Indian Economy

Payment Banks: India

New stripped-down type of banks, which are expected to reach customers mainly through their mobile phones rather than traditional bank branches. The objective of payments banks is to increase financial inclusion by providing small savings accounts, payment/remittance services to migrant labour, low income households, small businesses, other unorganized sector entities and other users by enabling high volume-low value transactions in deposits and payments/remittance services in a secured technology-driven environment.

 

WHAT DO THEY DO?

  • Payments Banks can accept demand deposits. They would initially be restricted to holding a maximum balance of INR 100,000 per customer and pay interest on these balances just like a savings bank account does.
  • The banks can offer payments and remittance services, issuance of prepaid payment instruments, internet banking, functioning as business correspondent for other banks.
  • The float funds can be parked but, only in less than one year G-Secs.
  • They can issue debit cards and ATM cards usable on ATM networks of all banks.
  • They can transfer money directly to bank accounts at nearly no cost being a part of the gateway that connects banks.
  • They can also offer card acceptance mechanisms to third parties such as the ‘Apple Pay, Samsung Pay.’
  • They can even offer forex services at charges lower than banks.

 

WHAT THEY CAN’T DO?

  • Payments Banks cannot set up subsidiaries to undertake NBFC business.
  • Other financial and non-financial services activities of the promoters should be ring-fenced.
  • The Payments Banks would be required to use the word ‘Payments’ in its name to differentiate it from other banks.
  • No credit lending is allowed for Payments Banks.

 

HOW IS IT DIFFERENT FROM NORMAL BANKS?

  • They are more capable of Financial Inclusion than the traditional banks, being directly connected to the easiest technology available for the remotest person in the country.
  • Easy to setup and use with the help of a network and smart phone.
  • Specialized in tackling Payments, hence have a strong hand in tackling one. Efficient use of different methods like QR Code, UPI is seen in these banks.

 

HOW’S IT GOING TO HELP?

  • The move has been a major step in pushing financial inclusion in the country.
  • It’s a step to redefine banking in India.
  • It is expected from payment banks to target India’s migrant laborers, low-income households and small businesses, offering savings accounts and remittance services with a low transaction cost.
  • It may enable poorer citizens to take their first step into formal banking.
  • It could be uneconomical for traditional banks to open branches in every village but the mobile phones coverage is a promising low-cost platform.
  • The innovation is also expected to accelerate India’s journey into a cashless economy.

 

The payment banks have proven to be more useful than they were thought in the beginning. We have seen them grow from small payment services like recharging mobile phones to supporting the cash crunch at the time of Demonetization. Now a days their collaboration with toll tax collections with help of RFID is easing the toll collection process and helping in reducing the ques and traffic in toll tax areas, which was never ever thought of. The application of payment banks are endless and India is on the right direction towards the same with major innovations like BHIM, UPI etc.

 

Major Payment Banks in India: Paytm Bank, Indian Post payment Bank, Airtel Payments Bank and Jio Payments Bank etc.

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