A Shot In The Arm For Total Financial Inclusion
  • RBI has given the nod to the telecom and retail sectors to offer banking services to their customers via payment banks.
  • 72 percent of consumers say they would consider opening payment bank accounts.
  • Scheduled banks could suffer if payment banks gain popularity, as even mid/ high income respondents show positive attitudes toward payment banks. 

During the week, you likely spend cash on a number of transactions— from buying your coffee in the morning to picking up the paper or having your car washed. But with almost 65 percent of India’s population unbanked, there’s a good chance the rupees the barista or car washer earn aren’t making it to a bank account. But with the Reserve Bank of India’s (RBI’s) recent announcement allowing payment banks, financial inclusion may no more be a distant dream. Now that telecom companies and modern trade outlets have the go-ahead from the RBI to open payment banks—where the focus will be on low value, but high volume transactions—the banking gap should hopefully begin to narrow.

How Are Payment Banks Different From Scheduled Banks?

According to RBI, the objective of payment banks is primarily to extend financial inclusion by providing small savings accounts as well as payments and remittance services. Hence, payments banks will offer only a limited range of products including acceptance of demand deposits in the form of current and saving bank deposits, along with payment and remittance of funds. They can invest customer’s money in government securities (G-Sec) and corporate bonds from reputed companies. However, payment banks will steer clear of giving loans and credit facilities.

So, what are some of the characteristics of payment banks? Like any scheduled commercial banks, payment banks will have to maintain a cash reserve ratio (CRR).The entry capital required to set up a payment bank will be Rs. 100 crore. And similar to pre-paid instrument providers (PPIs) like Airtel Money and Vodafone M-Pesa, payment banks will not be allowed to hold more than Rs. 100,000 per customer or be involved in any credit risk.

Zero-Ing In On Payment Banks’ Consumers

We put our ear to the ground to find out consumer attitudes towards payment banks, reasons why they would consider or not consider this service and what they think the impact would be on the banking industry.

As part of this study, we reached out to both high/mid income as well as low income consumers between 22-60 years old who influence decision making in their households.

A majority of low income consumers have few—if any—existing investments and show little inclination to invest over the next 12 months. This segment’s existing financial requirements are mostly for basic banking transactions like cash deposits, withdrawals and fund transfers.

Will They Or Won’t They?

A resounding 72 percent of consumers—both low income & mid/ high income—say they will consider opening an account with payment banks, with equal preference shown for the retail and telecom sectors. While the acceptance of the low income consumers comes as no surprise given that they are largely underserved by banks, the mid/ high income population has been equally emphatic in its endorsement of payment banks. In what may be a potential concern for scheduled banks, mid/high income consumers have cited the convenience of lesser number of trips to banks as the main appeal of payment banks. Younger consumers are more willing to open payment bank accounts because of convenience.

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