Payments Banks Struggling for Existence with Limited Scope
In 2015, the Reserve Bank (RBI) gave in-principle approval for 11 entities to set up a different lender entity, termed ‘payments banks’. The objective was to establish new entities that could facilitate digital payments with minimal friction and bring more people into the banking system’s fold.
Three years later, these seem to be struggling to carve and retain a niche for themselves. In fact, three — Cholamandalam Distribution Services, Sun Pharmaceutical and Tech Mahindra — surrendered their licences without starting operations. Of the rest, Reliance’s Jio payments bank was launched last month. India Post has had a soft launch and is yet to start full operations.
Currently, only three have completed more than six months of operation in the space — Fino Payments Bank, Airtel Payments Bank and Paytm. Fino started with the broadest base, of 410 branches across 14 states, 25,000 banking points across the country and sees a little more than 15 million monthly transactions. It has already increased its base by 12 branches since its launch.
Airtel Payments Bank capitalised on the parent entity’s big telecom base, converting Airtel wallet users to banking customers. It had launched with the highest interest rate on deposits, of 7.25 per cent annually; this was cut to 5.25 per cent this February.
The chief executive of Airtel’s bank quit last year, after the controversy around usage of the Aadhaar e-KYC, for converting customers without their consent. It was fined Rs 50 million by the RBI for breaking the know-your-customer rules.
Even so, some executives in these banks are optimistic. This is important because the rules limit payments banks’ functions. These cannot lend or give credit and may only hold deposits up to Rs 100,000 a customer.
Fino has found ways around these restrictions. It has entered into agreements with entities that can provide these services. “It is too early to say where the industry is headed. Airtel was the first to launch but is still going through the UIDAI (Aadhaar) issue. Except Fino and Paytm, I don’t think anyone has done any serious work yet,” said Shailesh Pandey, head of strategy and marketing at Fino Payments Bank.
He said Fino provides the full stack of services, from loans, remittances, digital payments to savings accounts, through its collaboration with companies. The bank earns revenue for the partnerships by directing customers to different entities, even as its mainstay remains the remittance business. Fino is looking to diversify by offering mutual funds in the near future.
“We also make money like any other bank. We can’t do credit but can do it on someone else’s behalf. We have a tie-up with ICICI Bank, where we disburse gold loans and the book is about Rs 800-900 million every month,” Pandey said. The business correspondent model of lending earns the bank about 10 per cent of interest on the loans they facilitate.
However, analysts watching the space aren’t so convinced about the potential of payments banks. “Unless you have a large eco-system supporting it, the business is very difficult to sustain. Barring a few, most of the rest may not stand the test of time,” said Jindal Haria of India Ratings and Research.
An indication may be had from the balance sheets. While Airtel doubled its loss from Rs 2.5 billion in 2016 to Rs 5 billion in 2017, Fino posted a loss of Rs 820 million for the year ended March 2017.
According to Haria, now that every normal bank is providing digital payments and services, which payments banks were supposed to do, there’s tough competition — every bank goes after the same crop of customers. There’s UPI, Aadhaar payments and everything else for each bank, which diffuses the differentiation of payments banks.
Payments banks were a great idea when floated but with digital payments, it sounds like a redundant idea, said an executive of one of the mobile payments banks.
Another reason for the struggle is the regulatory web they find themselves in, said Amol Kulkarni, fellow at CUTS International, a development agency. “The biggest constraint is that they cannot lend, which is the whole and soul of banking as we understand it. This is why they have trouble making money. Additionally, they have the challenge of doing double KYCs, as the automatic KYCs by telecom companies have been deemed invalid. This is a large friction area, which reduces the competitive advantage of using digital technologies to gather a large number of customers quickly.”
Amid all this, payments banks continue to hope that they can beat co-operatives and rural banks. “Unlike other people, we are fighting to capture the emerging India market which has annual income of Rs 100,000-500,000. We are fighting for the demographic that nobody goes after and are very comfortable in that space,” said Pandey of Fino.
source: Business Standard &
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| Sl | Frequently Asked Question | Response/Clarification |
| No | | |
| . | | |
| 1 | What is IPPB ? What are its Objectives? | (i) India Post Payments Bank Limited (“IPPB”) was incorporated |
| | How it will operate? | as a company on August 17, 2016 under The Companies Act, |
| | | 2013, with 100% equity from the Department of Posts (DoP), |
| | | Ministry of Communications, Govt. Of India and as a payments |
| | | banking company under Section 22 (1) of the Banking |
| | | Regulation Act, 1949. |
| | | (ii) IPPB is visualized as a vehicle of financial inclusion that |
| | | would complement the existing banking, financial services and |
| | | payments network in the country to improve overall efficiency, |
| | | accessibility and convenience in delivery of banking services |
| | | including Direct Benefits Transfer and social security payments. |
| | | IPPB, as an organization, is designed to leverage the field |
| | | network of the Department of Posts and is required to carry out |
| | | its sales and operations through the workforce of the DoP. IPPB |
| | | will be responsible for designing the products and services, |
| | | defining the technology and service delivery platforms, |
| | | undertaking marketing and third-party tie-ups, setting and |
| | | monitoring the service quality standards, handling customer |
| | | grievances, managing the risks of the banking operations, and |
| | | dealing with statutory and regulatory compliances, etc. |
| | | |
| 2 | Why IPPB is looking for positions on | Requirement of positions on deputation/ Foreign Service from |
| | deputation/ foreign service/ engagement | DoP to IPPB is based on IPPB’s business requirements, as |
| | for DoP? | success of IPPB hinges significantly on its ability to leverage |
| | | field-level resources of DoP. In this context, it is imperative, |
| | | especially in the initial stages, that the persons who are acting |
| | | on behalf of IPPB at the field level, have a strong |
| | | understanding of DoP as an organization. |
| | | |
| 3 | Which authority has approved the policy of | Board of Directors of IPPB approved the policy of deputation of |
| | deputation? | regular employees from DoP to IPPB, which is also agreed by |
| | | Postal Services Board. |
| | | |
| 4 | What is the period of deputation? What is | Details are available in the Notification released by IPPB. |
| | the job profile of posts offered ? What are | |
| | the employment terms and conditions / | |
| | service rules? | |
| | | |
| 5 | Will there be any relaxation provided in the | No relaxation will be provided in the eligibility criteria on age, |
| | eligibility criteria? | experience and education. Kindly ensure that you fill the |
| | | correct information. In case, any incorrect information is |
| | | provided, your application is liable to be cancelled. |
| | | |
| 6 | Can any details of submitted application be | No. Any changes to the application cannot be made after |
| | modified/ removed/ added | submission of the application. |
| | | |
| 7 | Whether ASPs can apply for Scale- II ? | All regularly appointed ASPs, if they fulfill the eligibility criteria |
| | | can apply for scale –II position. |
| | | |
| 8 | Whether all PAs will be eligible for | All regular PAs who fulfill the eligibility criteria can apply for |
| | deputation? | scale-I position, irrespective of their present place of posting . |
| | | |
| 9 | Whether officials working in LSG /HSG- II | All LSG PAs/ HSG-II/Postmaster cadre officials who fulfill |
| | /HSG-I/ Post Master cadre can apply for | eligibility criteria can apply for Scale I. |
| | deputation? | |
| | | |
| 10 | Is the experience of CBS/Sanchay Post | As per Section C of notification at least two years hands on |
| | mandatory to apply for Scale I? | experience is mandatory in POSB CBS/ Sanchay Post |
| | | operations. |
| | | |
| 11 | Whether all GDS will be eligible for | All regularly appointed GDS candidates meeting eligibility |
| | deputation? | criteria will be eligible. |
| | | |
| 12 | Whether DoP official working in deputation | Yes, subject to fulfilment of eligibility criteria of that particular |
| | in IPPB is allowed to appear in DoP | exam. |
| | departmental exams for promotion? | |
| | | |
| 13 | Whether reservation is applicable in the | Being the deputation posts, rules of reservation are not |
| | selection? | applicable. |
| | | |
| 14 | Will any model question papers be made | To be notified in due course of time. |
| | available? | |
| | | |
| 15 | Where can I download the Admit card for | Admit card can be downloaded after the date of examination is |
| | the examination | announced from www.indiapost.gov.in |
| | | |
| 16 | When will the results be available for the | Results will be published on www.indiapost.gov.in in due course |
| | exams | of time. |
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