The Untold Story of Indian ‘Payment Banks’

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Jun 2019
India, June, 05 2019 - A Payment Bank (PB) is nothing less than a deposit account. In general, PBs can facilitate money deposit of up to ₹1 lakh, further offering remittance service, mobile payments, ATM/debit card facility and third-party fund transfer but excludes advancing loans or issuing credit cards. The entire idea is to propel the usage digitally with the help of the facilitator (PB).

Payment banks must extend micro-credit

It is now or never. Undeniably, the ever-emerging role of financial institutions has stirred every single Indian in the current era. It is discoursed widely that future positioning of India in the world map would somehow be dependent upon its prospective digital stance. With the advent of digitalisation and financial inclusion, one more savings product, ‘Payment Banks’ was recently announced by the Reserve Bank of India. Despite the obvious economic relevance of this product, they are not able to break even. Why is it so?

A Payment Bank (PB) is nothing less than a deposit account. In general, PBs can facilitate money deposit of up to ?1 lakh, further offering remittance service, mobile payments, ATM/debit card facility and third-party fund transfer but excludes advancing loans or issuing credit cards. The entire idea is to propel the usage digitally with the help of the facilitator (PB). The reach and penetration to cater to marginalised sections would be the key driving factor to determine the success of PBs.

India’s unbanked population stands at 233 million in 2015 (PWC report). There are 81 per cent wireless subscribers in India (TRAI, 2019). Nearly 31 per cent of the population uses smartphones, projected to grow to 34 per cent by 2020 (IAMAI report, 2017). A Smartphone is a crucial tool of internet diffusion, especially in rural India. Digital transactions are expected to grow four times to 8,707 crores by December 2021 (RBI report, 2019). RBI’s vision 2021 is focussed upon exceptional payment experience and cash-lite society. This hints towards a huge untapped market for PBs in rural India.

But still PBs are reporting huge losses despite similar efficacious initiatives like Safaricom M-Shwari in Kenya. Kenya’s Commercial Bank of Africa partnered with a telco, Safaricom, to deliver M-Shwari, a product that among other things, offers loans through the mobile channel leveraging telco data for underwriting. .

Probably, granting micro-credit is the differentiating factor. Until PBs offer micro-credit facility they will not be of much help for the unbanked. For marginalised section, ‘savings’ still is very much an afterthought. Thus, re-pondering upon the current business model and simultaneous supplementary policy initiatives from the government are more relevant. The valued agent network proposition (M-Pesa) used by Kenyans is important factor in their success story. There are more than 1,10,000 M-Pesa agents, 40 times the number of bank ATMs in Kenya.

Lastly, in a country like India, it is crucial for the PBs to do aggressive branding and marketing of their product (especially in rural India) to spread awareness and change the deep-rooted mindsets. Where PBs could serve as the financial service gateways to re-bundle a host of innovative services.

One such wholesome combination could be a tie-up with MFIs. For instance, cross-selling water purifiers or LED bulbs, which not only address the challenge of clean water in rural areas/energy saving respectively but also extends the association beyond transactions.

Farmers could leverage this service to connect with suppliers (for fertilisers, seeds, animal feeds, etc.), agronomists, information services and even outlets to sell their harvest; unleashing the true potential of PBs in India.

PBs need smart segmentation both at the geographical and demographical levels to offer tailor-made products for the rural, the unbanked and the women.

Megha Jain is Assistant Professor and Senior Research Scholar, Daulat Ram College, Delhi, and Agnihotri is Assistant Professor, Lal Bahadur Shastri Institute of Management, Delhi



 

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