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What are payment banks, and what do they do?

[] Payment Banks aim to promote financial inclusion by offering banking and financial services and supporting smaller entities, including low-income households, migrant labour workers, small business organisations, and unorganised sectors.

Payment banks are the Reserve Bank of India’s (RBI) most recent project, with the principal goal of promoting digital, paperless, and cashless financial services in our country. It is a strategy in which non-banking financial institutions are given the right to provide basic banking services to all Indian citizens.

You are reading: What are payment banks, and what do they do?

There was a major cash crunch in the economy shortly after banning the 500 and 1,000 rupee notes to openly tackle black money and terrorism. Following demonetisation, payment banks have arisen as a useful alternative to the general public.

What are Payment Banks?

Payment banks are banks that do not take on any credit risk. This type of bank lends to smaller entities such as low-income households, migrant labour workers, small business organisations, and unorganised sectors. It does not offer credit cards or advance loans to clients. Payment banks are not permitted to establish subsidiaries to provide non-banking monetary services.

Goal of Payment Banks

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The goals of establishing a payments bank are to increase financial inclusion by offering modest savings accounts and payment/remittance services to the targeted population mentioned above.

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Scope of activities

  • Payment banks accept deposits up to a limit of Rs 2,00,000. Demand deposits were initially limited to a total balance of Rs 1,00,000 for each customer. 
  • ATM/debit card issuance
  • They are unable to issue credit cards.
  • They are not permitted to make loans.
  • Payment and remittance services are provided via numerous methods.
  • Marketing of simple non-risk-sharing financial goods and services such as mutual funds and insurances, among others.
  • They can only invest the funds collected from consumer deposits in government securities.
  • They are unable to accept NRI deposits.
  • A payments bank account owner can deposit and take funds from any ATM or even other service providers.
  • Payment licences would be provided to mobile companies, grocery chains, and others in order to serve individuals and small enterprises.

Promoters who are eligible

  • Existing non-bank issuers of pre-paid Payment Instruments (PPIs)
  • Other businesses such as:
    • Non-Banking Finance Companies (NBFCs)
    • Mobile phone companies, big corporate business correspondents (BCs)
    • Residents owned and governed supermarket chains, businesses, and real estate cooperatives
    • Payment banks may be established by public sector enterprises
  • To establish a payments bank, a promoter/promoter group may enter into a partnership with an established scheduled commercial bank
  • To the extent permissible by the Banking Regulation Act of 1949, scheduled commercial banks may invest in a payments bank

Benefits of Payment Banks

  1. Rural banks and access to financial services are being expanded.
  2. Effective substitute for commercial banks.
  3. Handles low-value, high-volume payments efficiently.
  4. Access to a variety of services.

Among the difficulties encountered include the lack of public understanding about the availability of these services and Inadequate infrastructure and operating resources. Further, incentives for agents to participate in these activities are lacking besides obstacles related to technology. 

Why is Payments Bank a good option?

While opening a traditional bank account takes time and involves a lot of paperwork, starting a payment bank account is fast and easy. In today’s world, where everybody has a smartphone, one can easily perform the same using the mobile phone and avoid standing in line. For example, if you want to register with Airtel Payment Bank (the country’s first payment bank), you only require your Aadhar number (which acts as an e-KYC) and your mobile number.

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List of Payment Banks in India

Some of the payment banks which received licence back in August 2015 are as follows:

  1. Reliance Industries
  2. Airtel M Commerce Services Limited
  3. Vijay Shekhar Sharma, Paytm
  4. Vodafone M-Pesa Limited
  5. Department of Posts
  6. National Securities Depository Limited
  7. Aditya Birla Nuvo Limited
  8. Dilip Shanghvi, Sun Pharmaceuticals
  9. Cholamandalam Distribution Services
  10. Tech Mahindra
  11. FINO PayTech

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Category: Must Knows

Debora Berti

Università degli Studi di Firenze, IT

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