India is the Asia’s third largest economy and one of the growing economies in the World. Though finance has the major role in the economy, India has still about 21% of World’s unbanked population. India has average 13 bank branches for every 100,000 people whereas the USA has 33 bank branches per 100,000 people. Reserve Bank of India (RBI) under former governor Mr. Raghuram Rajan has taken a few steps to give access to banks to unbanked people in India.
To achieve the financial inclusion, one step is to give in-principal approval of payment bank. Instead of setting up a full-fledged bank branch, by leveraging the technology or smartphone, payment bank can easily operate at un-banking or rural areas in India. Payment bank can be a revolutionary product or service in India by which most of the Indians will come under banking net and minimum cash will be used.
Vodafone m-pesa a kind of payment bank is highly successful in Kenya and 43% of Kenya’s GDP is flowing through m-pesa.
If you did not get time to know about payment bank, here is all about payment bank.
What is Payment Bank?
Payment bank is a small form of the bank by which you can do small transactions such as paying bills, transfer or accept money with the help of using technology, specifically smartphone. By the use of payment bank, one can send or receive money from others, pay telephone, electricity, fuel bills etc.
Benefits of Payment Bank:
Some of the benefits which I can figure out easily are the followings:
- Will be easier for workers, working outside their home and visit home once or twice in a year and mostly carry cash when they visit their home. They can now transfer money to their parents and other family members who reside at rural area.
- The payment bank can open their own branches or they have authorized center to do the daily transactions. They can issue debit cards to its customers. You can use the debit cards at any ATM or POS (point of sale). Mobile Recharge shops can be used as payment bank branches. These authorized shops are used by the rural people regularly and easily accessible for them.
- Other than the debit cards, the transactions from payment bank can be done with savings account via IMPS and NEFT also.
- By the way of getting access to these payment banks, the financial inclusion concept is implied in the rural area and slowly people will be acquainted with banking procedures and dependency of cash shall also be minimized slowly.
- Recently Airtel payment Bank has announced an interest rate of 7.25% for the money deposited in its account. The high-interest rate can attract city customers also because the earning from this account is completely tax-free. you can save your contingency amount in this account which can be easily liquidated.
Limitations of Payment Bank:
Like any good thing, Payment Bank has also some limitations which can be taken care well for its success.
- You can hold a maximum of Rs 1 lakh in your payment bank account. Though I feel it will not be very difficult considering the large rural population with minimum income.
- It cannot offer any kind of loans to its customers. But they can mediate with another lending agency which can give the loan to the payment bank customers.
- Payment banks cannot issue credit card facilities to its customers.
How they make money?
Though Payment banks don’t have the permission of lending, one can think that how they will make money. Is this model will be sustainable or not in the long run? But payment banks can use the following for their revenue generations.
- Payment Banks can sell mutual funds and insurance. By aggregating for mutual funds and insurance they can earn a commission. Soon people will come under formal banking system, there will be a need or consciousness to save money for future. People will automatically come to their access points to have the solution.
- There are several digital wallets are present in the market. For the time being, they can put charges for transferring the money from wallet to payment bank.
- It can charge for cash withdrawal. Though it will be unfair to charge to the rural people who do not have any clue for regular banking operations. If they can make it free and once most of the population is known to banking system the banks can apply the charges.
- Payment Banks can act as a mediator of a formal lending platform. In villages in the absence of formal banking system, people are forced to lend from informal moneylenders with a high-interest rate. Payment bank can easily turn those customers into the formal banking and micro-credit system.
Digital Wallets Vs Payment Banks:
Recently digital wallets have become very popular in India. It has acquired nearly 15 crore customers in last two years. Mostly these wallets are semi closed wallet. You don’t require an identity proof or address proof to open these accounts. The only mobile number is enough to open a digital wallet. You can transact money through debit, credit card, and internet banking. You can use these wallets for transacting in e-commerce websites and local stores also. Generally, it does not give you any interest on your money deposited in the wallet.
In the contrary, payment bank can be called as a small bank which requires identity proof to open the account. It can fetch interest for savings deposited in the account. The target customers of payment banks are in villages, rural areas whereas digital wallets are mainly used by city subscribers for bill payments, booking tickets etc.
Digital Wallets can have extra revenue through the targeted campaigns whereas payment banks are mainly involved with banking operations.
Recently PayTM has announced its conversion of ownership of paytm wallet to PayTM payment bank Ltd. This announcement has raised confusions to the users’ mind about the usability, regulations etc. You can use your PayTM wallet as usual if you don’t want to open an account with PayTM payment bank.
Payment Bank is a wonderful idea which can be successful as Digital Wallet. People can enjoy more cashless transaction with both the options.
The adoption of ADHAAR has created a large database of India’s total population. The first step of financial inclusion is to give access of banking system through a bank account. The payment banks can open a bank account with ADHAAR as the identity document. It is certainly growing the awareness about the banking and finance to the people at large.
It will also help the migratory workers from villages to city, who are not able to open the bank account due to the absence of documentary evidence such as address proof. The centralized ADHAAR database can solve the purpose to open an account in payment bank.