The massive financial inclusion drive of PM Narendra Modi sounded good but there was one problem. Since the number of branches that all the banks put together had to offer was way shorter than the total population of India, reaching out to bank branches was considered a major hassle. To cope with this problem, the idea of payment banks was born.
What really is a payment bank?
A payment bank is basically a niche bank but with a limited number of services. Payment banks will have RBI license and they will be allowed to provide remittances and receive deposits. Unlike the mainstream banks, payment banks are not allowed to lend money to users.
Who are the target audience of the payment banks?
The primary target audience of the payment banks will be entities from unorganized sectors, households with low income, migrant laborers and small businesses.
Some important features of payment banks:
- Anyone can open a payment bank provided the requirement of ₹ 100 crores of minimum capital is met.
- Payment banks will be allowed to offer debit cards to their customers.
- Payment banks can also accept payments for utility bills.
- An individual customer is not allowed to deposit any more than ₹ 1,00,000 initially.
- Payment banks can be used for all cash transactions on a monthly or even daily basis.
- Along with debit cards, payment banks will also offer mobile banking.
- Payment banks are allowed to open and maintain salary accounts for small business that have no more than 5-6 employees.
- Students who move to different places for study can also make use of payment banks for paying out their fees like college fees.
- Anyone with any level of income can use payment banks. People holding salary accounts with mainstream banks can also open payment banks.
- Payment banks have stringent KYC or Know Your Customer norms but these norms are lenient compared to mainstream banks because payment banks will primarily be targeting non-banking populace.
- Savings bank accounts opened with payment banks may possibly have higher interest rates compared to mainstream banks. It is plain and simple maneuver to attract more customers.
- Payment banks will have lower fees structure compared to mainstream banks because they will be more technology dependent than manual labor.
- Payment banks will be allowed to distribute financial instruments of simple nature such as insurance and mutual funds.
- The payment banks will be tagged as public limited company (PLC) in accordance with 2013 Companies Act.
- 25% of all payment banks need to be in rural areas that do not have access to banking system.
11 entities that have already earned license for running payment bank list:
As of August 19, 2015, a total of 11 entities have been give license to operate payment banks. They are:
|1||M-Pesa of Vodafone.|
|1||Paytm CEO, Vijay Shekhar Sharma.|
|1||Sun Pharma founder DilipShanghvi.|
|1||Airtel Mcommerce Services Ltd.|
|1||FINO Pay Tech.|
|1||Cholamandalam Distribution Services.|
|1||Aditya Birla Nuvo.|
|1||Department of Posts.|
|1||National Securities Depository.|
Essentially, payment banks will bring banking services directly to the doorsteps of Indian citizens at least in Urban areas because people can now carry out basic banking even while buying groceries.