How do payment banks work? How useful are they?

28-09-2017 Thu 14:51



New, upcoming 'payment banks,' are different from the conventional banks that we saw, all these days. Do payment banks or small finance banks, as they are called, have any uses?. Let us see how they function:


Even though there are a number of banks and branches, there are many who are still not getting these services. There might be many reasons for this. Bank branches are restricted only up to mandal level. The question as to when they will reach villages, is still unanswered. In this context, Reserve Bank of India (RBI) thinks that payment and small finance banking services will help, each and everyone.

Banks that began services
Airtel, Paytm, and India Post Payments Banks have come into effect. Aditya Birla Nuvo too is getting ready to join these. While licenses have been given to Vodafone Empessa and 11 other banks, three other agencies backed out.

Interest on balance
The rule is that a minimum balance should be maintained in the account. Four per cent interest is being offered on the balance in Savings Account. Some banks like Yes and Kotak are offering six per cent interest for maintaining a balance of Rs. 25,000 and above. But payment banks have not made any preconditions of maintaining minimum balance, as of now. Airtel payments bank is offering 7.25 per cent interest on deposits in account. This is more than the interest on fixed deposits, in conventional banks. India Posts offers 4.5 per cent interest on a deposit of Rs. 25,000, five per cent for a deposit of Rs. 50,000 and 5.5 per cent for Rs. 1 lakh and above deposit. But Paytm bank offers just four per cent interest like any public sector bank.

Charges
Airtel Payments Bank is the first of its kind that has started in the country. An account can be started freely. Cash withdrawals are charged 0.65 paisa each time. It charges 0.5 per cent for online transaction. Which means, if you withdraw Rs. 1 lakh from Airtel Payments Bank, you must pay Rs. 650 towards charges. No other bank charges at this rate, in the country. You can deposit a maximum of Rs. 49,990, at a banking point, in one day. Maximum balance is Rs. 1 lakh. First time at least Rs. 100 should be deposited. This is non-refundable. Your Airtel mobile number is the account number. At present, Airtel Payments Bank is issuing virtual, online debit cards. It is not issuing physical cards. View this link for all the charges of Airtel Payments Bank: http://www.airtel.in/assets/pdf/schedule of charges.pdf.
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Indian Posts Payments Bank, has its own ATMs. It is not charging for transactions through Punjab National Bank ATMs. If other ATMs are used for withdrawals, RBI rules apply. Which means, three withdrawals in metros and five withdrawals per month in non-metros are free. Every transaction after this costs Rs. 20. Debit card is free. Annual charges are Rs. 100. Similarly, four times deposits in a month, in the post office branch, is free. After that, every transaction costs Rs. 20. If the account is closed within six months, Rs. 250 is charged. NEFT and IMPS transactions online are charged from Rs. 2.50 to Rs. 5.50.

Paytm Payments Bank is following RBI rules as they are for other banks. But it is not charging for online transactions. It is offering debit card. It charges Rs. 100 annually on this card. In metros, there are no charges on three withdrawals in a month and in non-metros, the same is five withdrawals. Later, Rs. 20 is charged for every transaction. It charges Rs. 50 for a statement of all the transactions. If the statement has to be sent home, delivery charges are extra. It is taking Rs. 100 and giving 10 cheques. All Paytm wallets have been attached to Paytm banks. It is working like before. But if the account is changed to Paytm Payments Bank, you will get interest on cash deposits.

Service at doorstep
If you desire, representatives of Indian Posts Payment Bank will approach you at your house to conduct the transactions. Charges between Rs. 15 to Rs. 35 will have to be made, over deposits and withdrawals. There are 10 lakh outlets for Airtel all over the country. All these will work as banking outlets, Airtel declared recently. There are nearly 1.55 lakh post offices in the country. At least 89 per cent of them are in the villages. Government services will be offered through these directly. Services will be offered through mobile banking and mobile POS. There is no such distribution system for Paytm.

What kind of services
Payment banks offer ordinary services like deposits and withdrawals, transfer of money online, accepting, etc. Additionally, they also facilitate payment of mobile bills, DTH, Electricity bills, Data cards, gas, insurance, water bills etc. They will facilitate LIC schemes, mutual fund schemes and loan distribution.

Mobile Payments
representational imagePaytm is planning to introduce new kind of payments. It will reach people in remote villages and offer them financial services. These platforms are facilitating easy money transactions for villagers. While there are three payments banks up till now, so far there is no competition among them. They are not competing even with other banks. If other agencies that have obtained permission being payment bank services, the competition will reach peak stage. As such, they will be have to start various services and facilities to protect customers.

Centre is seriously thinking of reducing cash transactions. Payments banks can help in this matter. If it is able to align kirana shops and small traders, in its gateway, payments can then be made through digital means rather than through cash. This is what happened in demonetisation. Payments bank licenses have been given to Airtel, Vodafone Empessa, Aditya Birla Nova (Idea Cellular included). All these are prominent telecom companies. There are lakhs of outlets for these. There is an outlet in every street and area. If these become payments banks, the account holders will be happy. Banks work from 10 a.m. to 5 p.m. But Payment Bank retail outlets are open up to 9 p.m. or 10 p.m. in the night. Banks are closed on second and fourth Saturdays and on holidays. But these outlets are ready to work on Sundays and on all other days.

Questions
While 11 agencies were issued payment bank licences in 2015, three of them rejected it. In the remaining, Vodafone Empessa and Aditya Birla Nuva (Idea) have licences. Now both these are going to merge. State Bank of India (SBI) has joined with Reliance for one licence. They have not yet announced their services. It is easy to start Payment Bank services. But to tie up with all retail shops in the country, to make payments through their gateway, and conduct banking services, is not that easy. That is why, only four agencies are offering these services.

representational imagePaytm Payments Bank is not charging for online services. It is not insisting on minimum balance. It's revenue is merely from annual charges on cheque books and debit cards. Moreover, it gives lots of cash back offers. Deposits in accounts are to be invested only in conservative investment methods. There is no scope for loans. Observers said that credit card facility, loans from banks and NBFC too are not that easy. A system has to be in place, to select the right kind of customers. They believe that a strong bond with the customer is essential for successful cross selling. In view of SEBI and IRDA regulations, they cannot function as they wish. All these factors show that it is not easy for payment banks to stabilise themselves. Airtel on the other hand is charging Rs. 650 for every Rs. 1 lakh transactions. It is difficult to attract customers with such huge charges.

No facility
Banks can lend amounts that are deposited in savings, current accounts and Fixed deposits. They can earn four per cent to 10 per cent interest on this. They earn at least 30 per cent interest on credit card income. Even micro finance agencies take 25 per cent interest. But Payments Banks have no such facility. They cannot lend from amounts in the accounts. Moreover, they should invest 75 per cent of these amounts in government bonds and treasury bills. These fetch not more than two to four per cent revenue. After deducting expenditure, not even one per cent is left for their profits. Though this is the beginning, later RBI might relax its rules and they can conduct banking services, it is felt.

Small Finance Banks
At least 10 agencies have obtained licences for Small Finance banks. Out of them, Equities holdings, Ujjivan Financial Services, AU small finance banks, started their services. Capital local area bank of Jallandar has been offering its services since long. These work like conventional banks. Any amount of deposits can be accepted. Loans can be taken. Small traders, small and micro farmers, micro and small industrial loans can be given. They can promote, mutual funds, insurance and pension schemes. There is no difference between these and big commercial banks. However, their activities should be on a small scale. These are meant for people from villages and small towns, or poor people. That is why, they have been directed to open at least 25 branches in rural areas, at the start.


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