Payment systems: India
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Contents |
In brief
Source:
1. The Hindu
2. The Hindu, August 20, 2015
They are the new stripped-down type of banks, which are expected to reach customers mainly through their mobile phones rather than traditional bank branches. Payments banks will take deposits and remittances, but will not advance loans. In its previous bi-monthly monetary policy, the RBI had said it would announce the names of the entities in August 2015. An external advisory committee, which submitted its report on July 6, 2015, selected them.
The Reserve Bank of India gave approval in principle for 11 entities to set up payments banks. “It has selected entities with experience in different sectors and with different capabilities so that different models could be tried,” the RBI said in a press release.
However, as this is the first time, the central bank said: “It would be difficult at this stage to forecast the most successful likely model in the emerging business of payments.”
Telecom Minister Ravi Shankar Prasad said the Postal Department should gear up to become a vehicle of financial inclusion.
How will they function?
1. Payments banks will largely depend on mobile and ATM infrastructure to provide banking services.
2. Opening an account is expected to be like acquiring a pre-paid mobile number.
3. Analysts expect tough competition to drive down charges for fund transfers and other transactions.
What does it mean for customers?
1. Service charges will come down.
2. The requirement of minimum monthly/quarterly balance is unlikely to be applied.
3. Competition from these new entities will force existing banks to offer low-cost (or low balance) basic accounts.
4. Payments banks will spread the reach of banking to rural areas.
5. The payment banks will cater to the needs of small savings accounts, remittance services, low income households, small businesses and other unorganized sector entities.
6. The payments bank licence will enable the network of 1,54,000 post offices (including 1,30,000 rural post offices) to offer banking services to the masses in the country.
”In-principle” nod for payments banks valid for 18 months
The RBI said all selected applicants had “the reach and the technological and financial strength to service hitherto-excluded customers across the country.”
The “in-principle” approval will be valid for 18 months, when the applicants have to comply with the requirements under the guidelines and fulfil the other conditions so that the central bank would consider granting them licence for starting business.
After issuing the final guidelines for licensing of payments banks on November 27, 2014, the RBI received 41 applications for payment banks.
Going forward, the RBI said, it intends to use the learning from this licensing round to revise the guidelines and move to giving licences more regularly, virtually “on tap”.
Authority and powers of the payment banks
Source:
1. The Hindu
2. The Hindu, August 20, 2015
3. The Times of India, August 20, 2015
- Payments banks have differentiated licences with limitations on what they can do.
- RBI norms limit demand deposits to a maximum of Rs 1 lakh.
- The deposits raised by them will have to be invested in government bonds and a maximum of 25% can be invested in an account with another bank.
- Payments banks can sell insurance and mutual funds.
-They can’t offer loans but can raise deposits of upto Rs. 1 lakh, and pay interest on these balances just like a savings bank account does.
-They can enable transfers and remittances through a mobile phone.
-They can offer services such as automatic payments of bills, and purchases in cashless, chequeless transactions through a phone.
-They can issue debit cards and ATM cards usable on ATM networks of all banks.
-They can transfer money directly to bank accounts at nearly no cost being a part of the gateway that connects banks.
-They can provide forex cards to travellers, usable again as a debit or ATM card all over India.
-They can offer forex services at charges lower than banks.
-They can also offer card acceptance mechanisms to third parties such as the ‘Apple Pay.’
Reserve Bank granted in-principle approval to be a payment bank to:
-Aditya Birla Nuvo Ltd
-Airtel M Commerce Services Ltd
-Cholamandalam Distribution Services Ltd
-Department of Posts
-Fino PayTech Ltd
-National Securities Depository Ltd
-Reliance Industries Ltd
-Dilip Shantilal Shanghvi
-Vijay Shekhar Sharma
-Tech Mahindra Ltd
-Vodafone m-pesa Ltd
A game-changer
This is for the first time in the history of India's banking sector that RBI is giving out differentiated licences for specific activities. RBI is expected to come out with a second set of such licences — for small finance banks — and the process for those is in its final stage. The move is seen as a major step in pushing financial inclusion in the country.
It’s a step to redefine banking in India. The Reserve Bank expects payment banks to target India’s migrant labourers, low-income households and small businesses, offering savings accounts and remittance services with a low transaction cost. It hopes payments banks will enable poorer citizens who transact only in cash to take their first step into formal banking. It could be uneconomical for traditional banks to open branches in every village but the mobile phones coverage is a promising low-cost platform for quickly taking basic banking services to every rural citizen. The innovation is also expected to accelerate India’s journey into a cashless economy.
India’s domestic remittance market is estimated to be about Rs. 800-900 billion and growing. With money transfers made possible through mobile phones, a big chunk of it, especially that of the migrant labour, could shift to this new platform. Payment banks can also play a crucial role in implementing the government’s direct benefit transfer scheme, where subsidies on healthcare, education and gas are paid directly to beneficiaries’ accounts.
Also, this is the first time since banks were nationalized, that private sector business groups have bagged the RBI’s nod for banking services.
Experience in other countries
Payment technologies have proved hugely popular in other developing countries. In Kenya, the most cited success story, Vodafone’s M-Pesa is used by two in three of adults to store money, make purchases and transfer funds to friends and relatives.
