Payment Banks….Your Way To Financial Prosperity!

Needs today define enterprise like never before. With competition nibbling away at profits and costs rising due to life-style pressures, the ascent today is to do thing efficiently at low costs. It is agility at low costs that is defining enterprise.

Need and technology put together are an explosive mixture which promises to blow away every idea of enterprise that we ever dreamt of, including Banking!

Ask yourself, what do you look for in a bank, given that technology has changed the very reason for its existence. Money is no more hard cash, and deposit and withdrawals are just a click away. Why then must banking be the way it is? Why can’t it be done in any other way….easier, faster and cheaper? Adding to the pressure created by need and technology mentioned above is today’s generation which does not believe in anything if it is not on their smart-phones.

The answer? Payment banks!

Short of providing loans of any kinds which is bread, butter, cheese and caviar for the industry, these are your regular banks which to cut cost, are tech savvy and tech heavy. And these could be just about anyone, a retailer, a post office, a mobile phone company…anyone.

Their advantage? Plenty…like

• Their reach. They can set-up base in most places a regular bank would find it tough to fit in and being tech driven only helps. Take for example Airtel and Vodafone, who are on the verge of getting authorized. Given their lineage and business model, reach is never an issue. Add to that technology! A sure win-win situation here.
• Bring almost all cash transaction within the ambit of banking courtesy the mobile phone which means even your domestic help, paperwala and milk man can be paid thru mobiles and that too without the present system of registering payees thru a cumbersome process! Black money….better turn white! Money orders…..what is that?? :)
• Bring down banking costs due to intense competition. Charges such as for banking service charges, ATM transactions beyond limits, additional cheque-books, large money transfers, minimum balance charges, DD/ PO fee would either be gone or reduced drastically.
• Savings bank would offer higher interest of 5-7% in place of the present 3-5%
• As these Banks cannot park their monies in anything other than short-term i.e. 1 year Govt securities, the Govt expects to be flush with short-term funds!

As of now the Government of India is on the verge of finalizing 11 such entities, which brings us to the question- What interests the Government to farm out so many licenses? Remember financial inclusion? These guarantee just that. For the severely unbanked populace which remain in large numbers, what is immediately needed are innovative products such as account linked to mobile phones and/ or those that can be operated from a smartphone (which incidentally are in larger numbers than accounts till now and show no signs of slowing down). These make banking available at everyone’s doorstep (or rather finger-tip!) and at affordable costs. In the 11 recent licensees is also the Dept of Posts which despite an obvious advantage in the form of physical reach, was almost breathing its last due to lack of effective communication-related work. They have been in the business of taking and holding deposits and disbursing cash- part of what banks do, for years now. A formal banking license would surely be a shot in the arm for them, besides all the depositors even in the remotest of places in the country.

Talking of money, no coin can have only one side. In the case of Payment Banks too this applies. Advantage galore it may seem, they do have their pitfalls. For one, they can’t give loans which as we all know is the breadwinner for any bank. They can take deposits but not in excess of INR one lac and need to deposit the same in safe Govt securities- again a constraint as these pay a fixed amount which in most cases may not be able to hedge inflation.

The next logical step apparently is to increase money rotation in the system by setting-up small loan banks so that even those who could not otherwise borrow from the normal channel due to circumstances can get loans! Howzzzat for financial inclusion? Cool indeed!

This space better be watched! Exciting times are here to stay!