PAYMENTS BANK. Non full service niche bank.

INTRODUCTION.
On Sep 2013, RBI’s Dr. Nachiket Mor’s committee studied ‘Comprehensive financial
services for small businesses and low income household’
Its main objective was to propose measures for achieving financial inclusion and
increase access to financial services in a secured tech driven environment.
The committee submitted its report to RBI on Jan 2014 with a key suggestion to
introduce specialised banks or payments bank.
The enablers would be low income group, small businesses, migrant labour workforce
and other unorganised sector entities so that in the coming years every Indian
resident would have a global bank account.
With payments bank RBI seeks to increase the penetration level of financial services
to the remote access of the country.
FUNCTIONS OF PAYMENTS BANK.
A payments bank is like any other bank which carry most banking operations on a
small scale without involving any credit risk.
It will reach its users through their mobile phones rather than the traditional banks.
For eg a person can make payment to a roadside vendor through his phone, rather
than having to visit a bank or an ATM to withdraw cash.
It’s activities are restricted as compared to other banks i.e. it cannot advance loans
or issue credit cards.
It can accept demand deposits up to ₹ 1 lakh.
It offers remittance services, does cashless and chequeless payments, purchases and
transfers.
It also provides other banking services like issuance of debit cards/ ATM, net
banking and does third fund transfers.
Services such as payment of Bills etc. through digital mode.
The offer of forex services at lower cost than a bank.
Issuance of forex cards to travelers or a pay cheque is drawn.
Rising of deposits up till 1 lakhs & pay interest as if it’s a savings bank account.
LIST OF PAYMENTS BANK.
Airtel Payments Bank (Nov 16)
India Post Payments Bank (Jan 17)
Paytm Payments Bank (May 17)
Fino Payments Bank (May 18)
Aditya Birla Idea payments Bank. (Feb 2018)
Jio Payments Bank (Apr 2018)
Vodafone M-Pesa
National Securities Depository. (Oct 2018)
Cholamandalam Distribution Services, Sun Pharmaceuticals and Tech Mahindra have
surrendered their licenses.
RBI GAVE IN-PRINCIPLE NOD TO 11 APPLICANTS,
PROVIDED...
Applicants that sought licences have tied up with a range of partners. “The
applications were screened for financial soundness, i.e., five-year track record of the
promoter and the key entities of the promoter group,” RBI said in a statement.
“The assessment also included governance issues with a focus on ‘fit and proper’
criteria for promoters based on due diligence reports and/or any other information
indicating deliberate and repeated violations of law/regulations.”
“The central bank chose the applicants based on their assessed ability to reach
customers with technology along with the financial strength to roll out services in
areas that remain uncovered”, RBI said.

Source: (Economic Times)

The applicants met with the conditions set by the RBI, and hence were given licenses. It
can be briefly explained through the same:
ADITYA BIRLA PAYMENTS BANK
A part of the $41 billion Aditya Birla group, a conglomerate controlled by
billionaire Kumar Mangalam Birla, the firm already has a presence in financial and
telecom services. It has an asset management business, a private equity firm, and also
offers non-banking financial services among others. The group’s telecom arm, Idea
Cellular, already operates mobile wallet services..
AIRTEL M COMMERCE SERVICES:
Owned by telecom operator Bharti Airtel, Airtel M Commerce also operates a
mobile wallet service. On Aug. 4, the firm acquired YTS Solutions, a mobile payments
startup, to help expand its offerings. It has partnered with Kotak Mahindra Bank to
set up the payments bank, with Kotak intending to pick up a 19% stake in the
company. Airtel, the Bharti group’s telecom service provider, could potentially play an
important role in helping the firm to penetrate rural markets.
CHOLAMANDALAM DISTRIBUTION
SERVICES:
The firm is a subsidiary of Cholamandalam Investment and Finance Company
(Chola), the financial services arm of Chennai-based Murugappa Group. Chola was
already present in the financial services sector, with over 534 branches providing
financing and similar offerings across India, and had Rs25,000 crore worth of assets
under management.
However, they’ve surrendered their license.
DEPARTMENT OF POSTS:
India’s storied postal department was one of the applicants for a banking license
last year, but the RBI didn’t oblige. With one of the largest postal network in the
world, India Post has incredible access to the hinterland: About 90% of the 1.4 lakh
post offices are located in rural areas. This reach itself gives the postal department
the biggest advantage over other players.
FINO PAYTECH:
The business and banking technology platform provider operates India’s largest
network of business correspondent. These correspondents helps lenders reach out to
rural customers who don’t have easy access to bank branches. The firm is backed
by marquee private equity firms like Blackstone and the World Bank’s IFC. India’s
ICICI Bank also owns a stake in the company. “Currently, 90% of transactions are in
cash and are estimated to be of multiple trillions; we believe there is a huge
opportunity for payments banks to power these transactions electronically,” Rishi
Gupta, managing director and CEO of Fino PayTech told the Mint newspaper after
the licenses were announced.
NATIONAL SECURITIES DEPOSITORY
LIMITED :
NSDL is India’s first and largest depository, which handles most of the securities held
and settled electronically in the country’s capital market. It is promoted by IDBI Bank,
the Unit Trust of India and the National Stock Exchange. At least eleven public and
private bankers own stakes in NSDL including State Bank of India, Deutsche Bank AG,
HDFC Bank and Citibank.
RELIANCE INDUSTRIES :
Run by India’s richest man Mukesh Ambani, RIL has tied up with the State Bank of
India—the country’s largest lender—to set up a payments bank. RIL will hold 70% in
the joint venture.
DILIP SHANTILAL SHANGHVI:
Shanghvi, owner of Sun Pharma, had applied in his personal capacity. His personal
investment firm, Dilip Shanghvi Family and Associates (DSA), is tying up with Telenor,
the Norwegian telecom company and IDFC, a non-banking financial company
that last year secured a full-service banking license.
PAYTM PAYMENTS BANK.
Vijay Shekhar Sharma: Sharma is the founder of India’s largest mobile payments
company, Paytm. The firm—with investors including Chinese e-commerce giant
Alibaba—announced that it has crossed 100 million users in India, with some 75
million transactions every month. The license helped the company grow and provide a
range of financial services to millions of Paytm users.
TECH MAHINDRA:
The information technology firm is part of the $16.5 billion Mahindra group, which
has interests in financial services, automobiles, retail and real estate among others.
Tech Mahindra already owns a mobile payments platform, MoboMoney, which
operates a ”tap and pay” system.
VODAFONE M-PESA:
A little over two years after telecom major Vodafone launched m-pesa, its money
transfer service in India, it has now secured a payments bank license. Sunil Sood,
managing director and CEO of Vodafone said that the license will help the company
to build on its payments and money transfer network across India. “With over 90,000
agents, we are already providing people in remote areas a convenient way to
transfer money and make payments in a safe and secure manner,” Sood said.
NEED FOR PAYMENT  It’s impossible for a bank to open branches in every
village across the country, payments banks can fill this gap
BANKS. through the use of mobile phones.
As we can see in the table that penetration of banking
system in rural areas is a success story. However, problem is
with quality of service. Most ATMs are usually lacking in
cash. Many branches have poor Internet connectivity and
thereby customer service is poor. Quality and strength of
staff is another weak point.
Each and every village cannot have a bank branch, it’s
neither viable nor feasible. Therefore, the need for payment
banks arises.
While a traditional bank can operate for 8-9 hrs a day,
payments bank will work 24/7 on the touch of your phone.
Its highly mobile and does transactions quickly and easily.
HOW DOES IT WORK…
A virtual account will be opened on the basis of unique mobile no & Customer can
make a transaction or remittance through web-based mobile application or through
IVR/USSD gateway to registered merchant or user. PB user can withdraw cash or top-
up their accounts from points (Vendor, ATM, Agent, etc.) recognized by their payment
bank service provider assigned in this behalf.
HOW DOES IT EARN.
The Payment banks need to keep 75% of accepted deposits with Government
Bonds and rest 25% in Fixed Deposit with Banks. By this way they might earn around
7% in an average.
The payment banks are permitted to provide credit products of other banks and
earn commission for the services.
They provide third party financial products like Insurance, mobile recharges, utility
bill payments, e-commerce spends and offline merchant transactions and earn service
charges.
They also charge a fee from customers on cash withdrawals from bank branch,
others will charge Automated Teller Machine (ATM) cash withdrawals above a certain
limit.
LIMITATIONS OF PAYMENTS BANK.
They are not allowed to give loans.
They are not allowed to issue credit cards.
They cannot accept NRI deposit.
They cannot setup subsidiaries.
PROBLEMS FACED BY THE SECTOR.
Difficulty in acquiring customers because of compulsion of ‘KYC’
Growing competition from the rivals.
Government schemes and policies (Jan-Dhan Yojana introduced by Narendra Modi
in 2014)
Niche offering segment.
UPI.
WHAT IS UPI...???

India moved a step closer towards becoming a cashless economy with the launch of
Unified Payment Interface (UPI). With this new payment method, your smartphones
will soon double up as virtual debit cards and you’ll be able to send or receive
money instantly. Along with Bharat QR code, it can help you get rid of your wallet all
together.
“For a number of years, we have been saying we need a revolution in banking in
India. I think we can confidently say the revolution is upon us. What we have in India
is the most sophisticated public payments infrastructure in the world,” Raghuram Rajan
(Indian economist and International academic) said at the launch of the UPI.
The Unified Payment Interface (UPI) can be thought of like an email ID for your
money. It will be an unique identifier that your bank uses to transfer money and make
payments using the IMPS (Immediate Payments Service). IMPS is faster than NEFT and
lets you transfer money immediately and unlike NEFT, it works 24×7. This means that
the online payments will become much easier without requiring a digital wallet or
credit or debit card.
Nandan Nilekani, man behind Aadhar and now an advisor to NPCI, said: “UPI is a layer
we have put on IMPS. It (IMPS) didn’t really have the easy debit capability and that has
been addressed by this platform. We think with UPI coming, it is going to be an important
merchant platform. Once it is adopted by all banks, money can be transferred from a
bank to any other bank using a mobile phone”.
WHO LOOKS AFTER THE OPERATIONS OF UPI?
Unified Payment Interface is an initiative by National Payments Corporation of India’s
(NPCI), set up with the support of the Reserve Bank of India and Indian Banks
Association (IBA). The NCPI operates the Rupay payments infrastructure that – like
Visa and MasterCard – allows different banks to interconnect and transfer funds.
IMPS (Immediate Payments Service) is also an initiative of NCPI. UPI is the advanced
version of IMPS.
HOW DOES UPI WORK?
Currently, if you want to make a bank payment online, you have to enter their account number, account type,
Bank name and IFSC code. Even if you have all these details, typing it all in, particularly on a phone, is a
painful process. Most banks take upto 12 hours to add a new payee and only then you can make the transfer.
The idea behind the UPI is to do away with all of this. The interface will allow account holders across banks to
send and receive money from their smartphones using just their Aadhaar unique identity number, mobile phone
number or virtual payments address without entering bank account details.
If your bank is UPI-enabled, you can ask it to connect you to the system. To initiate a transaction, you can use
two types of address—global or local. Global address includes your mobile, Aadhaar and bank account
numbers. A local address can be a virtual address. Let’s say your bank gives you a virtual ID similar to your
email ID (for instance, name@companyname). This virtual address will allow you to send and receive money
from multiple banks and prepaid payment issuers.
So, you will no longer need to use a particular app to send and receive money. For example, if you use a taxi
service, at the end of the journey you just have to give your virtual address and the driver will request money
from it. You will get a message on your mobile phone asking for authentication. Once you authenticate the
transaction by entering your password, it will be complete. This process doesn’t require either the driver or you
to share bank details. Since UPI runs on IMPS, the service will be available real time and 24X7.
WHAT ONE CAN DO WITH UPI?
UPI will simplify your online payments. Now, we have to use NEFT, IMPS or a digital
wallet such as MobiKwik or Paytm to make a quick payment to the service providers.
With the UPI, you simply need to enter your details, and get a billing request on your
phone – which you can accept or reject right away.
Taxi aggregators like Uber and Ola, food ordering services like Zomato and Food
Panda, online grocery shops like Big Basket will be able to take advantage of the
UPI system. Going forward, such companies should be able to register its identifier on
the UPI system and receive funds from a customer’s bank account through the UPI.
Most of the similar tech companies are now banking on mobile wallets.
Apart from this, you can send money to your family and friends instantly.
THREAT TO MOBILE WALLETS.
Mobile wallet companies were worried and there is a reason for that.
The RBI has allowed only banks to become Payment Service Providers of UPI service, keeping mobile wallets
out of the service. So, UPI has come as a boon for banks which were loosing ground to mobile wallets like
PayTM, Freecharge, Mobikwik, Oxigen and Citrus Pay. Though mobile wallets have been urging the banking
regulator to include them as service providers, it has not relented so far.
Popular mobile wallets like PayTM that have good customer base can still keep using it for quick recharges
and movie tickets. Cashback offers can keep them hooked to the platform little longer.
Check out some reactions from the major wallet companies:
“The Unified Payments Interface augurs well for us. MobiKwik already has millions of users paying their bills
using the wallet,” says Bipin Preet Singh, Founder and CEO MobiKwik. “The convenience, security, and speed
that we offer to users keeps bringing them back to the platform. With the Unified Payments Interface in place,
our expectation is that we would unlock a new channel for growth since the universe and reach would enlarge.”
Govind Rajan, COO FreeCharge, said “We don’t want people to keep money in the wallet, we want them to
use us as a processor,” he says. “That will happen because of the security and speed we can provide, so the
more options there are for people the better. We’re not competing with other wallets or digital systems – right
now, the challenge is to take on cash.”
WHAT ABOUT PAYMENT GATEWAYS?

Question is, what will happen to these payment gateways once UPI is in full force.
Job of these payment gateways is to aggregate various payment methods like
Credit cards, debit cards, mobile wallets and netbanking. So, the UPI might become
the new net-banking, by replacing it as a payment mode. I
These payment gateways also offer detailed information on received payment (who
paid & for what), apart from providing transaction management, reconciliation,
insights etc. They also offer customisation at every level (payment options, payment
page, etc) which is beyond a simple push-n-pull movement of money via UPI.
Most importantly, Payment Gateways act like a trust custodian — one who provides
protection against any dispute between merchant & consumer. This is completely
missing in UPI today but it will be there as the platform matures.
HOW SECURE IS UPI?

UPI takes advantage of that and links itself with your mobile number for identification. When
you sign up for a UPI app, your phone sends a push SMS for verification purposes. This ensures
that nobody can copy the OTP from another device. Using push SMS’es binds your device to
your mobile number and needs to be redone every time you change your device.
UPI adds an extra layer of security by requiring you to create a PIN for your transactions. To
create a PIN, you’ll need to input your card details and verify an OTP sent by your bank to
your registered mobile number. Every transaction needs you to key in your PIN for
authorization. Physical access to your phone will not be enough to make a transaction. Which
basically means that even if your phone is stolen, your PIN will still be needed to make
transactions, and the money in your account stays safe.
CONCLUSION
Successful in targeting the batches who don’t want to go to traditional banks in
carrying out small financial transactions.
They will face competition like any other bank, but will change the banking scenario
in India in financial inclusion of small vendors, migrant labour workforce, low incomed
groups, etc.
They will offer competition to the existing banks and more competition is good for
the economy as a whole.
Payments Bank will change the way people think, Change the way they keep the
money, where they keep their money, the way they pay”
THANK YOU
Made by:
Aafreen Mulla.