Through this blog we shall make you aware about What is a Payment Bank? What are the services being offered by payment banks in India? What are the Interest rates being offered by payment banks?
You shall also become familiar with an exclusive list of Payment banks in India categorised as the ones that have already been launched and the ones those are coming soon or still to be launched.
In fact, after reading this blog, you will come to know all about Payment Banks in India.
Payment Banks in India: An Overview
In the year 2015, to be specific 19th August 2015, Reserve Bank of India(RBI) gave “in-principal approvals” to 11 entities to establish payment banks in India. This in-principle approval is valid for a period of 18 months as per RBI guidelines. If these entities fail to open a payment bank within this stipulated time period, they will have to surrender their in-principal approvals.
However, if the entities have complied with all the requirements and fulfilled all the conditions in the said “in-principle” approval, RBI shall consider granting them a license for commencement of banking business.
But, these payment banks cannot operate in a full fledged banking business. They can offer only specified set of services as discussed below.
Payment Banks: The Present Scenario in 2019
The Central bank of India had encouraged the idea of “Payment Banks in India” to extend the banking services to the unbanked sectors. However, these new business models didn’t meet the expectations. The reasons may be lack of clarity or different internal and external business factors.
Although, license was issued to 11 entities originally, but 4 of these returned their permits. Out of the remaining 7 also, only 4 payment banks are fully operational.
- Airtel Payments Bank
- India Post Payments Bank
- Fino Payments Bank
- Paytm Payments Bank
Let us begin to explore all the details about these payments banks, the services they can offer and the services they cannot offer and so on…
What is a Payment Bank?
A payment bank is a recent entrant in the banking system in India. A payment bank is somewhat similar to a normal bank but restricted to perform only few of the banking services as compared to traditional banks. A payment bank is basically a newer concept in the banking sector. A payment bank shall be regulated by the apex or Central bank of India, Reserve Bank of India (RBI).
A payment bank has been categorised as a “Scheduled bank”.But,it is mandatory for the companies to include the word “Payment bank” in its name in order to differentiate it from other regular banks. Further, payment bank is allowed to perform not all but only certain selective functions of banking.
The main objective of introducing these payment banks in India was to extend the financial services horizon to small business, migrant labour workforce & low income households. This was meant to further provide services to the remote areas of the country especially the unorganised sector in India.
Payment bank is one of the new entrants in the field of digital India. The basic ones being bank accounts and credit cards that have been a mode of online transactions since past decades.
What are the services offered by Payment Banks in India?
A payment bank cannot provide all the services that are provided by a traditional bank. The services of payment banks are limited to :
- A payment bank can accept deposits upto a maximum of Rs.1 lakh only per individual customer. Demand Deposits and saving bank deposits can be accepted from individuals, small firms and other entities.
- You can open a Savings bank account or a current account with these payment banks.
- Payment bank can pay interest on the deposits just like normal banks.
- Payment banks are allowed to transfer payments through any channels like Branches, Automated Teller Machines(ATMs), business correspondents etc.
- Payment banks can issue debit cards/ATM cards to its customers.
- Mobile banking can be accessed through these payment banks.
- Internet banking services can be provided by a payment bank. This includes payment mechanism as approved by RBI such as RTGS/NEFT/IMPS.
- A payment bank app can be used to make utility bill payments as well.
- A payment bank can involve in providing basic financial services like access to mutual funds, insurance products, pension products, forex services subject to the conditions set by RBI.
Services Payment banks cannot offer:
Here is a list of some of the major services that payment banks cannot offer.
- As per the RBI guidelines,these Payment banks cannot issue credit cards.
- Payment banks cannot deal with any kind of lending business i.e. they are not allowed to issue any kinds of loans like personal loans or any other loans to their customers.
- Payments banks cannot accept deposits from Non Resident Indians or NRIs.
- They are not allowed to setup subsidiaries for undertaking non banking financial services.
The following table gives an overview of the main services offered by these payment banks as compared to the traditional banks in India.
Comparison between Traditional Banks and Payment Banks:
| Features | Traditional Banks | Payment Banks |
|---|---|---|
| Accept deposits | Yes | Yes |
| Pay Interest on Deposits | Yes | Yes |
| Withdrawal facility for customers | Yes | Yes |
| Provide loans or involve in lending activities | Yes | No |
| Issue credit cards | Yes | No |
| Investment products | Yes | Yes |
| Maximum Deposit limit | No limit | Rs.1 lakh only per individual customer. |
List of Payment Banks in India
Here is the list of 11 applicants who got “in-principle” approvals to open a payment bank in India.
- Aditya Birla Nuvo Limited (Idea Cellular)
- Reliance Industries (Joint venture : 70% RIL, 30% SBI)
- Airtel M Commerce Services Limited
- Vijay Sekhar Sharma (PayTM)
- Cholamandalam Distribution Services Limited
- Department of Posts (India Post)
- Fino PayTech Limited
- National Securities Depository Limited (NSDL)
- Dilip Shantilal Shanghvi (Sun Pharma)
- Tech Mahindra Limited
- Vodafone M-Pesa Limited
Source: RBI website
As per recent updates, 3 entities who are in the list above – Tech Mahindra,Cholamandalam Distribution Services Limited and Dilip Shanghvi-IDFC Bank-Telenor JV have already dropped out the idea of opening a payment bank. So, now only eight of them are in fray.
List of Payment Banks in India: Active Services
Payment Banks with Full-fledged Services:
- Airtel Payments Bank
- India Post Payments Bank
- Fino Payments Bank
- Paytm Payments Bank
Payment Banks with Limited Services:
- NSDL Payments Bank
- Jio Payments Bank
- Aditya Birla Payments Bank
Vodafone: This didn’t start owing to complications.
Out of the above list, Airtel was the first payment bank to start its nationwide operations in November 2016 and is presently providing services to customers. Airtel Payment Bank is providing 7.25% interest rate on deposits made in a Savings account. However, it charges 0.65% on withdrawal made above Rs.4000.So,on one hand you are getting good interest rate. But, on the other hand, you shall be charged for withdrawing over a specified limit.
Airtel, followed by PayTM and IndiaPost, who also got a final nod and clearances to commence their operations as a payment bank in India. IndiaPost being the second payment bank to start its functioning in January 2017 is offering an interest rate of 4.5-5.5% on deposits in a savings bank account.
Paytm Payment bank was launched officially in May 2017 inviting limited users initially to open a bank account. It is likely to expand its horizon in the coming months.In fact, your current Paytm wallet shall be moved to Paytm Payment bank in the same capacity.This simply means, that in addition to the benefits of a wallet, you can now open a savings or current account plus enjoy an access to a wide range of financial services.
Fino Payment Bank also started its banking operations in the month of July 2017 thereby adding to the list of functional payment banks in India. It has become the fourth payment bank to launch its services.
The Bottom Line
The idea behind “Payment banks” was to bring financial inclusion in the country. But, the response from various license holders and their slow pace functioning is a point of concern. What do you think? Will this help India to move towards a digital economy? This financial innovation was expected to further speed up the process of turning India into a cashless economy. Is it actually doing so?
With the introduction of these payment banks, the dream of “Banking at your doorstep” could turn out to be a reality even in the remotest of areas in India. This was a bold step to redefine banking system in India thereby extending services to the common masses at a larger scale.
“Payment banks” are yet another important addition to digital innovation in the banking sector. But, they need to be managed properly to sustain and grow in this vast and dynamic banking arena.
If you want to know about other entrants contributing to the “Fintech Revolution in India”, do checkout our exclusive blog post: Robo Advisors in India : Investing made easy
What do you feel about this new concept of Payment Banks in India? Have you started using the services of any of these payment banks? If yes, feel free to share your valuable experiences on the same.
Good Explanation about Payment Banks. But this point needs to be clarified “Internet banking services can be provided by a payment bank. This includes payment mechanism as approved by RBI such as RTGS/NEFT/IMPS”
Actually RTGS is used for high value transfers. (Minimum 2 Lakhs and Maximum 10 Lakhs for an individual per day).
But, here the deposit limit itself is 1 Lakh so how can we do RTGS in Payment Banks? I need a clarification with this regard.
This article is good. All information about payment banks is included in this article.Please if you know how the Indian economy and the banking sector has been affected post implementation of payment banks.Add details on it.
Really nice article or I can say best among all. It cleared many doubts like number of payment banks and in principal approvals etc.Thanks and keep updating.
Thanks a lot for clearing every doubt that I had. Do you have any info about Paytm payment bank, when will they start their operation as they are only inviting users. Do they charge on withdrawals like Airtel? If you have something then please let me know. Thanks again for your article