Vodafone set to launch payments bank by March

Airtel, Vodafone's competitor in the telecom space, has already launched its payments bank

Telecom major Vodafone, with in-principle approval from the Reserve Bank of India for a payments bank, has said it will launch the latter entity within three months.

“We are in the final stages but haven’t applied for the final license yet. Our plan is on track for launch by March,” said Sunil Sood, managing director, Vodafone India.

In August last year, RBI gave the in-principle license for opening a payments bank to 11 entities; of these, three have decided not to proceed, on profitability concerns. So far, only one of the other eight, Airtel, also Vodafone’s biggest competition in the telecom segment, has launched its payments bank. A payments bank may only accept deposits; it can’t lend.  Analysts believe telecom companies will fare better in such a segment.

Payments banks that have been set up with the aim to further financial inclusion are allowed to only accept deposits and can't lend. This will limit their earning potential and profits may remain elusive initially as margins will be thin.

However, analysts believe that in the payments bank space it will probably be the telecom companies who will fare better. The Nachiket Mor Committee on these niche banks had stated that the telecom companies that have wide reach and also have a connect with the un-banked population will be able to establish themselves quickly.

Vodafone believes that it can ride on its mobile wallet offering and the customer base when it becomes a payments bank. Now the current players have expanded its mobile wallet offering by increasing its customer base to include merchants who can engage in "pull" payments or ask customers for payments.

This is a service that is also available on the United Payments Interface (UPI). Sood added that the mobile wallet offering will help them transition into a payments bank.

At present, Vodafone's mobile wallet has 8.5 million customer base and the end of September, they carried out transaction value of Rs 860 crore. It also has 20% of active mobile money subscribers and has about 1,30,000 business correspondents.

However, despite burning cash none of these wallets have managed to turn profitable yet. But Sood seemed unfazed with the intense competition and the profitability pressures.

"As we build the digital ecosystem, it will become profitable. Cost is also high as we are converting digital money into cash but as the velocity of it decreases and most payments happen via digital medium it will become profitable," he added.