How to make the most of payments bank

Payments bank is the new buzzword in the banking industry. Since they serve as a convenient alternative in the wake of demonetisation, here are the ins and outs of how they work, and how you can make the most of the services they offer.

What is a payments bank?
A payments bank is a differentiated bank with the specific objective of catering to the unbanked and underbanked. Although the Pradhan Mantri Jan Dhan Yojana has brought down the number of unbanked individuals in the country, there are still millions who do not have bank accounts. According to a World Bank report, India is home to 21% of the world’s unbanked adults. Payments banks aim to service these customers, especially migrant workers and those from lowerincome households, as well as bring them into the formal financial system.


While opening a bank account requires documentations and takes time, with payments banks, the process is fairly simple, paperless and instant, since the latter are primarily operated using mobile phones. For instance, all you need to start using Airtel Payments Bank, the country’s first payments bank, is your Aadhaar number, which is used for e-KYC, and your mobile number, which doubles as your account number.

As the name suggests, 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, etc. 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 effective alternative.

Added advantages
Traditional banks can do everything payments banks can, but due to their structures and business priorities they may be unable to cater to certain segments and geographies. For instance, while it’s impossible for a bank to open bran ches in every village across the country, payments banks can fill this gap through the use of mobile phones. There are two main ways in which payments banks are different from traditional banks: they can accept deposits of only up to Rs 1 lakh, and they cannot lend.

Since payment banks aren’t allowed to lend, they make their profits by selling third party products. While payments banks themselves cannot offer certain services to customers, they can always partner with traditional banks for providing loans and selling investment products. “Nearly all of the payments bank aspirants in the country have tied up with banks,” says Rishi Gupta, MD & CEO, FINO PayTech, one of the companies that already holds a payments bank license. “Customers are willing to pay for the services they don’t have access to otherwise. Pay ments banks have a chance to reach out to them with these products at reasonable prices, by tying up with the 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, and are able keep their costs low while providing a varied bouquet of services to customers, will be successful. Payments banks, therefore, complement traditional banks, rather than compete with them.

Digital or e-wallets, on the other hand, are just a medium for making cashless payments. You can’t make deposits, earn interest or withdraw money through them. “Going forward, wallets will just become one more avenue through which customers can access their bank accounts and carry out digital transactions,” says Gupta.

The future of payments
Payments banks offer a great deal of convenience to customers. Even if you have an existing account with a traditional bank, a payments bank can allow you to access banking services and perform transactions, well after the normal banking hours have ended. This eliminates the need for you to make time specifically for travelling to your branch to carry out transactions.

Another important benefit is cash digitisation. Nearly 90% of transactions in India are typically cash based, but demonetisation has given a huge push to payments banks with its emphasis on digital transactions. “We are already witnessing new set of customers, including vendors, grocers and small business owners, opting for cashless payments. The adoption level will only increase going forward, and payments banks will facilitate this digital transformation,” says Gupta.

Payments banks are therefore expected to create some disruption in the banking system and bring banking to the masses on a wider scale. While Airtel has launched its services, other players like FINO PayTech and Aditya Birla Idea Payments Bank are looking to launch theirs by early next year.

Most bank accounts have low deposits

Source: RBI’s latest report on Basic Statistical Returns, 2016
While the Rs 1 lakh deposit limit of payments banks may seem small, around 70% of the bank accounts in India have less than Rs 1 lakh deposits.

Payments banks pay interest, can’t lend
They differ from both traditional banks and e-wallets in terms of services.