The Reserve Bank of India is poised to issue licenses for new “Payments Banks”. The objective behind a payments bank is to drive financial inclusion in the country by setting up small saving accounts. These banks will be set up primarily for payments and remittances to the migrant labor workforce, low income households, small businesses and entities in other unorganized sectors. Companies from various domains of the industry have applied for the payments bank license. The number of applicants has now reached 41.
It is interesting to note that the range of applicants that include telecom operators, large corporations, payment gateway service providers, digital wallet providers and financial service companies. Some of the applicants have even partnered with existing banks. In terms of what a payments bank can actually do, the following are some key aspects:
- Accept deposits from individual customers with a maximum limit of Rs. 1 lakh ($1667).
- Issue debit and ATM cards for transactions but not credit cards.
- A payments bank cannot undertake any lending activity.
- Allow transactions through Internet and leverage technology to offer low cost banking solutions.
It is high time that we witness a payments revolution in a country with a population of more than a billion. This new initiative will bring new forms of payments to the Indian market. There is a high penetration of smartphones in India so we can certainly expect the adoption of mobile wallet and mobile payments services to continue to rise. Moreover, if some operators are able to attain the license, we can expect carrier billing to become an alternative form of money as well. Although financial inclusion is a primary objective for this initiative by RBI, we can expect that it will become more than that. This initiative will also help set up the next generation of payments infrastructure in India.
Now the question arises as to how many, among the 41 applicants, will actually obtain the license. We have put some thought into it and the following illustration visualizes what we expect:
From our sources, we believe the following are possible winners in the race for the payments bank license:
- Reliance + SBI : because Reliance itself has a wide base of business units and SBI has the largest base of banking customers in India.
- Aditya Birla Nuvo + Idea : Idea has a well established telecom infrastructure which it can leverage for financial services.
- Vodafone + YES Bank : Vodafone already has wide experience through its mPesa mobile money service.
- ItzCash : it’s already a prepaid issuer and RBI believes it to be a potential contender for a full-fledged bank.
- Airtel + Kotak : Airtel already has its Airtel Money service in India, while Kotak is taking new banking initiatives oriented towards mobile banking.
The Reserve Bank of India has not released any official list of the 41 applicants, but here is a compilation of the applicants that we have come across so far:
- Vakrangee Ltd
- Reliance Industries Limited (in partnership with State Bank of India)
- Idea Cellular (in partnership with Aditya Birla Nuvo)
- Future Group
- Vodafone (in partnership with YES Bank)
- FINO PayTech
- Oxigen (in partnership with RBL Bank)
- GI Technology
- Cholamandalam Investment and finance Company Limited
- Bharti Airtel (in partnership with Kotak Mahindra Bank)
- Village Financial Services
- Citrus Payment
- UAE Exchange