All about Payment Banks – Really a True Game-changer in Indian Retail Banking.

1. Payment Banks – Really a True Game-changer in Indian Retail Banking
With new Payment banks such as telecom companies (Airtel & Vodafone) , the post office
and an online payment provider (PayTm), it's clear that the RBI is confident that it has found
a way to increase competition, widen the reach of retail banking and force other traditional
banks to be cheaper and better such that they will be forced to charge lower fees and fines.
11 Private parties were given licences to set up “Payment Banks” – The banks which can do
everything a regular bank can do – take deposits, pay bills, issue cheques and drafts, but the
only difference being they can’t do is lend to you and me.
Payment banks can only lend to the government and almost anybody with Rs 100 crore in his
pocket. They are said to be the safest of banks since they have only the government as
borrower.
According to me, the reasons why payment banking will revolutionise money movement are
many. Few of them are cited below :-
1) Payment banks to serve as Last Mile Connectivity with localised Touch Points &
Seamless Payments. They will essentially rely on technology to reach payment
services to all customers, using mobiles as the vehicle of banking. Payment of routine
transactions such as utility bills, mobile bills, and school or college fees will happen
electronically or through mobile or the banking touch points in unbanked and rural
areas.
2) Reduced Banking costs & Other Service Charges and Fees. Banking costs will come
down due to intense competition driven by Payment banks as they will be soon start
offering zero-balance accounts and low-cost services.
3) Payment banks will transform Social welfare and subsidy schemes. India Post is
already there in places where banks aren’t there and Airtel, Vodafone and Idea reach

2. customers through mobile-enabled payment solutions. The holy triad of Jan Dhan no-
frills bank accounts, Aadhaar IDs and mobile banking will enable direct transfers to
the poor, eliminating fake recipients, ensuring cash in zero-balance accounts, etc.
4) Cash Less Banking :- In future, the mobile will perform the same role as credit and
debit cards, obviating the need for too many cash payments.
5) Payment banks will serve as a new tool for the government to eliminate Black Money
in large parts of the financial system.
6) Government will be the biggest beneficiary of payment banking, via access to cheap
funds through Payment banks which can only invest in short-term government bills of
up to one year’s maturity means short-term rates will come down, and the government
can borrow more cheaply.
7) Higher Interest Rates on deposit in Payment Banks, This feature really makes a
customer a king, being a major factor to attract customers in the initial phase of
operations.
8) Payment banks as Sourcing Agents for selling insurance and other financial products.
We will see these entities tying up with multiple banks and service providers which
would eventually support the earnings profile of payments banks.
9) Innovation & Technology driven Payment banks being the Key Success factor
Analytics will be used to enhance product offerings and for target-based advertising
and marketing & further Payment banks may look at App-only based banking for
tech-savvy users.
10) Last but not the least, Freebies for Customers in form of discounts and Offers.
Whenever a no. of competitors enter into a marketplace suddenly, an expected
competition is on the plate which usually leads to freebies to woo customers. The
same can be expected here as well. Even if some don’t offer discounts, we can expect
cheaper or even free services.
As a Conclusion, I would say that both the Government & Customer are benefitted via
Payment Banks & my only wish & hope, is that the banks should be Up and Running as
quickly as possible.
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