Just a couple of days ago, Fino Payments Bank announced its plans to deploy 10,000 mPOS (mobile Point of Sale) devices, which would act as banking points. The device is configured to contain a camera, card reader, printer and fingerprint scanner. This will allow them to perform regular payments bank operations such as opening a new payments bank account, deposit cash, transfer money, withdraw cash and register for banking products such as gold loan and insurance. Even customers with debit cards from other banks can make payments and withdrawals.

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Just like the payments bank was initiated to serve the under-banked individuals to initiate banking practices such as opening a bank account and making transactions, Loan Singh’s digital lending platform creates a special online experience for salaried individuals to avail an online personal loan without facing traditional banking related hassles.

But, why the never-ending buzz about payments bank? Let’s find out…

The Start of Payments Bank

A payments bank is a sort of banking facility that operates at a smaller scale compared to a normal bank. It can carry out banking operations and can accept demand deposits of up to Rs.1,00,000; but cannot provide loans or issue any credit cards. A payments bank offers remittance services, mobile payments and also offers debit cards, net-banking and third-party fund transfers.

The Reserve Bank of India (RBI) wanted to provide an impetus to the financial inclusion initiatives. Keeping this in mind, RBI decided to create new niche categories in the finance industry by introducing ‘Payments Bank’ and ‘Small Bank’.  While Small Banks provide all banking services in a limited operational area, Payments Bank provide a limited range of banking products in rural areas. As per statistics, close to 40% of India’s total population has little or no access to traditional banking services. To combat this hurdle, in the path towards financial inclusion, the licensing of Payments Bank was important.

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In February 2015, RBI released a list of entities who had applied for a Payments Bank Licence. Around 41 applicants were evaluated. On 19^th August 2015, the RBI gave ‘In-Principle’ Licence to 11 entities for launching Payment Banks. These were:

• Airtel Mcommerce Services
• Paytm
• Department of Posts
• FINO PayTech
• Aditya Birla Nuvo
• Cholamandalam Distribution Services
• National Securities Depository
• Reliance Industries
• Sun Pharmaceuticals
• Tech Mahindra
• Vodafone M-Pesa

Out of these, Cholamandalam Distribution Services, Sun Pharmaceuticals, and Tech Mahindra had surrendered their licenses.

As per RBI guidelines, the Payments Bank should be registered as a public limited company under the Companies Act of 2013 and licensed under Section 22 of the Banking Regulation Act of 1949. In the middle of September 2017, the Airtel Payments Bank announced its integration with United Payments Interface (UPI). This made Airtel Payments Bank the first of its kind to integrate with UPI.

Payments Bank Working

The primary role of a Payments Bank is to provide payment and remittance services to the people belonging to the areas which they serve. They can accept demand deposit, issue prepaid payment instruments, enable internet banking, etc. Payments Bank, however, cannot indulge in lending credit activities and will need to distinguish themselves from other banks by using ‘PAYMENTS’ in their names. They will be initially restricted to hold a maximum balance of Rs.1,00,000 per customer for both – current and savings account. This will be raised only once RBI gauges the Payments Bank’s performance. A Payments Bank can issue ATM or debit cards but are not allowed to issue credit cards. They can distribute financial products like mutual funds and insurance. The documentation required to open an account is the same as that at normal banks. Payments Banks are expected to change the ‘one-size-fits-all’ approach in commercial banking. They will cater to the lower income group.

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The first payments bank was launched by Bharti Airtel. Paytm succeeded them, and were followed by India Post Payments Bank. With such a variety of applicants, the competition in the payments banking sector is expected to increase. This will only benefit the consumers in terms of policies, products, and technology. Payments Bank is expected to reach customers mainly through their mobile phones. The operations of the bank would be fully networked and technology-driven from the outset. Proper grievance cell would be set-up to handle consumer complaints.

A virtual account will be opened on the basis of the consumer’s unique mobile number. The consumer can then perform transactions or make remittances, to a registered merchant or user, through a web-based mobile application or through a USSD gateway. Moreover, the user can withdraw cash or top-up their accounts from retail points (vendor, ATM, agent, etc.) – recognized by their Payments Bank service provider.

Payments Bank Advantages

Along with the benefits of allowing transfers and remittances through a mobile phone, a Payments Bank also provides many benefits to the account holder. Some of these benefits are

• Automatic payment of bills
• Cashless and chequeless purchase through phone
• Issue debit cards and ATM cards to withdraw cash from any bank’s ATM
• Transfer money directly from your account to others
• Provide Forex cards to travelers which can be used as a debit card
• Forex services – at charges lower than banks
• Card acceptance mechanism with third parties, such as ‘Apple Pay’
• Raise deposits of up to Rs.10,000 and pay interest on the savings account

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Payments Bank Ahead

Payments Bank will continue redefining banking in India. They are expected to target migrant labor, young professionals, low-income households, and small businesses – to aid in the upward growth of GDP. For the first time in the history of Indian banking, RBI has given out differentiated licenses for specific activities. With Payments Bank, low earning citizens of India, who transact only in cash, will take a step towards formal banking.

It could have been non-profitable for traditional banks to open branches in every village in India but mobile phone coverage can help scale to remote parts of India, as well. This will also accelerate India’s stride towards a cashless economy. Subsidies on health care, education and gas, can be paid directly to the beneficiaries’ account. With money transfers made possible through mobile phones, a big chunk of India’s migrant labor population could easily shift to this platform.

UPI is helping merge several banking features, including seamless fund routing and merchant payments, under one roof. In other developing countries, Payments Bank has proved to be beneficial. For e.g. In Kenya, Vodafone M-Pesa has witnessed success; making purchases and transferring of funds between friends and relatives, easier.

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