Anuj Agrawal, Senior Research Manager, IDC
We have already read and heard about payments banks, the new banking model conceptualized by the Reserve Bank of India, which currently allows these banks to accept deposits of up to USD 1560 ( 100,000) per customer. Although these banks can open both current and savings accounts, they are not allowed to offer any kind of loans and credit instruments to their customers. However, payments banks can issue services such as ATM cards, debit cards, net banking, and mobile banking. Eight entities have been issued active licenses as payments banks, however, what came as surprise to all was one of India’s largest private telecom player, Airtel, becoming India’s first live payments bank among all.
Of all diverse set of applicants for payment bank license, including microfinance institutions, individuals, and telecoms, the telecoms stand out to be the strongest over other potential applicants. The most substantial advantages for telecoms are their large customer database and existing pan-India network of retails outlets which can be easily upgraded to act as payment bank correspondent.
Furthermore, increased penetration of telecom networks in the rural parts of India and various initiatives under the Digital India program, such as BharatNet by the government, has been another instrumental factor that has made for faster adoption of digital payments among Indian consumers.
Hence, payments banks present a huge opportunity for telecoms players, as approximately 230 million people in India are still unbanked, and 68 percent of individuals/entities maintain deposits of less than USD 1560 ( 100,000) in their bank accounts. A payment banks-led financial inclusion process is expected to bring in cash flow from informal to the formal economic system, which in turn would improve the financial visibility of consumer and help banks’ in better risk profiling of its customers for preferential lending rates.
However, as the first set of challenge for telecom companies, who have or want a payments bank license, would need to do the Know Your Customer (KYC) formalities of its customer base again (in most cases) and independently since KYC done by them for their telecom user base will not be valid under RBI guidelines anymore. Only recently RBI imposed a penalty of Rs. 5 crore on Airtel Payments Bank Limited for violating KYC norms. Furthermore, in general, payments banks are expected to make a profit by selling third-party products. Partnering with traditional banks for extending the lending and investment products to customers becomes the best feasible option for payments banks.
Going forward, in order to unleash true potential of payment banks telecoms need to use innovative technology, and strategically segment customers, to leverage their existing customer bases and distribution channels to get more customers on board. Furthermore, as payments banks are expected to deal largely with low ticket size but high-volume transactions, telecoms can act as the financial services provider platforms for banks to expand their customer bases with a host of products/services offered through the payment bank network.