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The recent announcement of the Reserve Bank of India (RBI) permitting telecom operators to serve as payment banks is likely to attract both incumbent and newer cellular operators, as this would ensure a new revenue stream for the debt-laden sector.
According to analysts, telecom operators can leverage their large customer base as well as wide reach across the country, especially in the semi-urban and rural areas. As a payment bank, telcos will be able to accept deposits and remittances but they cannot lend.
Bharti Airtel and Vodafone India, the country’s top two cellular operators by subscriber base, already offer payment instruments - Airtel Money and Vodafone M-Pesa. However, these companies can’t offer transactions that involve cash transfer owing to regulatory restrictions.
“The licence to operate as a payment bank solves this problem. These two companies just need to extend their existing service. Both Airtel Money with 1.7 million users and M-Pesa with 1.2 million subscribers did not take off properly so far as there was no real cash transaction. These companies already have the network and infrastructure in place. They just need to get the licence to operate as payment banks,” said an analyst with a management consulting firm.
Not just Bharti Airtel or Vodafone. Idea Cellular, India’s third-largest cellular operator, is also gearing up to join the race. However, spokespersons at Bharti Airtel, Vodafone, and Idea Cellular declined to comment on the issue.
According to experts, companies such as Aircel that offer mobile wallet service, will also apply for a payment bank licence. Smaller operators such as Uninor, Tata Teleservices, and Sistema Shyam Teleservices might also look at this revenue stream at a later stage.
A Mumbai-based equity analyst, however, said this would create good opportunity for Reliance Jio Infocomm, which is yet to start commercial operations, as this might be an avenue for Reliance Group to explore the finance sector.
According to Rajan Mathews, director-general, Cellular Operators Association of India, operators are waiting for clarity on the Reserve Bank of India guidelines on payment banks; for example, clarity on stand-alone retail partners as agents, meeting the ‘fit and proper’ criteria, and clarification on cash-outs in ‘people-to people’ money transfers, etc.
“The move will boost mobile banking services and financial inclusion. 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,” said Mathews. He, however, added this would again be a low-margin, high-volume business in India.
In a recent note, Credit Suisse stated that mobile payments in India would add 1-1.2 per cent to the telecom sector revenues, as Indian payment bank licences would be “much more restrictive” than those issued in Kenya.
According to Credit Suisse, a more liberal interpretation could lead to “7-8 per cent revenue upside”.
However, the equity brokerage firm does not expect Ebitda (earnings before interest, taxes, depreciation, and amortisation) contribution to be significantly higher due to the stiff competition in India, compared with that of Africa.
Credit Suisse, in its note, also pointed out that there is no clarity on whether cashouts in the form of ‘people-to-people’ money transfers will be allowed in India.
According to Jaideep Ghosh, partner, KPMG in India, telecom companies can start the service as soon they get the licence as they already have the infrastructure and network in place. “It certainly opens an avenue for revenue generation for the companies. But the guidelines need more clarity,” he added.
On the other hand, as payment banks would be able to invest in government bonds, this would enable telcos to offer higher interest rates on deposits that might attract inactive money parked in savings bank accounts.
POLICY CHANGES
- Bharti Airtel and Vodafone India, the country’s top two cellular operators by subscriber base, already offer payment instruments - Airtel Money and Vodafone M-Pesa
- These companies can’t offer transactions that involve cash transfer owing to regulatory restrictions
- According to experts, companies such as Aircel that offer mobile wallet service, will also apply for a payment bank licence
- Smaller operators such as Uninor, Tata Teleservices, and Sistema Shyam Teleservices might also look at this revenue stream at a later stage
