What if you had the option to pay your electricity bill at the local supermarket while you bought the monthly groceries. This may soon be a possibility with the Reserve Bank of India allowing the setting up of payment banks.
As per RBI guidelines, these banks will be allowed to open current and savings bank accounts up to a maximum of Rs 1 lakh per customer. They can issue debit cards, offer services like remittance and utility bill payments. They can also distribute simple financial products like mutual funds and insurance.
Today, a full-fledged commercial bank offers all these services and more. Internet banking also allows customers to carry out banking transactions sitting in their offices or homes. But they come with stringent Know Your Customer norms and requirements of minimum balance in the accounts, which can range from Rs 1,000-Rs 10,000. There are also charges for internet banking.
In a payment bank, KYC norms may be simplified and charges may be lower than full-fledged banks, says Ajay Srinivasan, Director Crisil Research. "Since payment banks are targeting the unbanked population who would have smaller account balances, their KYC requirements may not be as stringent. Also, since the banks would rely primarily on reach and technology to serve customers, their operations would be less manpower-intensive compared to regular banks. Therefore, their fees could be lower than regular banks,'' he says.
For a retail chain, a payment bank can be a good way to retain customers. "If a customer deposits money with a supermarket and uses its banking facilities, then the customer will remain loyal to the store. The store can also offer other services to the customer. So, you can pay your bills while shopping. Similarly, mobile companies also want to retain customers, as the cost of acquiring a new customer is higher," says Abizer Diwanji, National Head of Financial Services EY India.
Payment banks may offer a higher rate of interest on S/B accounts, in order to attract customers, adds Diwanji.
However, Pramod Saxena, founder & chairman of payment services firm Oxigen Services says the real attraction for customers will not be the interest on deposits, but the convenience of carrying out banking transactions at their doorstep.
"Payments banks will earn interest on deposits and will definitely pass on this to their customers. But since they cannot earn from credit (which is the biggest revenue stream for banks), one can't say if payment banks can offer higher interest rates,'' Saxena says.
The biggest advantage of a payment bank is that it can provide the last mile connectivity, which regular banks cannot. So, while a payment bank can operate from a store in a village, a commercial bank branch may be a few hundred kms from the village.
Small businesses, employing five to six staff, can use payment bank facilities to open salary accounts instead of paying in cash, Saxena adds.
Since there is no restriction on the income levels of those who wish to open accounts in payment banks, even those who have regular bank accounts can use it. For instance, a student studying in another city can receive payments from parents in his or her payment bank account and use it to pay fees and so on. Or a family can use a payment bank account only to make their daily or monthly cash transactions.
Naveen Surya, Managing Director, ItzCash, which provides pre-paid card solutions, says that those customers who currently use pre-paid cards for paying utility bills or salaries to their staff could be the natural target for payment bank. "The critical service for payment banks would be remittance services,'' he says.
Both Oxigen and ItzCash are looking to set up payments banks.
