The financial inclusion in India was primarily driven by the full service banks or universal banks. Realising that this needs more / differentiated player, one of the largest worldwide experiments has been initiated in India by the central bank-Reserve Bank of India (RBI). This was set in motion in Dec 2014.
Key highlights of payments banks
Payment Banks can keep deposits not exceeding Rs. 1 Lakh by end of day from Indian customers only.
The deposits would be covered under DICGC.
They are not allowed to give any kind of credit including issuance of credit cards.
They have to mandatorily invest their 75% of demand deposits in specified government securities / treasury bills.
Their major source of income would be on account of providing payment and remittance services.
Following the recommendations made by the External Advisory Committee, the Committee of Central Board released the list of 11 players (out of 41 total applicants) who have received “in principle” approval from RBI to operate a Payments Bank in India.
The distribution of license has covered a wide spectrum of players in the market. As expected and considering the reach of mobile in India, majority of the players (5) are Telecom companies or having some tie up with Telecom companies; a couple of NBFCs; and one each as Over-the-top (OTT) player, technology provider and government entity.
A quick glance through the list of awardees suggest that RBI is willing to experiment with different business models and going forward will use the learnings to further strengthen its effort to fulfill the vision of complete financial inclusion. The same has been highlighted in the selection process of the regulator.
The other interesting fact to note is that some of these players were already active in the market by way of Pre-paid Instrument (PPI) license in the same name. However, some are completely new in this market. Given the wide list of successful applicants, all would like to play to their respective strength. Telecom players have the reach by way of their existing distribution network, others would scale up and come up with new and innovative distribution strategies.
The Government has also taken issuance of license seriously and with Department of Post with its reach and trust through 1.5 lakhs post offices which are moving on to core banking system (CBS) would provide enormous reach and competition to rest of the players.
It will be interesting to see how different business models emerge with so many players. Some of them would be in a hurry to launch their payment bank operations in the next few months, instead of waiting for long, as they already have a fair degree of connected infrastructure which can support their initial phases. As per the current wisdom, the revenue will be driven on the basis of transactions and break-even will take a few years.
To be successful, the Payment Banks would be better off by redefining the “Digital” with keeping persona of “Customer” in the center and build products and processes around that. The long term survival of the new category of banks would depend upon proper customer service to retain customers or there would be high possibility of churn.
In the end, a lot is expected to change. This would mean that more choice would be available to a variety of customers including the people sitting on the fringe and far flung areas, at a lower cost. All these would definitely require a paradigm shift in business strategies to incorporate customer centricity, with fair degree of investment over a sustained period of time and right marketing strategy.
So the race has begun!!!!!
We will keep you updated after every lap.