Payment Bank Licenses - A good beginning in Indian FS landscape

RBI announced 11 in principle licenses on 19th August. Media welcomed this with a lots of enthusiasm which lasted for more than 48 hours. Interviews with y

oung start up promoter of Paytm got re-telecast multiple times in NDTV. Successful applicants started media releases on their plans to cover large, yet still under penetrated Indian rural market. All signals towards huge expectations our nation have from these new players in Indian Banking Sector.

How much banking will really payments bank do?

Since creating their own loan book is not permissible for a payment bank, they will have to depend on strategic alliances with traditional banking players to offer a one stop shop for Indian banking customer.  But for this limitation all our typical banking needs, like savings, cash withdrawals, payments to 3rd parties and remittance can be done by them. Of-course there is a limit of fund size coming from RBI guidelines more for the purpose of ensuring these new players will target a wider net and build volume for scale rather than focusing on large value transactions.  There are enough and more mechanisms today catering the need for these large value transactions. For a small and middle income group Indian citizen Payment Banks should be able to provide /Facilitate all banking services at one place. 

 What is new ? How will these Payments Banks will make any difference ?

Payment Banks are meant to be very agile and lean in terms of their operating model. They are expected to leverage new age technologies and digital channels for customer acquisition and service. It is estimated that cost to serve a typical customer/Transaction for payment banks could less than 1/4th of the traditional banking players. These banks are further expected to simplify transactions for users and reduce redundancy in front end processes. With lower cost and simplified user experience, Payment Banks have got all the right ingredients to change banking experience for millions of Indians. Some of the key changes the Small and middle income group customers will experience are

- Easy access to sophisticated banking products like RD/ SIP etc

- Door step banking services

- Increase in adoption of Mobile /Internet banking  

- Lesser cash transactions and lower cost of banking 

Yes , over all Payment banks as they are currently envisaged has got it all to revolutionize Indian banking space .  A lot depends on how RBI and these new player tackle real operational challenges in initial years. Hopefully the stated intent and purpose of these licenses are kept in mind as they try to adopt strategic and tactical solutions to these challenges.