Payments banks, the newest entrants in the country's banking sector are facing a problem that hinders the purpose for which they were created — easing transactions for customers. Players in the payments bank space say they are more like "restricted banks" as the challenge is to get customers to transact.
Sudhakar Ramasubramanium, Managing Director and Chief Executive Officer of the yet-to-be launched Aditya Birla Idea Payments Bank, said the issues with payments banks is that it is a daily wage labourer model but no annuity model.
"We do have the advantage of the customers as a telecom player but will those number of customers transact, that's the challenge. Our revenue pool is 10 percent of the overall banking revenues. It is more like a restricted banking licence...We consider ourselves a fintech player that can take payment but cannot lend," he said during a panel discussion on lessons learnt operations of payments and small finance banks.
At the same event, H Srikrishnan, CEO of yet-to-be launched Reliance Payments Bank said that demand is not a problem. "We are looking at a large market. Large banks today are looked at as vehicles of deposit taking institutions and not so much as the bank of transactions," he said.
He said their efforts would be towards transactions. "Though they may not be happy with their bank but all banks today offer IMPS, so there is stickiness with existing banks and hence taking time (to transact)," he said.
With changing market scenarios, especially post demonetisation, payments banks are competing more with fintech players rather than commercial banks.
Payments Banks are a set of differentiated new model of banks conceptualised by the Reserve Bank of India (RBI). These banks can accept a restricted deposit, which is currently limited to Rs 1 lakh per customer and facilitate payments and offer third party products, but cannot issue loans (which is core revenue for most banks) and credit cards.
Currently, most players are figuring out ways to generate a sustainable business model to ensure viability along with meeting the financial inclusion objective.
Of the 11 applicants that were granted the in-principle licence to set up payments bank, three including Tech Mahindra Ltd., Cholamandalam Distribution Services Ltd. and an individual applicant Dilip Shanghvi have withdrawn from the licence.
At present, Airtel, Fino and Paytm Payments banks are the three entities who have been officially launched and India Post Payments Bank has done a soft launch.
Government-owned India Post Payments Banks aims to provide the right infrastructure with its reach and trust among customers.
Currently, it is piloting with eight access points in Chhattisgarh and Jharkhand and plans to launch its financial services through all of 1.55 lakh post offices and 3 lakh employees across the country by March 2018.
AP Singh, CEO of India Post Payments Bank said: "Getting customers is easy but getting them to transact is difficult... At present, we have Rs 10,000 in our payments bank account."
All the players concluded that they would require to build scale of business before looking for profitability. They are looking at unconventional revenue streams including data monetisation, cross-selling of financial products, forming credit access platforms and creating alternate merchant payment models to get around the constraint of not being able to lend.
Under the operational guidelines announced in October last year, the RBI allowed payments banks to engage with group entities at an arm’s length basis to operate as business correspondents. They can also allow employees of the group entity to conduct banking activities, provided the payments bank remains responsible for all such activities.
Srikrishnan said reliability and same performance across all the technology platforms of an entity is critical. "We are a telco-cum-retail model," he said.
Jio Payments Bank Ltd., a 70:30 joint venture with Mukesh Ambani-owned Reliance Industries Ltd and the country's biggest lender State Bank of India, plans to launch its banking services along with JioPhone deliveries in October.
(Disclosure: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.