01 Dec How to Make the Most of Payments Banks
Payments banks boost financial inclusion by reaching out to unbanked. Payments Bank is the latest buzzword in the financial services industry. How do they work? And more important, how you can make the most of the services they offer?
Payments Bank 101
- A payments bank is a differentiated bank with a specific objective of catering to the unbanked and underbanked. Although the Pradhan Mantri Jan Dhan Yojana (PMJDY) has reduced the number of unbanked individuals, there are still millions who do not have bank accounts.
- A World Bank report says India is home to 21% of the world’s unbanked adults. Payments banks aim to service these customers, among them migrant workers and lower-income households, and aims to bring them into the formal financial system.
- While opening a bank account requires documentations and takes time, with payments banks, the process is simple, paperless and instant. Much because most of the stuff is done through mobile phones.
- For one, all you need to start using Airtel Payments Bank, India’s first payments bank, is your Aadhaar number, which is used for eKYC, and your mobile number, which doubles as your account number.
The key focus of payments banks is on the payments space. They facilitate domestic and international remittances, bill payments, wage payments, recharges, insurance premium payments, among others.
- While they also provide deposit and withdrawal facilities, they cannot lend like traditional banks. Given that India still has a rural population of 67%, which does not have easy access to basic banking facilities, payments banks can offer an alternative.
- Traditional banks can do everything payments banks can but due to their structure and business priorities might be unable to cater to certain segments or geographies.
- While it isn’t possible for a bank to open branches in every village across the country, payments banks can fill this gap through mobile phones.
- There are two primary ways in which payments banks are different from traditional banks: they can accept deposits of only up to Rs 1 lakh, and they can’t lend. Since they aren’t allowed to lend, they make profits by selling third-party products.
- While payments banks cannot offer certain services to customers, they can always partner with traditional banks for providing loans and selling investment products.
- “Nearly all of the remaining seven payments bank aspirants in the country have tied up with banks,” says Rishi Gupta, CEO, FINO PayTech, one of the companies holding payments bank license. “Customers are willing to pay for the services they don’t have access to. Payments banks have an opportunity to reach out to those customers with the right products, at the right price with right partners,” he adds.
- Payments banks largely deal with low-value, high volume transactions. Hence, players who have a large presence, are accessible across platforms, are able keep their costs low and provide a bouquet of services to customers will be successful. They complement traditional banks rather than competing with them.
- Digital or eWallets, on the other hand, are only a medium for making cashless payments. They are not bank accounts which let you make deposits, earn interest and withdraw money. “Going forward, wallets will become one more avenue through which customers can access their bank accounts and do digital transactions, like netbanking and mobile banking,” says Gupta.
- Even if you have an existing account with a traditional bank, a payments bank can allow you to access and operate a bank branch in your neighbourhood after the normal banking hours. This would eliminate the need to travel and make time specifically for banking work.
- Another benefit is cash digitisation. To boot, demonetisation has given a huge push to payments banks with its emphasis on digital, cashless transactions. Payments banks may create some disruption in the banking system initially but eventually bring banking services to more people.
Read the Main Article here: http://tech.economictimes.indiatimes.com/news/internet/how-to-make-the-most-of-payments-banks/55699066