwards and Role of RBI
Banks post liberalization has been diversifying. New reforms are being made to ensure loan
system is convenient to the loan seekers and not burdensome for the banks. The RBI has been
taking steps to ensure there is…
 A rise in the number of banks, including private and foreign banks
 A change in the banking operations for the convenience of customers
 Fine levied on willful defaulters
 FDI opportunities for the foreign banks
 More use of technology in the banking system
5. Quick Facts about Banks
 Oldest Public Sector Bank (PSU) is Allahabad Bank.
 Oldest Indian Joint Sector bank is Allahabad Bank.
 The first Indian Joint Sector bank is Bank of Upper India. It is not functional now.
 The first bank to be managed by Indian Board is Oudh Commercial Bank. It is not
functional now.
 The first commercial bank is the Central Bank of India (CBI) that was opened up in
1911.

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2.1.2 Problems faced by banking industry
 Asset quality:
The biggest risk to India's banks is the rise in bad loans. The slowdown in the economy in the
last few years led to a rise in bad loans or non-performing assets (NPAs). These are loans which
are not repaid back by the borrower. They are, thus, a loss for the bank. Net NPAs amount to
only 2.36% of the total loans in the banking system. This may not seem like an alarming figure.
However, it does not take into restructured assets - when a borrower is unable to pay back and
the bank makes the loan more flexible to be paid back over a longer period of time. Restructured
assets to put pressure on a bank's profitability. Together, such stressed assets account for 10.9%
of the total loans in the system. And these are just loans which are identified as stressed assets.
36.9% of the total debt in India is at risk, according to an IMF report. Yet, banks have capacity to
absorb only 7.9% loss. So, if these debts turn bad too, banks will face major losses.
 Capital adequacy:
One way a bank tries to ensure it is protected from bad loans is by setting aside money as a
'provision'. This money cannot be used for any other purposes including lending. As a result,
banks have lower capital available to use for its various operations. The Capital Adequacy Ratio
measures how much capital a bank has. When this falls, the bank has to borrow money or use
depositors' money to lend. This money, however, is riskier and costlier than the bank's own
capital. For example, a depositor can withdraw his/her money any time they want. So, a fall in
CAR (often called as CRAR or Capital to Risk Assets Ratio) is worrisome. In the last few years,
CRAR has declined steadily for Indian banks, especially for public-sector banks. Moreover,
banks are not able to raise money easily, especially public-sector banks which have higher
number of bad loans. If banks do not shore up their capital soon, some could fail to meet the
minimum capital requirement set by the RBI. In such a case, they could face severe issues.
 Unhedged forex exposure:
"The wild gyrations in the forex market have the potential to inflict significant stress in the books
of Indian companies who have heavily borrowed abroad," Mundra said in his speech. This stress
can affect their ability to pay back debt to Indian banks. As a result, the RBI wants banks to
ensure companies they lend to do not expose themselves to unnecessary debt in dollars.
 Balance Sheet management:
In the past few years, many banks have tried to delay setting aside money as provisions (for
future bad loans). One reason for this is that a bank's chief executives have a short tenure, during
which time they want to post higher net profits and cheer investors. "It must be appreciated that
CEOs/ CMDs would come and go but the institutions are perpetual entities. The only thing
which can perpetuate their existence is a stronger and healthier balance sheet," Mundra said.
Deferring provisioning is harmful in the long term. It reduces the bank's ability to withstand
financial pressures. This is even more problematic considering the poor capital adequacy in
Indian banks. In fact, investors would be happier if the management addresses and sorts out
problems rather than posting high net profits that cannot be sustained in the long term, the deputy
governor said.

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2.1.3 Growth of Banking Industry
 The Indian banking system consists of 26 public sector banks, 25 private sector banks, 43
foreign banks, 56 regional rural banks, 1,589 urban cooperative banks and 93,550 rural
cooperative banks, in addition to cooperative credit institutions.
 Public-sector banks control nearly 80 percent of the market, thereby leaving
comparatively much smaller shares for its private peers. Banks are also encouraging their
customers to manage their finances using mobile phones.
 Total lending and deposits increased at a compound annual growth rate (CAGR) of 20.7
per cent and 19.7 per cent, respectively, during FY07-14 and are further poised for
growth, backed by demand for housing and personal finance. Total asset size of banking
sector assets is expected to increase to US$ 28.5 trillion by FY25. Deposits have grown at
a CAGR of 13.6 per cent during FY05–15 to an estimated US$ 1.48 trillion in FY15.
Deposit growth has been mainly driven by strong growth in savings amid rising
disposable income levels.
 Another emerging trend witnessed by the banking sector is the use of social media
platform like Facebook to attract customers. In September 2013 ICICI bank launched a
Facebook bill payment and fund transfer service called ‘Pockets’ for customer
convenience.
 According to a report by Zinnov, a Globalization and Market Expansion firm, ‘IT
adoption in BSFI sector in India’, the Information Technology Industry spend in BFSI
vertical is expected to reach USD 3.5 billion by Financial Year 2014. The study also
highlighted ‘the growing maturity of Indian BFSI organizations in IT adoption, as
technology is seen as a driver of business value. Technology firms have great potential to
explore in the BFSI sector, which contributes to eight per cent of India's Gross Domestic
Product.’
 Rising incomes are expected to enhance the need for banking services in rural areas and
therefore drive the growth of the sector; programmes like MNREGA have helped in
increasing rural income aided by the recent Jan Dhan Yojana. The Reserve Bank of India
(RBI) has relaxed its branch licensing policy, thereby allowing banks (which meet certain
financial parameters) to set-up new branches in tier-2 to tier-6 centers, without prior
approval from RBI. It has emphasized the need to focus on spreading the reach of
banking services to the un-banked population of India.

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2.2 PAYMENT BANKS
2.2.1 Background to “Payment Banks” in India:
 The term “Payment Banks” is new and seems to have been invented in Indian context.
In September 2013, a “Committee on Comprehensive Financial Services for Small
Businesses and Low Income Households”, headed by Nachiket Mor, was formed by the
RBI. By January 2014, the Nachiket Mor committee submitted its final report and one of
its recommendations was the formation of a new category of bank called payments
banks.
 The above was followed by announcement in Union Budget 2014-2015 (presented on
July 10, 2014) wherein it was decided that “After making suitable changes to current
framework, a structure will be put in place for continuous authorization of universal
banks in the private sector in the current financial year. RBI will create a framework for
licensing small banks and other differentiated banks. Differentiated banks serving niche
interests, local area banks, payment banks etc. are contemplated to meet credit and
remittance needs of small businesses, unorganized sector, low income households,
farmers and migrant work force”.
 Taking cues from the Budget, RBI issued the draft guidelines in July 2014 itself on
payments banks and small banks as differentiated or restricted banks. Based on the
feedback RBI came out with final guidelines for Payment Banks in November 2014, and
called the applications from entities which are interested to start such banks.
2.2.2 Objectives of Payment Banks
 The objectives of setting up of payments banks will be to further financial inclusion by
providing small savings accounts &
 Payments/remittance services to migrant labor workforce, low income households, small
businesses, other unorganized sector entities and other users.
2.2.3 Scope of Payment Banks
 Acceptance of demand deposits. Payments bank will initially be restricted to holding a
maximum balance of Rs.100, 000 per individual customer.
 Issuance of ATM/debit cards. However, payment banks cannot issue credit cards.
 Payments and remittance services through various channels.
 BC of another bank, subject to the Reserve Bank guidelines on BCs.
 Distribution of non-risk sharing simple financial products like mutual fund units and
insurance products, etc.

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2.2.4 Advantages of Payment Banks
 Individuals can use the payment bank account to make daily or monthly cash
transactions, either through debit card or through mobile.
 This can also help guard against debit card fraud, since you can keep a smaller balance in
these accounts.
 Since there is no restriction on the income levels of those who wish to open accounts in
payment banks, those who have salary accounts in regular bank accounts can also open
an account in a payment bank.
 Students living away from home would also be able to use facilities of payment banks to
pay their fees.
 Small businesses — that have five or six employees — can operate salary accounts in
payment banks, instead of paying out cash.
 While a full-fledged commercial bank offers all these services, they charge fees and also
have stringent Know Your Customer (KYC) norms. In a payment bank, KYC norms may
be simplified and charges may be lower. Payments banks will target the non-banking
population. So, they might have lenient KYC norms.
 Also, as they will be more technology-intensive, their fees would be lower than regular
banks.
 For a retail chain, a payment bank can also be a good way to retain customers. “If a
customer deposits money with a supermarket and uses its banking facilities, they will
remain loyal to the store. The store can also offer other services to the customer. So, you
can pay your bills while shopping. Similarly, mobile companies also want to retain
customers, as the cost of acquiring a new customer is higher,” says Abizer Diwanji,
national head of financial services, EY India.
 Payment banks may also offer a higher rate of interest on savings bank accounts, in order
to attract customers.
 However the real attraction for customers will not be the interest on deposits, but the
convenience of carrying out banking transactions at their doorstep.
 The biggest advantage of a payment bank is that it can provide the last-mile
connectivity, which regular banks cannot. So, it is possible that your neighborhood
store can function as a bank branch. While many of them already offer payment
services through companies like PayTM now, as banks, these will be regulated.

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2.2.5 Disadvantages of Payment Banks
 Payments Banks cannot lend money (A bank generally earns a spread on the money it
lends out from the money it takes in as a deposit). So, to make money and be profitable,
they have to charge its customers for the transactions that are executed through them.
 The basic tenets for a successful payment bank will be: ‘high quality – low cost of
delivery’, regular education / incentivize and encourage its customers to do cash-less
transaction, and a robust technological framework. Essentially the cost of transactions,
for a payment bank, needs to be significantly lower of a traditional branch-based banking
model.
 RBI has not said how many licenses it will issue in each category (Payment Banks &
Small Banks).
2.3.1 HOW DO PAYMENT BANKS PROMOTE FINANCIAL INCLUSION?
 Currently RBI has issued licenses to Companies which are into supermarket chains (have
a large distribution network), mobile operators (have a large customer base), or the postal
services which taps in a large number of customers.
 The savings and remittance services of payment banks, target people living in rural areas,
or have limited/no access to banks. Since these Companies have a vast distribution
network or a customer base, they help in financial penetration, making sure that financial
and banking services reach every nook and corner in the country. This promotes financial
savings among the poorest of the poor in the nation.
2.3.2 HOW CAN PAYMENT BANKS ACHIEVE FINANCIAL INCLUSION?
 Payment banks are all about innovation. They use technology to provide you optimum
and highly efficient banking services.
 Payment banks are not rivals to commercial banks. They complement banking services
offered by commercial banks. Payment banks can reach people in rural areas where no
commercial banks have branches.
 Commercial banks collaborate with payment banks to use their technology. Commercial
banks can also start joint ventures with payment banks, to launch innovative services and
products.
 A payment bank cannot give loans or issue credit cards. However a payment bank can
become a banking correspondent/business correspondent of a commercial bank. These
are basically third parties, which provide banking services to people at their doorstep,
popularly known as BC’s. They provide cash transaction services, such as opening
savings bank accounts, or taking deposits from customers at their doorstep.
 More people in India have a mobile phone subscription than a bank account. Mobile
phones are the new tools of banking. The rural customer has never had it so good.
Financial and banking services are at his doorstep.

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2.3.3 DIFFERENCE BETWEEN PAYMENT BANKS AND SMALL FINANCE
BANKS

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2.4 SWOT ANALYSIS OF PAYMENTS BANKS
STRENGTHS WEAKNESSES
 Innovative business models
 Nationwide and last mile coverage
 Large existing customer base
 Anywhere anytime banking
 Lower servicing and customer
acquisition cost
 Financial inclusion
 Loss of business due to poor network /
internet
 Lack of awareness among people on
latest technology and products /
services
 Low margin business
 Limited products offering
 Security concerns
OPPORTUNITIES CHALLENGES
 Immense potential for market expansion
in rural areas
 Greater innovation will help to produce
and offer unique products and services
 Technology to help to offer right
product to right customer at a right time
 Intense competition to lower profits
 Cash dominated economy
 Technology inexperience and literacy
constraints will lead to lower
acceptance of technology
 Lack of awareness
 Low customer loyalty
 Regulatory restrictions

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2.5 BACKGROUND OF HOLDING COMPANY OF PAYMENTS BANKS
2.5.1 Aditya Birla Nuvo Limited (ABNL)
Structure: RBI has given an in‐principle approval to Aditya Birla Nuvo Ltd (ABNL) for setting
up a Payments Bank as promoter. The proposed Payments Bank incorporated as Aditya Birla
Idea Payments Bank Ltd will be 51:49 Joint Venture (JV) between ABNL and Idea Cellular.
Background: There are ~175 mn Idea Cellular subscribers in the country as of February 2016.
The Aditya Birla Group has about Rs 2.0 tn in assets across its mutual fund and insurance
businesses. In addition, Birla Sun Life Mutual Fund is India’s fourth‐biggest money manager.
The Aditya Birla Group also runs a brokerage and a private equity business.
Future Strategy: The payments bank will be launched by H2CY16. The payments bank will
promote range of services including opening of savings bank account, domestic remittances,
merchant payments etc. and tying up with third parties for offering range of credit, investment &
insurance products.
Existing Payment Product: Idea Money Wallet
Idea Money is an RBI authorized payment wallet service and offers a semi‐closed wallet.
Product Features:
 Recharge any Mobile, data card & DTH number (all operators) Pay electricity, water,
gas, postpaid, landline bills.
 Transfer money to any idea wallet instantly.
 Transfer money to any bank account number instantly Shop for the merchants listed
online.
 24*7 customer care facility on mail & phone.

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2.5.2. Airtel M Commerce Services Limited
Structure: Airtel’s mobile commerce subsidiary Airtel M Commerce Service Ltd (AMSL) has
received a payments bank license from RBI. Kotak Mahindra Bank (KMB) has already bought
19.9% stake in Airtel’s mobile commerce subsidiary AMSL for Rs 984 mn.
Background: Bharti Airtel Ltd is the largest mobile network operator in India and the third
largest in the world in terms of subscribers. There are ~249 mn Airtel Cellular subscribers in the
country as of February 2016. KMB is the fourth largest private sector bank in India by market
capitalization. Airtel money posted a net profit of Rs 45 mn in FY15 as compared to a loss of Rs
1.1 bn in FY14.
Future Strategy: Bharti Airtel plans to roll out its payments bank network in H2FY17 under the
name of Airtel Payments Bank Ltd (earlier known as Airtel M‐Commerce Services Ltd). Airtel
aims to leverage its existing subscriber network and vast distribution network for its payments
bank operations. Airtel already offers financial services including money transfers and
semi‐closed wallet service in about 800 towns in the country under its subsidiary of Airtel
M‐Commerce Services.
Existing Payment Product: Airtel Money
Airtel Money is an RBI authorized payment service and offers a semi‐closed wallet.
Product Features:
 Recharge ANY mobile, DTH or Datacard (all operators are supported) Pay Electricity,
Water, Gas, Postpaid, Landline and Data Card bills
 Instantly transfer money to any bank account in India (using IMPS technology) or to any
Airtel Money user
 Pay at shops, restaurants or any other merchants that accept Airtel Money Request money
from your contacts
 Find Airtel Money points near you

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2.5. 3. Cholamandalam Distribution Services Limited
Cholamandalam Investment and Finance Company has decided to abandon its plans to set up a
payments bank considering competition and other factors including long gestation period to
become profitable.
2.5. 4. Department of Posts
Structure: India Post has received approval from RBI for payments banks. About 40
international financial conglomerates including World Bank, Barclays and ICICI have shown
interest to partner with the Postal Department for the payments bank.
Background: The Department of Posts, trading as India Post, is a government‐operated postal
system in India. The department has 1, 55,015 post offices across the country, of which 1,39,144
are in rural areas. India Post has already been active in the deposit‐taking activity through its
various savings schemes. As of FY14, the outstanding balances under the post office savings
scheme stood at Rs 6.05 tn, which is nearly equivalent to half the deposits of SBI.
Future Strategy: The Payments Bank from India Post is expected to start operations by March
2017. The bank will also set up white labelled ATMs. We believe that India Post may bring the
biggest revolution to the banking sector given the fact that it is present in many far‐ flung areas
where even PSBs do not have branches.
Existing Products: Post Office Savings Schemes, Postal Life Insurance, Forex Services,
Distribution of Mutual Funds and Securities, Jansuraksha Scheme

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5.5.5 FINO Pay Tech Limited (FINO)
Structure: Fino Pay Tech Ltd (FINO) has received “in principle” license from RBI to start a
payments bank. ICICI Bank will partner FINO to foray into the payments bank space. The ICICI
Group has about 16% stake in FINO and is the largest domestic shareholder.
Background: FINO PayTech (India’s largest business correspondent) is a business and banking
technology platform combined with extensive services delivery channel which plays a key role
in developing branchless banking infrastructure in India. It is promoted and owned by various
public and private financial institutions. FINO generated an annual turnover of Rs 3 bn in FY15
and 33% of the revenues came from remittance and micro lending businesses and the rest by
selling banking products to its customers. At present, FINO has about 45,000 transaction points
(agents) spread across 26+ states in close to 500 districts across India. The firm has a customer
base of 80+ mn, which are mostly migrants, small‐business owners, daily wagers, low and
middle‐income households and in some cases, old‐age pensioners. FINO has opened more than
50 mn new bank accounts (as a banks’ business correspondent) for other banks. FINO has
developed an in‐house, low‐cost technology solution for customer acquisition, servicing and
monitoring.
Future Strategy: The payments bank is expected to be operational before the end of CY16. Fino
has appointed KPMG as consultant to advice it on converting to a payments bank and IFC CGAP
for ‘strategic inputs in niche areas. In addition, Fino PayTech Ltd has tied up with Reliance
Commercial Finance Ltd (NBFC subsidiary of Anil Ambani‐led Reliance Capital Ltd) to provide
credit to rural poor in the states of Maharashtra and Madhya Pradesh.
Existing Payment Product: Fino Money
Product Features:
 Money transfer, Insurance
 Prepaid recharges, Utility bill payments
 Ticketing (Air / Bus / Train), Hotel booking and holiday packages Cash Management
Services (CMS).

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2.5.6 National Securities Depository Limited (NSDL)
Structure: RBI has granted in‐principle nod to National Securities Depository Ltd (NSDL) for
payments bank. IDBI Bank has approached the NSDL to buy a stake in the payments bank. IDBI
Bank is one of the promoters of NSDL and holds 30% in the largest depository.
Background: NSDL is India’s first and largest depository, which handles most of the securities
held and settled electronically in the country’s capital market. It is promoted by IDBI Bank, the
Unit Trust of India and the National Stock Exchange. At least eleven public and private bankers
own stakes in NSDL. NSDL held 15 mn demat accounts as of FY16.
Future Strategy: NSDL is planning to launch a payments bank by the end of CY16. NSDL may
tap its 26,765 DP service centres spread across 1,632 cities / towns to open Saving Bank
Accounts. NSDL provides permanent account numbers (PAN) and enrolls individuals for the
implementation of the Aadhaar project and maintains a repository of IT professionals. NSDL
plans to leverage on these database to offer banking services when its starts the bank.
2.5.7. Reliance Industries Limited (RIL)
Structure: Reliance Industries Ltd (RIL) has received an in‐principle approval of RBI to set up a
payments bank. RIL has entered into a partnership with State Bank of India (SBI) for payments
banks. While RIL is the promoter, SBI will be the joint venture partner with equity investment of
30%. It will help to create the most extensive distribution network in India.
Future Strategy: The Payments Bank from RIL is expected to start operations by the end of
CY16. The payments bank will leverage its telecom business Reliance Jio’s pan India network
and Reliance retail’s online and offline business model. Reliance Jio has laid more than 0.25mn
kilometres of fiber‐optic cables, covering 18,000 cities and over 0.10mn villages, with the aim of
covering 100% of the nation’s population by 2018. RIL is planning to launch JioMoney which
will be a prepaid payment instrument to facilitate cashless payments across multiple‐use cases
and build India’s largest digital merchant network.

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2.5.8 Shri Vijay Shekhar Sharma, Paytm
Structure: Vijay Shekhar Sharma, founder and chief executive of One97 Communication that
runs Paytm, is one of the two individuals who got permission to start payments bank from RBI.
Background: Paytm was founded by Vijay Shekhar Sharma in 2010 and is owned and operated
by One 97 Communications Ltd. It offers a mobile commerce platform that enables the users to
do mobile recharge, pay bills and shop at the mobile marketplace. Most importantly, Paytm
Wallet has crossed 100 mn digital wallet users in India. The company claimed to have 50,000
merchants on the platform and processing over 75 mn orders a month as of October 2015. The
company reported revenue of Rs 3.4 bn (+60% y‐o‐y) in FY15 with a loss of Rs 3.4 bn. The
company reported a profit of Rs 60 mn in FY14.
Future Strategy: PayTm is likely to launch its payments bank in Q2FY17. The payments
business will be separated from the e‐commerce wing, and will be called Paytm Payment Bank
Ltd. Considering the company’s aggressive footprint in the digital wallet with the highest
number of users in India, we believe that Paytm can emerge as a disruptor in Payments banks
space.
Existing Payment Product: Paytm Wallet
Paytm wallet is an RBI authorized payment wallet service and offers a semi‐closed wallet.
Product Features:
 Transfer money to your friend’s wallets
 Transfer money from your Paytm Wallet to a Bank Account Request money from anyone
 Get discounts from over 5000 deals across 100+ cities
 Every time you transfer or receive money, the transaction becomes a part of a chat
conversation.
 See all your transactions at one place
 Save credit or debit cards that you use to make a purchase or payment

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2.5.9 Tech Mahindra Limited
Structure: Tech Mahindra has received RBI’s nod to set up payments bank. The bank will be an
independent unit under the Mahindra Group led by Tech Mahindra (IT firm) and Mahindra
Finance (rural NBFC) as equal contributors.
Background: Mahindra Finance has over 3.7 mn customers spread over 260,000 villages and
has an AUM of over USD 5 bn. Most of the Company’s customers are outside the ambit of the
formal financial system and are served by pan India network of over 1100 branches. Tech
Mahindra has over two decades of experience in offering innovative solutions for Retail
Banking, Lending and Leasing, Cards, Asset and Wealth Management, Investment Banks, Stock
Exchanges and Life / Non‐life Insurance.
Future Strategy: The payments bank would possibly start from September 2016. It will
leverage Mahindra Finance’s large rural distribution network. The company is planning to reach
out to a million vendors and target as many as 150‐200 mn customers over the next five years.
Existing Payment Product: mobomoney
Mobomoney is a prepaid wallet issued in the form of an App and/or a tag and offers a semi‐
closed wallet. It can be used to tap and pay on a network of NFC enabled merchant PoS (Point of
Sale).
Product Features:
 Over the counter payments Mobile and DTH recharges Utilities bill payments
 Online payment for a host of products and services

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2.5. 10. Vodafone m‐pesa Limited
Structure: Vodafone has received payments bank license from RBI. Vodafone has issued an
open mandate to bankers to find the best partner for its payments bank as the foreign holding in
payments bank cannot be more than 74%.
Background: There are ~197 mn Vodafone Cellular subscribers in the country as of February
2016. The company has a presence in 1.8 mn multi‐brand outlets across India apart from its
98,000 Vodafone stores and 90,000 M‐Pesa outlet. M‐pesa has 5 mn customers.
Future Strategy: Vodafone will leverage its wide telecom distribution network for the success
of its payments bank. Vodafone will use its 98,000 stores as bank branches where consumers can
deposit money into accounts, receive cash against digital money received on their phones and get
access to other products like loans and insurance.
Existing Payment Products: Vodafone m‐pesa and Vodafone Wallet
Vodafone m‐pesa is a RBI authorized payment service and offers an open wallet. Vodafone
wallet is an RBI authorized payment wallet service and offers a semi‐closed wallet.
Product Features: Vodafone m‐pesa
 Recharge any prepaid number (Vodafone and other operators)
 Recharge a DTH connection (TataSky, Airtel, Dish TV, Sun Direct, Videocon & Big TV)
Recharge a Broadband connection
 Recharge a Post‐paid Vodafone number Pay your Utility Bills
 Online shopping
 Instant Transfer to any bank account/ m‐pesa wallet

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2.5.11. Shri Dilip Shantilal Shanghvi, Sun Pharmaceuticals
Structure: Shri Dilip Shantilal Shanghvi of Sun Pharmaceuticals has received RBI’s approval to
set up the payments bank. Sun Telenor Payment Bank is a new partnership between Shri Dilip
Shanghvi of Sun Pharmaceuticals; Telenor and IDFC Bank. Dilip Shanghvi holds 41% stake in
the partnership with Telenor holding 39% and IDFC the rest 20%.
Background: There are ~52 mn Telenor Cellular subscribers in the country as of February 2016.
(Notably, Telenor and Tameer Microfinance Bank have together set up the largest branchless
banking service in Pakistan.) IDFC Bank started its banking operations as on October 01, 2015
with a balance sheet of Rs 734.5 bn and a networth of Rs 133.2 bn. Shri Dilip Shanghvi is an
Indian businessman and one of the richest persons in India and the founder and managing
director of Sun Pharmaceuticals.
Future Strategy: Telenor plans to start payments bank in CY16. It will start with some basic
services like bill payments.
Out of these, three have surrendered their licenses.
1. Chalomandalam Distribution Services
2. Dilip Shanghvi, Sun Pharmaceuticals
3. Tech Mahindra.

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CHAPTER 3
CASE STUDIES &
OTHER ASPECTS

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3.1 OVERVIEW OF MOBILE MONEY INDUSTRY
 As almost all the telecom players in India have received the payments banks license, a
study of telecom companies which already provide similar (payments or mobile money)
kind of services in other developing economies will give us a better insight to understand
the future of payments banks in India.
 While most consumers in developing countries still prefer to transact in cash, increasing
ubiquity of smart phones in these regions has led more consumers to conduct financial
transactions and shopping‐related activities on their mobile devices. Surprisingly, mobile
payment penetration rates remain much higher in developing countries than in developed
countries.
 So, why developing countries are catching the mobile banking concept much faster
than developed nations? The widespread adoption of mobile phones has enabled some
of the poorest economies on earth to leapfrog ahead of developed nations when it comes
to tech‐driven financial solutions. As mobile phones are often the only technology
available, especially in rural places or isolated areas where it is hard to find power lines,
fixed‐line telecom infrastructure, personal computers or bank branches, mobile banking
is the only option available to them to access banking services. It is quite visible from
the fact that there were more mobile money accounts than bank accounts in Kenya,
Madagascar, Tanzania and Uganda.
 Mobile money is now available in 93 countries.51 of 93 countries have an enabling
regulatory framework in 2015.
 At least 19 markets have more mobile money accounts than bank accounts.

 37 markets have 10x more registered agents than bank branches.
 Mobile money providers are processing an average of 33 mn transactions a day.


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3.2 CASE STUDIES
Case Study 1:
M‐Pesa in Kenya: (Mobile Banking Revolution)
The future of money is already happening in Kenya where a mobile phone‐based payment
system was born out of necessity. A majority of Kenyans didn’t have a bank account, and bank
branches were scarce, especially in rural areas. City workers used to find it difficult to send
money home to their rural families. Safaricom, the country's largest provider of cellphone
service, found a way to solve this problem. Eight out of Ten Kenyans had access to a cell phone,
so Safaricom launched M‐PESA in 2007, a system of transferring money between people on cell
phones, even the most rudimentary ones. According to a Kenyan government report published in
2012, just five years after launch, there were 19.5 mn mobile money users in Kenya
(representing 83% of Kenya’s adult population), transferring USD ~8.0 bn per year (~24% of
Kenyan GDP).
So, how exactly does it work?
It allows Kenyans to store and transfer their money using only a cell phone. Funds can be
exchanged over the network using SMS messages, meaning it works on almost any mobile
phone. M‐PESA agents spread throughout the country allow users to convert their credit to cash
and deposit or withdraw from their accounts. These agents are not employed by Safaricom, but
are simply retailers / regular businessmen and women that are ‘authorized’ to trade e‐cash for
real cash and in return they receive little commission. The actual cash is securely held in a trust
owned by Vodafone and distributed to several commercial banks.
Financials
In FY15, revenue from M‐Pesa increased 15% y‐o‐y and hit a high of Sh (Kenyan shilling) 32.6
bn which was 20% of the company's total revenue which helped Safaricom to report a record Sh
31.9 bn profit after tax (at consolidated level) in FY15 and became the most profitable company
in East and Central Africa.

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Case Study 2:
Easypaisa in Pakistan: (Mobile Money Sprinter)
With a population of 180 mn and only 15% bank penetration in 2008, Pakistan presented an
attractive market opportunity for mobile money. Easypaisa seized this opportunity by creating an
innovative partnership, a new delivery approach, and an effective distribution model. Easypaisa,
a mobile money service was launched in Pakistan in 2009. Within five years, Easypaisa had
processed more than 100 mn transactions with a total value of over USD 1.4 bn. Six million
customers can do almost all their banking on the mobile devices. In addition, If they need
assistance, they can go to one of 25,000 Easypaisa shops in 750 cities and towns across the
country.
Important innovations:
Three important mobile money innovations emerge from the Easypaisa story. (1) Easypaisa was
launched from a unique corporate structure. Telenor Pakistan, a mobile network operator (MNO)
acquired 51% ownership stake in Tameer Bank, a microfinance bank, and then established
Easypaisa as a common organization across the two companies. (2) Telenor Pakistan and Tameer
Bank introduced over‐the‐counter (OTC) mobile money services – an entirely new model that
did not require registration for an electronic wallet as many of the users are not familiar with
technology. (3) Easypaisa achieved rapid national expansion by relying exclusively on its
existing GSM distribution structure. The responsibilities were also clearly divided between the
two. Telenor Pakistan decided to take the lead on branding, marketing, and distribution while
Tameer Bank led direct operations, risk management, compliance, and liquidity management.
Financials
Tameeer Micro Finance Bank achieved monthly breakeven for the operations under the brand
"Easypaisa" during Q1FY13 and the bank had already identified branchless banking as an
important way to grow their services.
M‐Pesa (Kenya) Easypaisa (Pakistan)
 Success Metrics
19.5 mn mobile money users
(83% of Kenya’s adult population) in Kenya in
2012
USD 8.0 bn cumulative
throughput
 Innovations
Store and transfer their money
using SMS messages.
Success Metrics
Over 5 mn monthly users and
25,000 agents
USD 1.4 bn cumulative
throughput
 Innovations
Unique corporate structure
OTC transactions allow non
Telenor customers to access service.

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Case Study 3:
South Africa: (A Failure Story So Far)
As per GSMA Mobile Economy Africa 2015 report, Mobile money penetration in South Africa
is still lagging behind most prominent African markets. Only 7.6% of adults in the country
reportedly had a registered mobile money account by the end of 2014, putting it at the bottom
four among 18 top countries in Africa. There are only 76 registered accounts for every 1,000
adults in the country. A number of attempts to launch mobile payments solutions have failed
which includes Vodacom’s M‐Pesa and MTN Banking's MTN Mobile Money. MTN Banking is
a joint venture between mobile operator MTN and Standard Bank. Under MTN MobileMoney,
only 1.6 mn people were registered users whereas under M‐Pesa, only 1.0 mn people were
registered users as of FY15 in a country with a total population of 55 mn.
Reasons behind the flop show:
During the course of its relaunch attempts, Vodacom has marketed the platform differently: First
as a mobile money solution. Then as a mobile money wallet, which allows customers to store
their money safely and finally at last year’s relaunch, as a platform that allows user to swipe and
buy with a Visa card linked to user’s mobile phone. It is a clear example highlighting the fact
that you cannot replicate the same strategy in different market to enjoy similar success.
In addition, South Africa has a more developed banking market as compared to other African
nations like Kenya and Tanzania. Local banks have already increased their share of low‐ income
customers by opening up‐level bank branches and banking kiosks in remote areas, bringing
banking services closer to where people live. South Africa's financial system also provides a
number of options other than M‐Pesa for its unbanked population.

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3.3 RELEVANCE FOR INDIA AND FUTURE OF PAYMENTS BANKS IN INDIA
 So, will the Indian telecom operators who received payments banks licenses are in a
position to enjoy success similar to M‐Pesa in Kenya? We believe that it will depend on
two fundamental challenges that must be resolved in order to sustain and later become
successful in mobile payments. (1) It has to make sense to the poor to use the service and
(2) It has to make sense to service providers to offer the service.
 It sounds difficult when it comes to execution but the first two success stories we
discussed above have demonstrated that both challenges can be addressed
simultaneously. So, rather than competing with crowded financial services space in urban
areas of India, it would be prudent for payments banks to focus more on vast sections of
unbanked population. In addition, analyzing the most successful mobile payment system
in the world reveals that the use of the mobile platform was clearly an important enabler
of its rapid success. So, it is important to remember that technology will only play a roll
of enabler and putting together the right package of features and prices will be the actual
drivers of success. Overall, M‐Pesa was an African innovation to solve an African
problem. In a similar way, considering India's demographic and cultural diversity, our
institutions will have to create a product which meets specific need and purpose of our
underserved population. Remember, M‐Pesa has been labelled a failure in South Africa
and India so far.
 To conclude, the old banking model with expensive branches and extensive infrastructure
is no longer viable within low‐income communities but for payments banks on mobile it
can still be a profitable market segment. However, the profitability will be highly
sensitive to transaction volumes and gaining critical mass of customers as they will
have to live with very thin margins (<1.0%). A number of elements need to be in place
for a payments bank to become a sprinter, including (1) designing the right products
(innovation is important element to change the Indian customer’s mentality of “Cash is
King”), (2) Patient capital and adequate levels of investment, (3) strong marketing, and
(4) well‐managed distribution networks.
 Payments Banks have great potential to become profitable but only in the long term as
profitability will be directly linked to economy of scale. Considering all the above
factors, we expect some consolidation in this space as many of the entities will go out of
the business and only selective players with enough financial muscle, latest technology
and large customer base will survive in the long term. Notably, one of the eleven players
has already decided to abandon its plans to set up a payments bank considering
competition and long gestation period to become profitable. Hence strong corporate
commitment and faith in payments bank’s future profitability will be essential factors
required from the promoters.

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3.4 FUTURE OF MOBILE WALLET:
As majority of the payments bank candidates have already introduced mobile wallet or e‐ wallet,
it is important to understand the present and future of mobile wallet or e‐wallet when NPCI is all
set to launch UPI in 2016 which will dramatically change the Indian payment system. (We have
already discussed UPI in detail earlier in the report). Before we go into discussion on future of
mobile wallet, it would be better to get basic idea on mobile wallet.
The mobile wallet (also known as m‐wallet, digital wallet, or e‐wallet) is a type of payment
service through which businesses and individuals can receive and send money via mobile
devices. As per RBI, mobile wallets can be divided into 3 different categories. (i) Closed wallets,
(ii) Semi‐closed wallets and (iii) Open wallets.
 Closed Wallets:
Closed mobile wallets can be used only for that particular company (or online merchant) goods
and services. No redemption or cash withdrawal is possible with such wallets. For example,
makemytrip wallet
 Semi‐closed Wallets:
Semi‐closed wallets also do not allow redemption or cash withdrawal but they can be used to
transact for goods and services (inclusive of financial services) at several different merchant
locations that have the required tie‐up (contract) with the wallet issuing company to accept
payments. For example, paytm
 Open Wallets:
Open Wallets are those that allow redemption as well as cash withdrawals (from automated teller
machines / business correspondents) in addition to the other features offered by semi‐closed
ones. For example, m‐pesa.

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3.1 The Distribution of the Mobile Wallet Ecosystem in India

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3.5.1 FUTURE OF UNIVERSAL BANKS (TIME TO RETHINK BANKING)
The banking landscape has changed and is changing still. Existing Universal Banks have been
facing disruption from multiple directions. The advent of digital technology and, more
importantly, its adoption by customers is changing the fundamentals of the banking business. In
addition, entry of differentiated banks, regulatory requirements, demographics and economics
are also creating an imperative to change. Considering the rapid scale of disruptions, many of the
universal banks can lose their market share significantly over next three to five years.
Despite of all the above mentioned facts, we believe that universal banks have a future but for
only those who are ready to innovate and transform themselves to prepare for the future.
Universal Banks will have to invest huge sum of money for technology upgradation, product
innovation, portfolio diversification and fine pricing policy to maintain their market share and
profitability. Existing universal banks ought to embrace innovation and learn to compete in new
ways and also have to shift their operating philosophy from a product‐ oriented organization to a
customer‐driven organization.
Overall, the forecast for the future is always complex but one thing is sure that banks will
definitely look very different in the future.
Redesigning the Branch Strategy: (Some Examples)
Some of the banks in India have already started reworking on their branch strategy in the last
couple of years. Sensing the change in the air, many of the banks are coming with their revised
branch banking strategy. A few examples are listed below:
State Bank of India (SBI):
In Touch Branches: SBI In Touch is fully digitalized branch (24*7) with user friendly facilities
to open accounts, deposit cash, passbook printing machine, ATM, sourcing of loan applications
and internet banking hut. SBI has 101 SBI In Touch branches as of FY16.
Bank of Baroda (BOB):
E‐Lobby branches: BOB introduced new generation branches called E‐LOBBY branches
equipped to provide 24*7 accesses to banking facilities such as Cash Withdrawal, Cash Deposit,
Cheque Deposit, Pass Book Printing, and Internet Banking. These facilities are available through
automatic machines with minimum human intervention. BOB has 151 E‐Lobby branches as of
FY16.
ICICI Bank:
Touch Banking branches: ICICI Bank was the first bank in the country with 100 digital ‘Touch
Banking’ branches across 33 cities, available 24x7, on all days.
InstaBanking self‐service kiosks and Self‐service kiosks for accepting cash: These allow
quick access to transactions like view & print of bank statements, balance enquiry, updation of
contact details, and opening of fixed deposits among others.

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3.5.2 IMPACT OF EMERGENCE OF PAYMENTS BANKS ON UNIVERSAL
BANKS:
The banking sector in India has seen so far only one category of SCBs which is the universal
bank which carries out the complete range of banking activities, including borrowing, lending,
investments, and to all categories of clients. However, as a revolutionary step in the Indian
banking space, RBI announced the first set of differentiated bank licences to 11 applicants to set
up payments banks. The payments banks will carry out limited banking activities like deposits
and payments services with certain regulatory restrictions.
The payments landscape in India is set to change dramatically with the introduction of payments
banks and their possible impacts on business of existing universal banks (albeit in a longer term).
Though the main objective behind the concept of payments banks is to further financial
inclusion, we believe that the payments banks will also eat into some of the businesses
(liabilities side) of universal banks. Here, we have analyzed the possible impacts on existing
universal banks once the payments banks start functioning in the market.
1. Threat on CASA Deposits:
 Payments Banks will definitely eat into some of the low‐cost savings deposits base of
SCBs. Most of the Payments Banks have a huge customer base and infrastructure to
leverage which they can utilize to attract customers to use their deposit products. Many
individual customers are likely to shift a part of their liquid cash for day‐to‐day
transactions from their savings accounts to those at payments banks. Notably, the
payments banks will be able to offer interest on deposits which was not possible for them
till now. (However, the maximum deposit in a payments bank account cannot exceed Rs
0.1 mn per customer.)
 Importantly, it will hardly affect traditional customers who have current accounts or
those who are looking for loans as payments banks will not be allowed to offer loans to
its customers. So, we believe there could be more impact on small and medium PSBs
(Corporation Bank, Vijaya Bank and Punjab & Sind Bank) as well as old small private
sector banks (Lakshmi Vilas Bank, City Union Bank and South Indian Bank) considering
their ongoing struggle with CASA mobilization and major presence in the semi‐urban
and rural areas.
2. Interest Rates Offering on CASA to Increase:
 The players entering in the payments banks space are already large corporates with great
financial muscles. So, they will not be entering just to further financial inclusion in the
economy but also to increase their clientele base aggressively in the initial phase. As a
result, we believe that they will start offering competitive deposit rates of as high as
5%‐7% to lure customers as compared to an average of 4% savings deposits rate offered
by most of the existing SCBs. This may force the other banks to increase their interest
rate offerings on savings deposits.

36. 36
 In past, some of the private sector banks started offering higher interest rate on savings
bank deposits but that move was limited to number of banks only as other large banks
were reluctant to offer higher interest rate to their customers. The major rational behind
that was limited presence and customer base of the banks who were offering higher
interest rate. However, considering the large scale of payments banks and also their
nature of business (high volume and low value), they can intensify the competition on
small savings deposits. Again, it will have more negative impact on small and medium
PSBs (Corporation Bank, Indian Overseas Bank, Vijaya Bank, United Bank of India and
Punjab & Sind Bank) as their cost of fund is already high as compared to their peers and
any further increase will erode their margin further.
3. Minimum Balance Requirements on CASA to Come Down:
 Every bank has different limits for minimum balance maintenance. Almost all the private
banks have set the minimum balance limit at Rs 10,000/‐ for metro and urban area while
in rural and semi rural area it is Rs 5,000/‐. However, minimum balance for PSBs is far
less. Almost all the PSBs have set the minimum balance limit of Rs 1,000/‐ for metro and
urban area while Rs 500/‐ for rural and semi rural area. Minimum balance requirement
from payments banks will be far lesser than existing limit of other universal banks.
 The payments banks may also introduce deposits account without any minimum balance
criteria but having features which may incentivize the customers to maintain more
balance in the deposits accounts. (However, the payments banks cannot hold a balance of
more than Rs 0.1 mn per individual customer on any day). As a result, we may see lots of
innovation in this (CASA) products segment. Looking at payments banks large scale of
operation and customer reach, we believe that minimum balance requirements to come
down drastically especially in rural and semi rural area. It will have an adverse impact
mainly on small private sector banks considering their major presence in the semi urban
areas.
4. Increase in Competition for Fee Income:
 Fee income will be an important source of income for the payments banks. So, payments
banks will focus more on fee income from payments services like making demand drafts,
cash transfers, remittances, cash withdrawal through cheques, ATM transaction fees etc.
and from transaction services like payment of utility bills, mobile recharge, remittances,
ticketing etc.
 The existing universal banks already offer similar services but they charge heavily for
these basic services. The payments banks are likely to charge lower fees as compared to
SCBs. In addition, universal banks focus always remain more on fee income from
corporate and retail advances. Overall, we believe that payments banks can deprive
regular banks of the fee income they earn from customers.

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CHAPTER 4
DIGITAL STRATEGY OF
SOME OF THE
UNIVERSAL BANKS

38. 38
4.1 DIGITAL STRATEGY OF SMALL PRIVATE SECTOR BANKS
4.1.1 Axis Bank (Focusing on Hyper Personalization)
Axis Bank is making steady strides in the direction of digital banking. The bank is retooling its
core to cope up with the demands of the new age customer. It's building a culture of
experimentation for digital initiatives. Axis Bank has been on the forefront of leveraging
technology to bring about a large scale transformation as the bank has not only focused on
providing a seamless customer experience through mobile and Internet but also redesigned most
of its core processes at the back‐end leading to reduction in errors, turnaround‐time and cost.
Overall, Axis bank has end‐to‐end digital agenda for the future as it is going digital in the areas
of customer engagement, sales, operations, customer acquisition, and employee engagement.
4.1.2 HDFC Bank (Marching Towards Complete Digital Brand)
HDFC bank is now a full service digital bank and offer all its products and services via digital.
As a part of the bank's larger digital strategy the bank have introduced products and offerings
such as Instant Accounts, One‐Click payments, One‐Click shopping, 10‐second loans, Quick
investments ‐ all of which are digitally accessible. HDFC Bank's digital strategy is based around
comprehensiveness, convenience and quick turn‐around times. Interestingly, the bank has also
recently released a musical logo (MOGO) that is being used across multiple touch points such as
ATM's, phone banking and app. The bank has in‐house analytical teams that plan campaign in a
relevant and timely manner also reach out its customers via behavioural targeting.
HDFC Bank’s Digital Offerings:
Mobile Banking App: HDFC Bank has a mobile banking app which allows customers to fund
transfers, bill payments, ordering cheque books, statements and loans and much more.
PayZapp: HDFC Bank launched Payzapp which is a complete payment solution available to
customers of all banks, giving customer the power to pay in just One Click. It allows customers
to shop on their mobile at partner apps, buy movie tickets, music and groceries, compare and
book flight tickets and hotels, shop online and get great discounts at SmartBuy, send money to
anyone in your contact list, pay bills and recharge your mobile, DTH and data card. The
customers are just required to ink their Debit and Credit Card to PayZapp.
Chillr: HDFC Bank also launched Chillr App for money transfer to friends, family and
merchants, recharge, utility payments and banking along with tracking all expenses. It is
available exclusively for customers of HDFC Bank.
10‐secondloans: The bank provides loans in 10 seconds (the fastest in the world) to select pre
approved customers of HDFC Bank. It is available 24*7 through net banking. In addition, the
bank also introduced products like QuickMoney (paperless top‐up car loan), ZipDrive (instant
car loan), QuickPaisa (top‐up two wheeler loan) and ZipRide (instant two‐wheeler loan) under
its digital banking strategy.

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4.1.3 ICICI Bank’s Digital Offerings:
ICICI Mobile Banking – iMobile: iMobile provides various services such as transfer funds,
open FDs, RDs or iWish deposits, pay bills, check balances and transactions and much more.
iMobile allows customers to link and view all their ICICI Bank relationships (accounts /
mortgages / cards / PPF) from within the app. It has close to 150 banking and informational
services and claims to be the most comprehensive and secure mobile banking application.
Pockets: It’s a VISA‐powered wallet that customer of any bank can use to recharge mobile, send
money, shop anywhere, pay bills and much more. Pockets wallet also comes with a physical
shopping card which can be used to shop on any website or retail stores. With Pockets, the
customer can transfer money not only to bank accounts, mobile number, email id, Whatsapp
contacts, Google+ or Facebook ID but even tap and pay your friends. Interestingly, ~60% of
total downloads were from non‐ICICI bank users (as of Q2FY16).
ICICI iBizz Corporate MBanking: iBizz is ICICI Bank's official mobile banking application
for corporate customers. iBizz lets the customer to inquire online balances, last 10 transactions
on linked operative accounts, details of Deposits & Loan accounts and approve financial
transactions like fund transfers while on the go.
ICICI Bank Money2India: ICICI Bank Ltd has the Money2India app for users in the US to
remit to India using Facebook contacts. The customers can use the App to track exchange rates
in real time through the Exchange Rate Calculator and to lock the rate at the initiation stage with
Fixed Rupee Transfer facility. Registered users can initiate new transfer requests and track their
status on the go. New users from USA can simply download the app, register and initiate money
transfer requests.
4.1.4 DCB Bank (Small but Adaptive)
DCB Bank Ltd has launched multiple digital products for retail customers either independently
or with financial technology start‐ups to keep pace with the evolving banking and payments
space.
DCB Bank’s Digital Offerings:
Zippi: Zippi allows you to open a fixed deposit (FD) online without having a savings account.
You can transfer money to the FD through Net banking or by cheque.
On the go: On the go app allows you to do basic banking such as transfer funds, create FDs, and
manage accounts, stop cheques and track loans.
Mobile Passbook: The Mobile Passbook app can track transactions in savings accounts, current
accounts and FDs.

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Mobile wallet service YAP: DCB Bank and M2P, a digital payment solutions company, have
jointly launched a new platform YAP for wallet services. The Bank's digital wallet can be
embedded into any website or mobile application.
Mobile based collections system: The bank has operationlised mobile based collections system,
which enables the field collection team to bring in efficiency. Besides, the system cuts down the
risks associated with float money and fraudulent transactions.
Digital Lead Management System: “e‐DSR allows the bank’s salesforce to log in and handle
leads on a day to day basis with a built‐in reminder and escalation mechanism. The app allows
the field sales staff to keep tab of their daily activities, generate reports and upload them real
time.
Digital Loan Process: DCB Bank implemented Nucleus Software’s FinnOne Neo to digitize its
loan application process for auto and commercial vehicle business lines.

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4.2 DIGITAL STRATEGY OF TOP PUBLIC SECTOR BANKS
SBI’s Digital Offerings:
State Bank Anywhere: It is SBI’s retail internet banking based applications for retail customers. It
allows users to access allthe basic banking activities like funds transfer, credit card transfer,IMPS
transfer,cheque book request, transaction inquiry, bill payments, fixed deposit, recurring deposit,
recharges etc.
State Bank Buddy: It is the first Indian Mobile Wallet Application available in 13 Languages. It comes
with severalfeatures like Send money to registered and new users,Ask money and Send reminders to
settle dues, transfer additional cash into an account of your choice free of cost,Recharge and Pay Bills
instantly, Book for movie tickets, flights and hotel and shop for your favourite merchandise. The bank has
2.7 mn Buddy customers. The bank is also planning to link Buddy with the business correspondents
(BCs) so that people in rural areas can also load and withdraw cash from customer service points.
State Bank Anywhere Saral and State Bank Anywhere Corporate: It is SBI’s corporate internet
banking based applications for Business entities. It allows users to access all the basic banking activities
like fund transfer,EPF payment, bill payment, fixed deposit, etc.
SBI Exclusif: The bank launched this app for its State Bank Exclusif Customers (Wealth Management
Customers). The app allows users to compare its current and model portfolio allocation, view its holdings
across asset classes,get reports on holdings, transactions, realized gain / loss and view the latest news
feeds that impact investments and the economy.
Instant Vehicle Financing: The bank has partnered Uber (world's largest on‐demand transport
aggregation company) to provide vehicle finance for driver‐partners on its platform. The loans will be
sanctioned instantly using an inbuilt digital offering

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CHAPTER 5
RESEARCH
METHODOLOGY

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5.1 RESEARCH DESIGN
The study is based on descriptive research. It was conducted through market survey as well as
there was interaction with some investor for collecting necessary information. For the collecting
information some existing records are used.
5.2 SOURCES OF DATA
The study is an empirical work based on the secondary data collected from various sources for
the fulfillment of truthfulness of the analysis and interpretation and then to ensure the quality of
research study.
Secondary Data
The secondary data for the study have been collected from various secondary sources of
information such as published reports of AMFI, SEBI, RBI annual reports and bulletin.
The annual reports of various Introductory Background, Research Design.
Altogether relevant books, journals and periodicals, research papers, published thesis, articles,
Financial dailies, websites, are also consulted by the researcher for better referencing.
5.3 DATA COLLECTION TOOLS
The data is collected from various research papers, articles and websites.

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CHAPTER 6
FINDINGS AND
CONCLUSION

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6.1 FINDINGS
 Payment Banks promises to be a game-changer because of by using the mobile platform
to provide basic banking transactions through mobile phones.
 The decision to license some of the country’s biggest corporate and mobile telecom firms
to start payment banks promises to be a similar game-changer in India.
 Payment banks have been restricted in banking operations, as they will not be allowed to
carry out normal lending activities. It does raise questions about who will serve credit
needs of the unbanked.
 When seen in the background of limited access to the formal banking system, however,
the need to introduce newer forms of banks is the way to go, in the correct perspective.
6.2 LIMITATIONS
 Payments banks will face competition from the existing lenders.
 Besides, profitability will also remain a challenge as they will be working on narrow
margins.
 The rate of innovation mechanism adopted by RBI and relevant Banks has enhanced. But
this Era of innovative mechanism is surely going to be a great challenge in near and
upcoming future for banks in the country.

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6.3 CONCLUSION
 Conclusion After detail study of policies and strategies adopted by Reserve Bank of
India, this central bank of the country is providing very innovative and flexible financial
services to its customers by all modes of innovation. But still performance can be
enhanced by means of customer satisfaction and also by handling customer’s
requirements in a more effective manner.
 The RBI has mainly focused on the innovative as well as promotion of lower income
group’s welfare side and also welfare of the society.
 The CSR policy of the bank is really very innovative and is very strategic in nature up to
an extent. But it is observed that banks in India are moving towards sustainability through
innovative service and flexible operations and offerings.
 At last I would like to say that innovation can give the better success to the banking
sector. But provided it must showcase an exemplary performance in gaining customer
satisfaction and fulfilling the requirements of customers by all means, and it is the only
way of gaining success for a bank.
 Due to ever-growing customers’ expectations for faster-easier-simpler banking facilities
what will drive the bankers is to work with creativity and passion, which contributes to
growth of cross sections of our society, and so the challenges.

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