Despite having a huge population in India is still a home to 21% of the world’s unbanked adults. But there are huge obstacles as it is impossible for a bank to open branches in every village across the country. Aiming to solve the problem, the government of India is aggressively pushing for a payment banks system in the country.
Payment bank is financial institution which offer banking services like remittance services, cash withdrawal, cash deposit, internet banking, third-party fund transfers and mobile payments / transfers / purchases. When compared to a small scale, they operate within a small scope compared to a normal bank and never involve any credit risk. The primary motive behind the launch of payment banks is the reason that there are still millions of unbanked individuals in the country.
There are many differences between payment banks and traditional banks. Payment banks can only receive deposits and remittances and don’t have the power to offer any financial products like credit cards, loans. But they can tie-up with other financial service providers to offer third-party products like loans and insurance policies. For example, India Post Payments Bank has signed deals with financial services providers like Punjab National Bank, Bajaj Allianz Life Insurance. Payment banks are restricted to offer deposits of up to Rs 1 lakh per customer in a savings and current account. As payment banks are driven by telecom technology, opening an account in payment bank is very easy than a scheduled bank which demands a lot of documentation and verification.
Since payment banks are a new banking system in the country, it is very difficult to predict how these banks will impact the established financial system. Some experts believe that these banks will prove to be a disruptive to the existing Payment banks and some private banking networks. However, RBI Governor pointed out that these new network would complement rather than disturb the existing network. If such a disturbance occurs, the existing banking network will enhance and improve its system.
Aditya Birla Idea Payments Bank Ltd, FINO Payments Bank Ltd, Paytm Payments Bank Limited (PPBL), Jio Payments Bank Limited has commenced operations as a payments bank with effect from April 3, 2018. India Post Payments Bank (IPPB) was launched by Prime Minister of India, Narendra Modi at Talkatora Stadium in New Delhi. The function was witnessed at over 3000 locations across the country, which were connected to the main event in Delhi.
There is a general perception that payment banks cannot survive due to the absence of lending income. But, we should not forget, payment banks are aimed not just on the marginalized people and migrant labour, but also include the large volume of cash which does come under the banking system. These payments banks are expected to play on volumes as they are likely to bring into their fold millions or billions of rupees. This large volume transaction could bring in transaction fee, which could be the income for payment banks. It also includes, government’s direct benefits transfer programmes. Besides, huge presence of cash can also lead to investments in government bond which can fetch good interest.
Suitable for all kinds of customers
Not just for low income households, payment banks are suitable for all types of people. Besides, a person who is already having multiple banking relationships with banks like SBI, Axis Bank, HDFC Bank, HSBC can also open a payments bank account.
A major advantage of payment bank is their wide distribution networks which can include retail stores, fuel station, milk vending outlets, newspaper mart etc. This facility enables customers the change that that Payment Bank branch will be located very closer than the regular scheduled bank's nearest branch. Another added advantage is that most of these banking points will operate well beyond normal banking hours.
Most of the payment banks offer zero balance savings accounts. For example, Post Office Savings Account (POSA), has nominated a minimum deposit of Rs 20 is required to open an account. In order to open an account with cheque facility an amount of just Rs 500 is enough. In terms of the balance limit, there will be no maximum balance limit for the account holders. But Indian Post Payment Bank restricts, account holders not to keep more than Rs 1 lakh in their accounts. Any amount above that figure will be swept out into the linked account. Though, most of the payment banks have a doorstep facility, they offer three types of accounts like Regular, Digital and Basic.
‘No customer is too small, no transaction too insignificant, and no deposit too little’. Going with this motto from India Post Payment Bank this great initiative will help a large population in India which do not have any means of banking facilities due to the geographical spread, regional disparities, connectivity. There is a great expectation from the payment bank system since it uses the mobile platform to provide basic banking transactions, payment for services and subsidies. Thereby these banks help to expand financial solutions to the remotest corner of the country. There is a wide spread belief that this system redefines the Indian economy by providing a secure payment gateway for all transactions and promote cashless transactions to digitize the monetary transactions of the country.