- Wealth PMS
Yay! RBI has finally granted in-principle approval to 11 payment banks:
Aditya Birla Nuvo Limited
Airtel M Commerce Services Limited
Cholamandalam Distribution Services Limited
Department of Posts
Fino PayTech Limited
National Securities Depository Limited
Reliance Industries Limited
Shri Dilip Shantilal Shanghvi
Shri Vijay Shekhar Sharma
Tech Mahindra Limited
Vodafone m-pesa Limited
This is great news, because they will provide some level of competition to the “CASA” part of the banking system, which is a fairly good part of it apparently. Banks get money for as close to “free” as possible, and they don’t try to compete for funds – the new banks will hopefully break that hegemony
The first thing you might wonder is: Will I get loans at lower rates?
The answer is: No.
Because payment banks are not allowed to lend any money.
Any money you give them has to be compulsorily deposited into government bonds. It’s the safest avenue for your money. But you’re limited to Rs. one lakh only. I hope this is a temporary restriction.
What a payment bank can do:
Reliance, Airtel and Vodafone are likely to use the license for their telecom businesses. The idea of a payment bank is that you can put your money with them and they will offer you interest on that money (as a savings bank account). If it’s a telco, you can automatically pay your bills, and even purchase products through the same account, and even withdraw cash by using your phone as an ATM card! (with passwords and all that). So you could technically have seamless payment of anything through your mobile phone, and the payment bank system will allow them to use IMPS or NEFT to transfer money directly to the end user, and even between users in the telco; and while your money is with them, they can even pay you interest.
For Vijay Shekhar Sharma, the deal would be PayTM, which is a company he is a founder of (and it’s parent company, One97). Disclosure: I started the commercial operations of Capital Mind Premium from the PayTM Office in Bangalore, so I’m biased. Paytm has a wallet to store cash (but no interest is paid), owns an ecommerce marketplace and also offers its wallet to users such as Uber where you can make on-demand payments.
Fino Paytech is in that space as well.
PayTM and FinoTech will benefit in that they can offer interest on balances, create easier payment mechanisms for businesses in India to offer as a payment gateway, and not lose any of that money if the merchant and buyer are both their own customers. PayTM can offer debit cards, forex cards and all the jhing-bang that we should be demanding of a payment mechanism including easy person-to-person transfers.
The Department of Posts can absolutely kill the cash transfer market, or the banking market in extreme rural areas.
Aditya Birla Nuvo is a massive retail operation, and might venture into faster and better payments at their retail operations. But they’ll have to go much beyond in order to really take advantage of the opportunity.
Cholamandalam distributes financial products, and this licence might be a new venture to tap potential banking opportunities.
I have no idea how Tech Mahindra, NSDL and Dilip Shanghvi (of Sun Pharma) will benefit but they will probably build a new system to tap the above concepts.
Any thought of introducing new banks is good. Our lazy fattened up banking system needs competition. Your loans may not get cheaper but I hope these banks move large amounts of “CASA” from the large banks away to payment banks. I will personally open accounts everywhere that it’s feasible, and reduce my balances in the larger banks, if they bring in better technology and keep my money safe.
There’s no immediate fear, though, for current banks. It will be at least two years before the threat to stupid banks emerges, and even then RBI is likely to be this major mollycoddling mother figure that refuses to let any of its banks suffer due to the advances in technology of the new banks, so expect that they will attempt to stifle major challenges via arbitrary restrictions. Having said that, it’s the same RBI that allowed these new banks to come up, so let’s hope they are more open to better banking and more competition. Bring it on!
Update: From Medianama and a few other sources, a few more things have emerged: