July 24, 2014
Last week, the Reserve Bank of India paved the way for niche banking by issuing guidelines for two new categories of banks: small and payments. The idea was to enhance financial inclusion in India.
The interesting part is the idea of payment banks. Traditional nonbanking companies are eligible to apply for payment-bank licenses. Such companies include corporate business correspondents, public-sector entities, real sector cooperatives and even supermarket chains and telecom companies. The license under question will be issued to such companies for transaction purposes and deposits only. The aim is to provide small savings accounts and payment or remittance services to low-income groups, small businesses and other such users. Ideally, the payment bank would enable high-volume and low-value transactions in a secure, technology-driven environment.
Telcos can play a major role in providing payment services by leveraging their large customer bases and wide reach across the country. Airtel and Vodafone already offer digital money services: Airtel Money and Vodafone M-Pesa. With new regulations, they can extend their services. With other operators also coming in, there will certainly be a rise in mobile wallet services.
The move will boost mobile banking services and financial inclusion, said Rajan Mathews, director general of the Cellular Operators Association of India. Mobile payments could not be expanded, as telcos were unable to offer cash-out transactions. Though RBI’s proposals don’'t allow telecom operators to set up banks to lend, we believe they will allow cash-out transactions, which enable a consumer to withdraw at any location. This can be a game-changer to boost mobile payments and financial inclusion in India as in Africa.
Even prepaid-instrument issuers, such as Oxigen and CitrusPay, are looking at new opportunities to enhance remittance services. The new regulations would pave the way for the creation of new infrastructure that will provide access points for sending and withdrawing cash. This would be cost effective too. Banking correspondents, such as Fino Paytech,already provide alternate banking channels to the unprivileged. However, they are seeking opportunities to provide more innovative and localized products in locations in which they already have a presence.
We can certainly hope for a boom in mobile wallet services, with innovation coming from companies such as Itz Cash, OxiCash, Paytm and MobiKwik. The new regulations would bring in new opportunities to enhance point-of-sale terminals with advanced technologies, as seen in other countries. With smartphone penetration also rising in India, we can hope for NFC- and QR-based payment options in the near future.