Payment banks

The principle behind payments banks is simple

accelerating the penetration of financial services among
low-income consumers by leveraging technology and the
large, non-banking retail network without compromising
the security of the financial sector.
Telenor and Tameer Microfinance Bank have together set
up the largest branchless banking service in Pakistan.
Telenor has a large customer base, wide telecom and
agent distribution network, marketing skills and relatively
higher financial strength, while Tameers expertise lies in
financial products, risk management and compliance.
Responsibilities are aligned to the core strengths,
revenues are shared in proportion to expenses and the
revenue split is re-negotiated over time.
The banking sector in India has so far had one category of
commercial bank which is the universal bank. A universal
bank is licensed to carry out the complete range of
banking activities, including borrowing, lending,
investments, and to all categories of clients. Now, with
the introduction of payments banks, the banking
structure in India is being modified to include a new
variety of banks with a specific mandate through
differentiated bank licences. The basic premise for a
move towards differentiated bank licences is that not
everybody should or is capable of getting a universal
bank licence. As the economy grows and its needs
become more complex, a variety of participants should
be permitted to facilitate growth.

A payment bank is a differentiated bank that will undertake only certain restricted banking functions that the
Banking Regualtion Act of 1949 allows. These activities include

acceptance of deposits,

payments and remittance services,

internet banking and

function as busines correspondant of other banks.

Initially, they are allowed to collect deposits up to Rs 1 lakh per individual. They can facilitate money transfers
and sell insurance and mutual funds. Besides, they can issue ATM/debit cards, but not credit cards. They
cannot set up subsidiaries to undertake non-banking financial services activities. More importantly, they are
not allowed to undertake lending activities at all.

The payments banks have been licensed to only offer

deposits and payments services. The induction of these
new bankswhich include a mix of large companies,
leading telecom companies and new-age technology
companiesinto the financial sector is an important step
towards fulfilling the vision of ubiquitous access to a bank
account and payments services by all.
E-commerce marketplace Snapdeal, run by Jasper Infotech
Pvt. Ltd, said on Tuesday that it will launch a mobile wallet
through its recharge and utility payments unit FreeCharge.
Mobile wallets are smart phone applications in which
consumers can preload money and use it to pay utility bills,
book tickets and transfer money. They can also be used to
make instant e-payments while shopping, in physical stores
or at e-stores.
Digital or virtual wallets act as a holder of cash and can be
used to purchase goods and services online. These can be
loaded with cash through a telecom firm, mobile payment

provider or a bank. Digital wallets can be closed, semi-closed

or open. Closed wallets allow consumers to purchase goods
and services from only one seller. Semi-closed wallets allow
shopping at multiple merchants in a marketplace. Open
wallets can be used across marketplaces.
The guidelines for licensing of payment banks were announced in November 2014 and on Wednesday the
Reserve Bank of India (RBI) gave an in-principle approval to 11 of the 41 applicants. The full list includes
Reliance Industries, Aditya Birla Nuvo, Vodafone, and Airtel, with the RBI adding it will move to give such
licences more regularly in the future.
"The 'in-principle' approval granted will be valid for a period of 18 months, during which time the applicants have
to comply with the requirements under the guidelines and fulfil the other conditions as may be stipulated by the
Reserve Bank," the RBI stated.
The goal behind creating these payment banks is to bring about financial inclusion, by making it easier for
anyone to get a bank account. That's also why the cash limit in the accounts is set to just Rs. 1 lakh - it might
seem like a very low limit to most people reading this, but if you're typically outside the banking system, then it
is a fairly comfortable amount. The real effect will come to remittances within the country, as it will become
easier for people to send money home to smaller towns and villages while working in the city.
The new payment banks will also make people less dependent on cash, even for small sums, and since a
mobile wallet could be a bank account soon, this move could, over time, have a big impact on m-commerce.
So what exactly is a payment bank, and why is it important?
Payment banks can accept deposits restricted to Rs. 1 lakh per customer, and are allowed to pay customers
interest on the money that is being deposited. They can be used for either current accounts or savings
accounts. For companies that have operated as mobile wallets (which are a type of Pre-Paid Instrument aka
PPI), this is a big step forward as it raises the funds limit, and allows interest to be paid on the deposits, making
it more attractive for users to store their money with a Paytm or m-Pesa.
Unlike a regular bank however, a payment bank can't loan money to people, or issue credit cards. Also, the
payment banks are only allowed to invest the money customers deposit into government securities.
While the payment banks can't issue credit cards, they can issue ATM and debit cards. Since many of the 11
new license holders already operate mobile wallets, the ability to issue an ATM card helps close the loop and
makes it easier to convert virtual money into cash, and vice versa.
Payment banks can be integrated with your savings bank accounts via IMPS and NEFT transfers. As already
mentioned, the payment banks ATM or debit cards will also work on all banks' machines. Payment banks can't
accept NRI deposits, which makes sense considering the goal of financial inclusion.
The RBI guidelines say that payment bank licenses would be granted to mobile firms, supermarket chains, and
others, to cater to individuals and small businesses. The goal is to provide small savings accounts, and
payments and remittance services to a migrant labour workforce, low income households, small businesses,
and others. Of the 41 companies and individuals that applied, only 11 have been selected.

The phone companies in particular have large distribution networks throughout India, even in rural locations,
and this will help as people will be able to easily convert cash into virtual money and vice versa.
"With over 90,000 m-pesa agents, we are already providing people in remote areas a convenient way to,
transfer money and make payments in a safe and secure manner," says Vodafone's Sood.

Marginal farmers have been defined as those cultivating agricultural land up to 1

hectare. A small farmer is defined as cultivating between 1 hectare and 2
hectares.
In most states, the small and marginal farmers account for between 70 to 94 per
cent of all farmers.

RBI allows 10 companies to set up small finance banks

The firms include

1. Au Financiers (India) Ltd., Jaipur,

2. Capital Local Area Bank Ltd., Jalandhar,
3. Disha Microfin Pvt., Ahmedabad and
4. Utkarsh Micro Finance Pvt. Varanasi,
5. Equitas Holdings Pvt., Chennai,
6. ESAF Microfinance and Investments Pvt., Chennai,
7. Janalakshmi Financial Services Pvt., Bengaluru
8. Ujjivan Financial Services Pvt., Bengaluru
9. RGVN (North East) and Microfinance Ltd., Guwahati, and
10. Suryoday Micro Finance Pvt. Navi Mumbai