Payments banks are no looking like a lucrative business opportunity suddenly.
Payments banks are no looking like a lucrative business opportunity suddenly. After Cholamandalam and a consortium led by Telenor, IDFC Bank and Dilip Shanghvi called it quits, Tech Mahindra is the third licensee that has said it would not launch a payments bank.
The trio was among the 11 companies/individuals that had been granted payments banks licences last year.
Speaking with the media, Tech Mahindra CEO and MD CP Gurnani cited "changed market situation" since the licence was handed as the reason driving the company's decision.
"We worked with a lot of consultants to come to this conclusion that in the short term -- and by short term, I mean three-five years, it's very difficult to make money [from payments banks]. It is not because of the government or the RBI, it is just that market forces have taken over," he said.
Payments banks were a difficult proposition from the start because licensees needed a channel through which you connect with many people.
While a mobile company has that, Tech Mahindra doesn't.
The other important thing that a payment bank needs is touch points -- to be able to give to and take cash from customers. Telecom companies such as Idea or Bharti have it from where they provide prepaid cards.
Also, the business prospects got a little difficult when the unified payment interface was launched by the National Payments Corporation last month.
With the UPI, a user can download the app and make payments whether to a restaurant or even school fees. You can do it without having recourse to a payments bank account.
The UPI clearly took away the game and that is what the Tech Mahindra chief may mean when he says the market has changed considerably in the last six months since they applied for a licence.
At the moment it looks like only those who already have a very good customer base can succeed in the payments bank business and all that it will give them is stickiness of the customer. It won't give them money.
Transferring money from a person in Mumbai to his relative in Bihar will not give really much money or commission. What it will do is ensure that the customer stays with that network - be it a telecom network or be it a NBFC network and to him you can sell loans. The making of the money is in the loans and the spread.
Transferring money is something the UPI may also do more efficiently. That is why companies are realising that the stickiness is only in the loan product and therefore they don't really have any competitive edge in setting up a payments bank.
Apart from telecom companies, or Paytm, India Post or some NBFCs, it does not look like a lot of players will be keen on starting a payments bank.The Great Diwali Discount!
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First Published on May 24, 2016 10:14 pm