RBI has granted Payment Bank in principal approval to 11 entities yesterday. This post explains the concept of Payment Banks and assesses the impact for us – the common man.
You can think of Payment banks as small banks which can give only some selected services as compared to full fledged banks.
Payments bank can do following:
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Following received in-principal approval to set up payment banks:
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The impact of payment banks would only be visible in coming 1-2 years. Below are some my thoughts what could change:
1. Payments banks concept was to increase financial inclusion – to serve under-banked and unbanked population. India still has a lot of such population. It might make their life easier.
2. More competition to banks for short term deposits – Full fledged banks today mainly operate as cartel. Most big banks have similar interest rates for loans and deposits. These new payment banks would break the cartel to an extent, especially in savings account. Payment banks might offer higher interest rates.
3. Easy Remittances – the remittances services will become more competitive especially for migrant laborers
4. Full fledged Mobile Payments – All leading telecom operators – Reliance Jio, Airtel, Vodafone and Idea (through Aditya Birla Nuvo Limited) would be able to take deposits and pay interest on the same. People would be able to use mobiles to pay for the bills and also buy products at the same time. This would encourage alternate payments.
5. Disruptive Payments – Some of these banks would for sure come up with advanced technology and disrupt the way we make payments today.
6. Post Offices are a trusted among masses with their money. They might be able to play a major role in remittances, financial inclusion and sell government schemes.
Payments banks would be able to make money in following ways:
1. Spread on the deposits – Government bonds/banks FDs might give 8% return while they might pay their depositors 6%. 2% is good spread to make money. This is just an example; we would see the realty once they start offering their services.
2. Commission on transactions
3. Commission on sale of financial products, remittances etc.
It seems this is going to be a good money making opportunity for the business which is good as it makes them sustainable!
Payments banks are good concepts and it would accelerate adoption of digital payments and widen the scope of cashless transactions in India. Also this would give some much needed competition to full fledged banks in deposits space!
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