EXECUTIVE SUMMARY

Payments banks, a new class of institutions aimed at deepening financial inclusion they will soon
offer basic banking and payments services, leveraging mobile and other technologies to digitize
payments and support widespread access to basic banking services like any other bank, but
operating on a smaller scale without involving any credit risk.
In India a vast majority ~ 61% of the rural population in India is still not covered under the formal
banking system. So, to include them in financial system the RBI set up a committee headed by Mr
Nachiket Mor where they gave a birth of new banks called Payment Banks.
The features of Payment Banks are as follows:
1. Payments Banks can accept demand deposits (only current account and savings accounts)
with a ceiling limit of Rs.1 lakh per customer.
2. Payment Banks will pay interest at the rate notified by the RBI.
3. Payment Banks can issue Debit Cards but not credit cards.
4. Payment Banks cannot engage in lending services i.e. they cannot give loans, thus phasing
out the fear of NPA.
5. The Deposit up to Rs.1 lakh is insured by the DICGC (Deposit Insurance and Credit
Guarantee Corporation), same as in bank accounts.
6. Payment banks cannot involve in any credit risk and can only invest in less than one-year
G-Secs or treasury bills.
7. Payment Banks will charge a fee as commission. This will be the sole earning for the banks.
8. Payment bank will also have to maintain CRR (Cash reserve ratio) just like other Scheduled
commercial banks (SBI, PNB, BOB, Dena, ICICI etc).
As India is the only country where the majority of the population resides in rural areas & this rural
population stores their wealth in gold or bury them underground. Also, money lenders handle the
most of the rural credit where they charge interest rates which are higher than the banks & they
get this advantage because people don’t have financial knowledge.
Payment banks are setup to spread banking in the rural areas & also rural population can get the
idea of financial products like Insurance, Mutual funds etc. This model will end an informal credit
where the money lenders exploit rural population by charging double rate of interest then the
banks.

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OBJECTIVE OF THE PROJECT
Payment Banks is a new concept and only 11 companies have been given licenses to set-up
payment banks in the country. Payment banks are now an important model in financial system as
they will help to channelize the savings of the rural population to the banking sector.
The objective of choosing payment bank as a project is because it is a new concept & the existence
of payment banks came in the year 2014. Payment bank model was created because the central
bank wanted to reach the financial inclusion of the government where each & every Indian is a
part of the formal financial system directly or indirectly

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LIMITATIONS OF THE PROJECT
A study of this type cannot be without limitations. It has been observed this payment banks
companies have less data about their customers & their needs as it is a new model. This has been
a major hindrance for data collection. However, payment banks which are registered under RBI
are to be included in the study.

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METHODOLOGY OF DATA

The data of this project has been collected from various internet websites like Wikipedia & various
newspaper articles like Times of India, live mint, money control. The company data has been
collected from Paytm.com

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ORIGIN OF THE WORD “BANK”
The name bank derives from the Italian word banco "desk/bench", used during the Renaissance by
Florentine bankers, who used to make their transactions above a desk covered by a green
tablecloth. However, there are traces of banking activity even in ancient times.
In fact, the word traces its origins back to the Ancient Roman Empire, where moneylenders would
set up their stalls in the middle of enclosed courtyards called macella on a long bench called a
bancu, from which the words banco and bank are derived.
As a moneychanger, the merchant at the bancu did not so much invest money as merely convert
the foreign currency into the only legal tender in Rome—that of the Imperial Mint.
But while this is the derivation generally accepted, some writers have asserted that a more accurate
explanation of the use of the word "bank" is that which makes it synonymous with the Italian
monte (Latin mons, metritis), a mound, heap, or bank.
Thus, the Italian Monte di Pieta and the French Mont de Piete signify "a Charity Bank." Bacon
and Evelyn use the word in the same sense. Bacon says: "Let it be no bank or common stock, but
every man be master of his own money."
Evelyn, referring to the Monte di Pieta at Padua, writes: "There is a continual bank of money to
assist the poor." Black-stone also says: "At Florence, in 1344, government owed £60,000, and
being unable to pay it, formed the principal into an aggregate sum called, metaphorically a Mount
or Bank."
The earlierst evidence of money-changing activity is depicted on a silver drachm coin from ancient
Hellenic colony Trapezus on the Black Sea, modern Trabzon, c. 350-325 BC, presented in the
British Museum in London. The coin shows a banker's table (trapeza) laden with coins, a pun on
the name of the city.
In fact, even today in Modern Greek the word Trapeza (Τράπεζα) means both a table and a bank.

5
WHAT IS A BANK & HISTORY OF BANKS IN INDIA

A bank is a financial institution that accepts deposits from the public and creates credit. Lending
activities can be performed either directly or indirectly through capital markets. Due to their
importance in the financial stability of a country, banks are highly regulated in most countries.
An establishment authorized by a government to accept deposits, pay interest, clear checks, make
loans, act as an intermediary in financial transactions, and provide other financial services to its
customers A bank is licensed by a government.
Its primary activity is to lend money. Many other financial activities were allowed over time. The
term bank is generally used to refer to commercial banks; however, it can also be used to refer to
savings institutions, savings and loan associations, and building and loan associations.
A commercial bank is authorized to receive demand deposits (payable on order) and time deposits
(payable on a specific date), lend money, provide services for fiduciary funds, issue letters of
credit, and accept and pay drafts.
A commercial bank not only serves its depositors but also can offer instalment loans, commercial
long-term loans, and credit cards. Most nations have institutionalized a system known as fractional
reserve banking under which banks hold liquid assets equal to only a portion of their current
liabilities.
In addition to other regulations intended to ensure liquidity, banks are generally subject to
minimum capital requirements based on an international set of capital standards, known as the
Basel Accords.
Banking in its modern sense evolved in the 14th century in the prosperous cities of Renaissance
Italy but in many ways, was a continuation of ideas and concepts of credit and lending that had
their roots in the ancient world. In the history of banking, a number of banking dynasties – notably,
the Medici’s, the Fugger’s, the Welsers, the Barenberg’s and the Rothschilds – have played a
central role over many centuries.
The level of government regulation of the banking industry varies widely, with counties such as
Iceland, the United Kingdom and the United States having relatively light regulation of the banking
sector, and countries such as China having relatively heavier regulation (including stricter
regulations regarding the level of reserves).
In the past three decades, India's banking system has earned several outstanding achievements to
its credit. The most striking is its extensive reach. It is no longer confined to metropolises or cities
in India. In fact, Indian banking system has reached even to the remote corners of the country. This
is one of the main aspects of India's growth story.

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The first bank in India, though conservative, was established in 1786. From 1786 till today, the
journey of Indian Banking System can be segregated into three distinct phases:

Phase 1 (1786 to 1969)

The first bank in India, the General Bank of India, was set up in 1786. Bank of Hindustan and
Bengal Bank followed. The East India Company established Bank of Bengal (1809), Bank of
Bombay (1840), and Bank of Madras (1843) as independent units and called them Presidency
banks.
These three banks were amalgamated in 1920 and the Imperial Bank of India, a bank of private
shareholders, mostly Europeans, was established. Allahabad Bank was established, exclusively by
Indians, in 1865.
Punjab National Bank was set up in 1894 with headquarters in Lahore. Between 1906 and 1913,
Bank of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank, and Bank of
Mysore were set up. The Reserve Bank of India came in 1935.
During the first phase, the growth was very slow and banks also experienced periodic failures
between 1913 and 1948. There were approximately 1,100 banks, mostly small. In 1955,
Government of India nationalised the Imperial Bank of India and started offering extensive
banking facilities, especially in rural and semi-urban areas.
The Government of India constituted the State Bank of India to Act as the principal agent of the
RBI and to handle banking transactions of the Government of India and the State Governments all
over the country.
Mainly 7 Banks owned by the Princely states were nationalised in 1959 and they became
subsidiaries of the State Bank of India. In 1969 there are 14 Commercial Banks in the country
which were nationalised.
In the phase of banking sector reforms, 7 more banks were nationalised in 1980. With this, 80%
of the banking sector in India came under the government ownership.
To streamline the functioning and activities of commercial banks, the Government of India came
up with the Banking Companies Act, 1949, which was later changed to the Banking Regulation
Act, 1949 as per amending Act of 1965 (Act No. 23 of 1965).
The Reserve Bank of India (RBI) was vested with extensive powers for the supervision of banking
in India as the Central banking authority. During those days, the general public had lesser
confidence in banks. As an aftermath, deposit mobilization was slow. Moreover, the savings bank
facility provided by the Postal department was comparatively safer, and funds were largely given
to traders.

7
 Phase 2 (1969 to 1991)
The government took major initiatives in banking sector reforms after Independence. In 1955, it
nationalized the Imperial Bank of India and started offering extensive banking facilities, especially
in rural and semi-urban areas.
The government constituted the State Bank of India to act as the principal agent of the RBI and to
handle banking transactions of the Union government and state governments all over the country.
Seven banks owned by the Princely states were nationalized in 1959 and they became subsidiaries
of the State Bank of India. In 1969, 14 commercial banks in the country were nationalized.
In the second phase of banking sector reforms, seven more banks were nationalized in 1980. With
this, 80 percent of the banking sector in India came under the government ownership.
Nationalization of banks in India was an important phenomenon. On July 19, 1969- the erstwhile
government of India nationalized 14 major private banks. Nationalization of bank in India was not
new or happening first time. From 1955 to 1960, State Bank of India and other seven subsidiaries
were nationalized under the SBI Act of 1955
List of Nationalized Banks in 1969
List of Nationalized Banks in 1969

1 Central Bank of India

2 Bank of Maharashtra

3 Dena Bank

4 Punjab National Bank

5 Allahabad Bank

6 Canara Bank

7 UCO Bank

8 Bank of India

9 Syndicate Bank

10 United Bank of India

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Phase 3 (1991 onwards)
The third phase of evolution of banking in India started in 1980s generally and 1991 onwards
particularly. This period is marked by consolidation, diversification and liberalization of the
banking industry.
This phase has introduced many more products and facilities in the banking sector as part of the
reforms process. In 1991, under the chairmanship of M Narasimha, a committee was set up, which
worked for the liberalization of banking practices.
Now, the country is flooded with foreign banks and their ATM stations. Efforts are being put to
give a satisfactory service to customers. Phone banking and net banking are introduced. The entire
system became more convenient and swift. Time is given importance in all money transactions.
On the basis of these recommendations, the government launched a comprehensive financial sector
liberalization programme which included interest rates liberalization, reduction of reserved rations,
reduced government control in banking operations and establishment of a market regulatory
framework. Another outcome of liberalisation was the dismantling of prohibitions against foreign
direct investment.
Some more outcomes of reforms that impacted the banking sector were: -

• Nationalised banks were allowed to raise funds from the capital markets to strengthen their
capital base
• The lending rates for commercial banks was deregulated, thereby freeing them to lend more
or as they saw fit
• Also, banks were allowed to fix their own interest rates on domestic term deposits that
matures within two years
• Customers were encouraged to move away from physical cash, as RBI issued guidelines
to the banks pertaining to the issuance of debit cards and smart cards
• The process of introducing computerisation in all branches of banks began in 1993 in line
with the Committee on Computerisation in Banks’ recommendations, which had been
submitted in 1989
• FII (Foreign Institutional Investors) were allowed to invest in dated Government Securities
• The NSE (National Stock Exchange) began its operations in 1994
• RBI began the practise of auctioning Treasury Bills spanning 14 days and 28 days

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FUNCTIONS OF BANK
A bank is a profit-based financial institution that grants loans, accepts deposits, and offers other
financial services, such as overdraft facilities and electronic transfer of funds.
In other words, banks are financial institutions that accept demand deposits from the general
public, transfer funds from the bank to another, and earn profit.
They play a significant role in fulfilling the short-term and medium- term financial requirements
of industries.
The funds of banks belong to the general public and are withdrawn at a short notice; therefore,
banks prefer to provide credit for a short period of time backed by tangible and easily marketable
securities.
Banks, while providing loans to businesses, consider various factors, such as nature and size of
business, financial status and profitability of the business, and its ability to repay loans.
The functions of commercial bank can be classified as follows:
1. Primary Functions:
2. Secondary Functions:
These functions are discussed in detail below.

1. PRIMARY FUNCTIONS:
Primary Functions includes those which form the basis of commercial bank operations. These
functions are central in nature and are the core of the whole operations of bank.
Primary functions include the following.

• ACCEPTANCE OF DEPOSITS:
The fundamental function of a commercial bank is the acceptance of deposits. All other functions
of a commercial bank are based upon this function. Banks accepts deposits from those who have
surplus money in their hands but they are unable to use it in a profitable way. The commercial
bank provides an opportunity to general public to make good use of their savings by depositing
them in the bank. In order to attract general public and to persuade people deposit money in bank,
three different types of accounts are maintained by commercial banks.
There are two types of deposits, which are discussed as follows:
(1) Demand Deposits:
They refer to kind of deposits that can be easily withdrawn by individuals without any prior notice
to the bank. In other words, the owners of these deposits are allowed to withdraw money anytime
by simply writing a check. These deposits are the part of money supply as they are used as a means
for the payment of goods and services as well as debts. Receiving these deposits is the main
function of commercial banks.

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(2) Time Deposits:
They refer to deposits that are for certain period of time. Banks pay higher interest on time deposits.
These deposits can be withdrawn only after a specific time period is completed by providing a
written notice to the bank.

• Current Account:
Current account is one where the depositor is allowed to withdraw his amount any time be wishes.
Normally the traders and merchants keep such accounts with banks. This makes it possible for
them to deposits or withdraws money at their ease. As the amount from this account can be
withdrawn at any time so the bank does not pay any interest on such account.

• Saving Account:
Saving Account are helpful for those people who have low levels of incomes and savings. Saving
accounts help in the mobilization of the saving of low income people. The amount from this
account can be withdrawn subject to certain terms and conditions of the bank. A nominal rate
interest is paid by bank in such accounts.

• Fixed deposits:
Fixed deposits as the name implies are accepted by the banks for a certain fixed period of time.
Before the expiry of that fixed period of time, the amount can’t be withdrawn by the depositor.
The bank pays higher rate of interest on such accounts.

• ADVANCING LOANS:
Now, what banks do with the money that they have received from the general public in the form
of deposits? The answer is, they lend from this money at a rate of interest higher than that are
paying to the depositors. This process of advancing loans is the second fundamental functions of
the commercial bank. The commercial banks do not lend blindly while lending 5 basic principles
are duly observed.
1.Safety, 2. Liquidity, 3. Dispersal, 4. Remunerating, 5. Suitability.

Commercial banks may advance loans in any of the following form

1.Overdraft
This is a short period financing facility. Under this bank allows his client to withdraw certain
amount from his account over and above the balance actually lying in his current account.
The bank charges interest in the amount overdrawn by the client. When the client has surplus funds
at his disposal, he can pay the amount to settle his overdraft balance. The overdraft facility is for
short term and is provident o: the current account only.

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2.Discounting Bills of Exchange:
This is another form of bank lending. Discounting of the fills of exchange refers to the process of
making payment before the maturity of the bill, the discount charged by the bank for making
payment before maturity of bill constitutes the bank earnings.
The payment made by the bank before the date of maturity is then loan to the holder of the bill. At
the maturity the drawee makes the payment to the bank.
3.Loans:
Commercial banks advance short medium and long-term loans to investors and businessmen.
While advancing such loans a complete legal systematic procedure is followed.
As the banks deal in some other people’s money, the bank management takes all necessary
precautions to make certain the return of the money advanced. The loans are normally advanced
against securities which are valued by the bank’s experts.
The amount of the loan is credited in the borrower’s account and from thee money can be drawn
through cheques. The interest is paid on the full amount borrowed.
4.Cash Credit:
The bank normally provides this facility to business houses and commercial units. The facility is
provided against appropriate security.
The bank in this case sanctions a particular amount. The borrower is allowed to draw amount
within the sanctioned limit. In this case the interest is charged only in the amount drawn by the
borrower and not in the whole amount sanctioned.

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 2. SECONDARY FUNCTIONS:
Refer to crucial functions of commercial banks. The secondary functions can be classified under
three heads, namely, agency functions, general utility functions, and other functions

The secondary functions can be classified as follows:

1. Agency functions
2. General Utility services
3. Miscellaneous / Other
a. AGENCY FUNCTIONS:
The bank performs different functions for their clients and while doing so they act as an agent of
their clients. Such functions are called Agency functions and they are as follows

• Collection of Cheques:
Commercial banks act as an agent of its clients while collecting and making payments of bills,
cheques etc.

• Selling & Purchasing Securities:

Commercial bank sometimes purchases or sells securities or shares on behalf of its clients.

• Obeying Standing Instructions:

Sometimes clients order the bank to make payments of regularly recurring nature directly. Such
payments may include subscription fees of clubs or journals, annual membership fees etc. The
bank charges a minute amount for the execution of such instructions.

• Executor or Trustee:
A client may direct his bank to act as an executor or trustee in dealing with other business parties
or while setting business disputes with, other parties, He may ask his bank to provide technical
knowledge or assistance on certain particular matters. The bank shall perform such functions in
the interest of his client. The bank charges a small fee for providing such services or technical
assistance. Bank can also undertake the administration of estates as executor or trustee.

• Funds Transfers:
Commercial banks can transfer funds from one banks or branch to another. This gives an ease to
the clients and in a way, increases the liquidity of the money deposited in the bank. A client can

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use his cheque book even at a place where his bank has no branch and some other banks
are working.

• Agent Representative:
A commercial bank may act as an agent of his client in dealing with other banks or financial
institutions. A bank can also be a representative and correspondent of his client as required by the
circumstances.

b. GENERAL UTILITY SERVICES:

Commercial banks perform variety of utility services for their clients. There are as
follows:
• Providing Lockers:
Commercial banks provide lockers for their clients. This is a mean of providing safe custody to
the valuables of the clients. This has minimized the risk of losing valuables due to robbery.

• Issuance of Credit Instruments:

Commercial banks issue various forms of credit instruments and through this they play a unique
role in increasing the liquidity power of their clients. Commercial banks issue. Travelers Cheques
(TCs). Draft etc. which are now considered more convenient and safe substitute for cash.

• Underwriting Services:
Commercial banks underwrite shares and debentures of companies. They also underwrite loans
raised by joint stock companies or government > Banks also play role in carrying out of different
public private affairs.

• Financing Foreign Trade:

Commercial banks discount foreign bills of exchange. While performing this function they play
their role in foreign trade and in facilitating exports. This not only produces good effects on the
national economy but also acts as an important source of income for a bank.

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 3. . MISCELLANEOUS/OTHERS

• Collection of Utility Bills:

Commercial banks on the behalf of government collect utility bills from the general public. In this
way it becomes convenient for the masses to pay off the utility bills in time.

• Encashment Services:
Commercial banks also play their role in the encashment of Foreign Exchange Bearer Certificates
and other different banks.

• Guarantee, Indemnity Business:

Commercial Banks are also involved in guarantee and indemnity business Guarantee is a contract
to perform the promise or discharge the liability of a third person in case of his default. In
indemnity one person promises to compensate other from the loss which may arise due to the
conduct of any person. Commercial banks transact different kinds of guarantee and indemnity
business.

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WHAT IS A PAYMENT BANK?
Payments banks, a new class of institutions aimed at deepening financial inclusion, are set to
redefine banking business models in India. A payment bank is covered under sections 5 (b) and 6
(1) (a) to (o) of the Banking Regulation Act, 1949.
Payments banks will soon offer basic banking and payments services, leveraging mobile and other
technologies to digitise payments and support widespread access to basic banking services like
any other bank, but operating on a smaller scale without involving any credit risk.
In simple words, it can carry out most banking operations but can't advance loans or issue credit
cards. It can accept demand deposits (up to Rs 1 lakh), offer remittance services, mobile
payments/transfers/purchases and other banking services like ATM/debit cards, net banking and
third-party fund transfers.
Payments bank comes under a differentiated bank licence since it cannot offer all the services that
a commercial bank offers. In particular, a payments bank cannot lend or create credit in the banking
system.
In 2013, the Reserve Bank of India (RBI) Committee on Comprehensive Financial Services for
Small Businesses and Low Income Households7 recognised it would be necessary to leverage the
strengths of new market players to achieve financial inclusion goals.
In a shift of policy, the RBI established a differentiated banking regime in India that creates
banking infrastructure for specific types of banks.
In November 2014, the RBI issued the Guidelines for Licensing of Small Finance Banks and
Payments Banks. Forty-one applications for payments bank licenses were submitted to the RBI,
which has granted in-principle approval to 11 payments banks. These new banks are expected to
accelerate financial inclusion in India, particularly by offering financial services in unbanked and
underbanked regions of the country.
Payments banks will provide payment and domestic remittance services and demand deposit
products,8 but they are not permitted to lend. It is expected that payments banks will adopt a low-
cost operational model, use technology to provide connected services at all access points, and
contribute toward the Indian government’s goal of universal access to banking.
Of the 11 in-principle payments bank licensees, three withdrew their applications in 2016, shining
a spotlight on the investment challenges and perceived viability of the business model
According to experts, payments banks are likely to offer micro-savings options, given that most
of their customers will have a propensity to make small, infrequent savings. This could mean
customers could be allowed to maintain FD accounts with amounts of as low as Rs 100
These companies are also likely to offer a suite of products by cross-selling services such as
insurance and mutual funds through strategic alliances with non-banking financial companies
(NBFCs), asset management companies (AMCs) and even conventional large banks.

16
The Payments Bank regulatory regime is unprecedented and presents a renewed opportunity for
non-bank mobile money providers in India. Payments bank cannot lend on their own, but can offer
credit products on behalf of partner banks.
They are following a two-pronged approach, (earning through) transaction fees on the banking
activity that the customer does and (through) cross-selling charges. Cross-selling charges are fees
that a bank can earn, as commission, by partnering with other financial institutions and providing
services such as insurance and loans.
Payments Banks can make customer transactions, including merchant acceptance, free as long as
they are within the bank’s ecosystem. This will incentivise merchants to accept cashless payments,
reduce the acquiring costs and positively impact the overall system.
Payments banks are specialised banks designed with a lower risk profile; they cannot lend on their
own balance sheets and face strict limitations on investing deposits. Account limits are smaller,
and initial and ongoing capital requirements are high.
However, on the positive side, the payments bank license represents an opportunity to develop a
comprehensive suite of savings and payments services, of which a mobile money wallet will likely
be just one product offering.
While some mobile network operators (MNOs) will be able to leverage their experience growing
mobile money services in India, the new license represents a broader business opportunity.
The payments banks demonstrate a new market-driven approach to achieving the policy goal of
financial inclusion. Most transactions in India are still conducted in cash, and mobile technology
could lead a shift to digital transactions.
However, payments banks will be entering a very competitive and increasingly commoditised
market for savings and payments products, joining new banks, government schemes, and
specialised payments providers all vying for clients and transaction volumes.
Therefore, the success of the payments bank model hinges on its ability to be relevant to consumers
and commercially sustainable.
The telecom companies, retailers, mobile wallet providers, large business houses and several
others are the main applicants for payment banks. As per the official guidelines, following are the
eligible promoters for payment banks:
• Existing non-bank Pre-Paid Payment Instrument (PPI) issuers
• Individuals / professionals
• Non-Banking Finance Companies
• Corporate Business Correspondents (BCs)
• Mobile telephone companies
• Super-market chains and companies
• Real sector cooperatives owned & controlled by residents

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 • Public sector entities
Indian government wants its initiative of digital India to reach everyone residing in India. The goal
is to provide financial services to labour workforce, low income households, small businesses, and
others who doesn’t have access (or have limited access) to them.
The limitation of commercial banks is that they don’t have a wide reach. This limitation is removed
by launching payments banks.
41 companies applied to obtain a payments bank licence whereas only 11 were actually approved.
One of the biggest factor which was considered by RBI was the network and reach of the company.
Hence, payment bank licenses were granted to companies dealing in mobile telecommunication
services, supermarket services, prepaid wallet services, etc. to cater to individuals and small
businesses who otherwise have less or no access to banks.
Payments Banks are currently in an operationalization phase, where they are developing their
operating models. Therefore, they need to address the challenges of the Indian payments landscape
and adopt key learnings from global players.
Payments Banks also need to look beyond just remittance-led services because there are already
quite a few payments and remittance-led businesses catering largely to the migrant population,
assisting them with domestic money transfer services.
However, most of these remittances-led businesses have catered only to the very basic elements
of the financial services maturity curve and as a result not benefited the financial system
significantly. Payments Banks need to look beyond and offer services that help people graduate
from financial access to financial usage.

18
PAYMENT BANKS AROUND THE WORLD
There are many payment banks around the world which will help us to learn how payment banks
helped that particular country to achieve financial inclusion.

• M-PESA-
In March 2007, Kenya’s largest mobile network operator, Safaricom (part oftheVodafone Group)
launched M-PESA, an innovative payment service for the unbanked. Pesa” is the Swahili word for
cash; the “M”is for mobile. Within the first month Safaricom had registered over 20,000 M-PESA
customers, well ahead of the targeted business plan.
This rapid take-up is a clear sign that M-PESA fills gap in the market. The product concept is very
simple: An M-PESA customer cause his or her mobile phone to move money quickly, securely,
and across great distances, directly to another mobile phone user.
The customer does not need to have a bank account, but registers with Safaricom for an M-PESA
account. Customers turn cash into e-money at Safaricom dealers, and then follow simple
instructions on their phones to make payments through their M-PESA accounts the system
provides money transfers as banks do in the developed world. The account is very secure, PIN-
protected, and supported with a 24/7 service provided by Safaricom and Vodafone Group.
A majority of Kenyans didn’t have a bank account, and bank branches were scarce, especially in
rural areas. City workers used to find it difficult to send money home to their rural families.
Safaricom, the country's largest provider of cell phone service, found a way to solve this problem.
Eight out of Ten Kenyans had access to a cell phone, so Safaricom launched M‐PESA in 2007, a
system of transferring money between people on cell phones, even the most rudimentary ones.
According to a Kenyan government report published in 2012, just five years after launch, there
were 19.5 MN mobile money users in Kenya (representing 83% of Kenya’s adult population),
transferring USD ~8.0 bn per year (~24% of Kenyan GDP).
So, how exactly does it work? It allows Kenyans to store and transfer their money using only a
cell phone. Funds can be exchanged over the network using SMS messages, meaning it works on
almost any mobile phone. M‐PESA agents spread throughout the country allow users to convert
their credit to cash and deposit or withdraw from their accounts.
These agents are not employed by Safaricom, but are simply retailers / regular businessmen and
women that are ‘authorized’ to trade e‐cash for real cash and in return they receive little
commission.
The actual cash is securely held in a trust owned by Vodafone and distributed to several
commercial banks. Financials in FY15, revenue from M‐Pesa increased 15% y‐o‐y and hit a high
of Sh (Kenyan shilling) 32.6 bn which was 20% of the company's total revenue which helped
Safaricom to report a record Sh 31.9 bn profit after tax (at consolidated level) in FY15 and became
the most profitable company in East and Central Africa.

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EASYPAISA -
Pakistan has a population of 180 MN and only 15% bank penetration in 2008, Pakistan presented
an attractive market opportunity for mobile money. Easypaisa seized this opportunity by creating
an innovative partnership, a new delivery approach, and an effective distribution model. Easypaisa,
a mobile money service was launched in Pakistan in 2009.
Within five years, Easypaisa had processed more than 100 MN transactions with a total value of
over USD 1.4 bn. Six million customers can do almost all their banking on the mobile devices. In
addition, if they need assistance, they can go to one of 25,000 Easypaisa shops in 750 cities and
towns across the country.
Important innovations: Three important mobile money innovations emerge from the Easypaisa
story. Easypaisa was launched from a unique corporate structure. Telenor Pakistan, a mobile
network operator (MNO) acquired 51% ownership stake in Tameer Bank, a microfinance bank,
and then established Easypaisa as a common organization across the two companies.
Telenor Pakistan and Tameer Bank introduced over‐the‐counter (OTC) mobile money services –
an entirely new model that did not require registration for an electronic wallet as many of the users
are not familiar with technology.
Easypaisa achieved rapid national expansion by relying exclusively on its existing GSM
distribution structure. The responsibilities were also clearly divided between the two.
Telenor Pakistan decided to take the lead on branding, marketing, and distribution while Tameer
Bank led direct operations, risk management, compliance, and liquidity management. Financials
Tameeer Micro Finance Bank achieved monthly breakeven for the operations under the brand
"Easypaisa" during Q1FY13 and the bank had already identified branchless banking as an
important way to grow their services.

Customer Benefits
• Convenience
• More than 4000 outlets
• Late working hours/Holidays
• Security
• GSM standards security
• Instant SMS confirmation messages
• Instant Transaction
• Not restricted to Telenor subscribers
• 24/7 Customer Support
Target Market of Easy Paisa
• Any and All Domestic Remittances Users

20
• Any Pakistani (e.g. Migrant Workers, Household Staff,

• Drivers, Guards, etc) sending Monthly Salaries home to their families from Urban Cities
to Rural Villages

• Parents sending funds to their children at educational institutions in other cities for tuition
fee, monthly pocket money etc

• Frequent Travelers who don’t want to carry cash using this service as Travelers Cheques
by sending money to themselves from one city and collecting the money in another city.

21
 NACHIKET MOR COMMITTEE
The Nachiket Mor Committee was set up by the RBI in Sep 2013 under the chairmanship of
Nachiket Mor, an RBI board member. RBI released the voluminous and detailed Report of this
committee in Jan 2014. The committee release a report on “Committee on Comprehensive
Financial Services for Small Businesses and Low-Income Households”.

22
In this report the committee describes the structure of payment banks
DESIGN DESCRIPTION
This design is functionally equivalent to a recently introduced class of companies called pre-paid
instrument providers (PPIs) that are permitted to receive cash deposits from customers, store them
in a digital ―wallet‖, and allow customers to pay for goods and services from their digital
―wallet‖. These companies are currently permitted to accept a maximum amount of Rs. 50,000 in
their ―wallet‖ from their customers and are required to maintain an escrow account with a
scheduled commercial bank where these aggregate amounts received from customers are credited
immediately upon receipt. There are currently 27 PPIs authorized by the RBI under the Payment
and Settlements Act, 2007. These players have enabled significant expansion of low-value
payments services among individuals who hitherto have never used banking services.

1. Regulation Neutrality
Payments Banks would need to have the following characteristics to balance proportionate
regulation with competitive neutrality:
a. Given that their primary role is to provide payment services and deposit products to small
businesses and low-income households, they will be restricted to holding a maximum balance of
Rs. 50,000 per customer.
b. They will be required to meet the CRR requirements applicable to all the Scheduled Commercial
Banks.
c. They will be required to deposit the balance proceeds in approved SLR securities with a duration
of no more than three months and will not be permitted to assume any kind of credit risks.
d. As in the case of a full-service bank, it would be required to satisfy capital adequacy
requirements for both market risk and operations risk

2. Competitive Concerns
There is also a concern regarding Payments Banks that are subsidiaries of mobile phone
companies, which could potentially face a conflict of interest while serving their partner banks and
operating as independent Payments Banks at the same time.
In order to preempt these anti-competitive concerns, the Committee recommends that all mobile
phone companies must be mandated to provide USSD connectivity as per recent TRAI regulations
with the price cap of Rs 1.5 per 5 interactive sessions. In addition, they must be mandated to
categorize all SMSs related to banking and financial transactions as Priority SMS services with
reasonable rates and to be made available to the banking system.

23
3. Efficacy of Financial Inclusion
There is a concern that since customers need payments, savings, and credit services an approach
that offers these to clients separately will not end up serving them adequately. No doubt customers
require access to payments and credit on a convenient, continuous basis.
However, there is demonstrated customer preference for a combination of differentiated channels
to access payments and credit. A customer would often access payments through a 24X7 ATM
whether or not owned by her bank branch or via a credit card POS terminal at a merchant location
while for credit, they would be happy to go to have their application evaluated at a more central
location.

RECOMMENDATIONS BY THE COMMITTEE

Given the difficulties being faced by PPIs and the underlying prudential concerns associated with
this model, the existing and new PPI applicants should instead be required to apply for a Payments
Bank license or become Business Correspondents. No additional PPI licenses should be granted.
Under the Banking Regulation Act, a set of banks may be licensed which may be referred to as
Payments Banks with the following characteristics:
a. Given that their primary role is to provide payment services and deposit products to small
businesses and low-income households, they will be restricted to holding a maximum balance of
Rs. 50,000 per customer.
b. They will be required to meet the CRR requirements applicable to all the Scheduled Commercial
Banks.
c. They will be required to deposit the balance proceeds in approved SLR securities with a duration
of no more than three months and will not be permitted to assume any kind of credit risks.
d. They will be required to comply with all other RBI guidelines relevant for SCBs and will be
granted all the other rights and privileges that come with that license.
e. Existing SCBs should be permitted to create a Payments Bank as a subsidiary.

24
RBI REGULATIONS IN PAYMENT BANKS
The introduction of the payments bank framework signals openness on the part of the regulator to
allow non-banks in India to extend digital financial services to the unbanked and underbanked.21
Payments banks are expected to focus on accepting demand deposits (current deposits and savings
bank deposits), issuing PPIs, and offering payments and domestic remittance services. Payments
banks are also able to enter into “non-risk sharing simple financial services activities not requiring
any commitment of their own funds (e.g., mutual funds, insurance)”.
To ensure payments banks contribute to financial inclusion goals, regulators have made special
efforts to minimise systemic risks. Unlike full service banks, payments banks are not permitted to
lend, and there will be an INR 100,000 limit on bank balances.
Payments banks are required to maintain a minimum net worth of INR 100 Cr (USD 15M) at all
times and maintain a leverage ratio of not less than 3%, i.e., its outside liabilities should not exceed
33.33 times its net worth (paid-up capital and reserves).
It is important to note that significant, periodic infusion of incremental capital from the bank’s
promoters may be necessary to meet this requirement. Since payments banks are not permitted to
lend, systemic risk is very limited.
Regulations should therefore be further simplified for payments banks, at least in early years of
operation, to keep compliance costs low and allow them to focus on their core activities.
In addition to restrictions on lending activities and account size, payments banks are only permitted
to invest deposit balances in government securities/ treasury bills with a maturity of up to one year
(75%), time and fixed deposits at a scheduled commercial bank (25%), and to maintain a cash
reserve ratio of 4% at the RBI.
Since payments banks are not permitted to lend, systemic risk is very limited. Regulations should
therefore be further simplified for payments banks, at least in early years of operation, to keep
compliance costs low and allow them to focus on their core activities.

Operating Guidelines for Payments Banks

1. PRUDENTIAL REGULATION
The prudential regulatory framework for payments banks (PBs) will largely be drawn from the
Basel standards. However, given the financial inclusion focus of these banks, it will be suitably
calibrated.

25
1.1. Capital adequacy framework

Minimum Capital Requirement 15%

Common Equity Tier 1 6%

Additional Tier I 1.5%

Minimum Tier I capital 7.5%

Tier 2 capital 7.5%

Capital Conservation Buffer Not Applicable

Counter-cyclical capital buffer Not applicable

Pre-specified Trigger for conversion of CET1 at 6% up to March 31, 2019, and

AT1 7% thereafter

1.2 Large exposures limits (for investments in deposits of scheduled commercial

banks)
The exposure in this regard to an individual scheduled commercial bank shall not be more than
five per cent of the total outside liabilities of the PB.

1.3 Capital measurement approaches

Basel II Standardized Approach for credit
Credit Risk
risk

1.4 Inter-bank borrowings

PBs will be permitted to participate in the call money and CBLO market as both borrowers and
lenders. These borrowings would, however, be subject to the limit on call money borrowings as
applicable to scheduled commercial banks.

26
 1.5 Restrictions on loans and advances (including lending to NBFCs) including
regulatory limits

PBs will not be permitted to lend to any person including their directors. However, PBs may lend
to their own employees out of the bank’s own funds, as per a Board approved policy outlining the
caps on such loans.

1.6 Para-banking activities

PBs will not be permitted to undertake any para-banking activity except those allowed as per the
Licensing Guidelines.

1.7 Product approval

i. At the time of submitting application for licence, the PBs should submit to RBI a list of financial
products they intend to offer with a clear description.

ii. Any new products proposed to be introduced thereafter should be intimated to RBI for information.
If required, RBI may place suitable restrictions on the design, functioning, or other features of the
product including discontinuing the product.

2. RISK MANAGEMENT

2.1 Market risk management

The provisions regarding market risk management for PBs will be as applicable to commercial
banks. PBs will be permitted to use derivatives only for the purpose of hedging their foreign
currency positions arising out of the activities conducted under the AD Category II authorization.

2.2 Operational risk management

Payment Banks should implement the operational risk management requirements, issued by RBI
for scheduled commercial banks for operational risk, including collection of operational loss data.

2.3 Liquidity risk management

The provisions regarding liquidity risk management shall be as applicable to scheduled
commercial banks, with suitable enhancements to take into account the liquidity risk profile of
PBs.

2.4 Strategic and reputational risk management

The provisions regarding strategic and reputational risk management shall be as applicable to
scheduled commercial banks, with suitable enhancements to take care of the reputational risk
arising from use of agents.

27
3. BANK DEPOSITS
(i) As provided in the current RBI directions, PBs can accept only savings and current deposits.
The aggregate limit per customer shall not exceed ₹100,000, as provided in the Licensing
Guidelines. However, the RBI will have no objection to the PBs making
arrangements with any other scheduled commercial bank / SFB, for amounts in excess of the
prescribed limits, to be swept into an account opened for the customer at that bank. This
arrangement should be activated with the prior written consent of the customer.
(ii) The above limit shall apply to customer deposits and not to any security/earnest money deposit
the bank may collect from any of its service providers in the ordinary course of business.
(iii) All RBI and BR Act provisions and RBI directions relating to minimum balance, inoperative
accounts, unclaimed deposits including transfer of such deposits to the Depositors Education and
Awareness Fund maintained by RBI on regular basis, nominations, cheques/drafts, etc., will be
applicable to the PBs.
(iv) Payments Banks:
• need not issue passbooks for the deposit accounts;
• may provide statement of account in paper form on request on chargeable basis, or
otherwise;
• may provide account information through multiple user-friendly modes such as SMS
and/or internet banking; and
• should provide electronic confirmation through SMS/e-mail/printed proof for each account
transaction.
4. KYC REQUIREMENTS
i. At their discretion, PBs may (like all other banks) decide not to take the wet signature while
opening accounts and instead rely upon the electronic authentication/confirmation of the
terms and conditions of the banking relationship/account relationship keeping in view their
confidence in the legal validity and authenticity of such authentications/confirmations.
ii. However, all the extant regulations concerning KYC including those covering the Central
KYC Registry, and any subsequent instructions in this regard, as applicable to commercial
banks, would be applicable to PBs.
iii. PBs should ensure that every customer, including customers of mobile companies on-
boarded comply with the KYC regulations, which could include simplified account
opening procedures.
iv. It is clarified here that if the KYC done by a telecom company, which is a promoter /
promoter group entity of the PB, is of the same quality as prescribed for a banking
company, PBs may obtain the KYC details of the customer from that telecom company,
subject to customer consent.

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COMPETETIVE ASSESSMENT OF PAYMENT BANKS
A vast majority ~ 61% of the rural population in India is still not covered under the formal banking
system. The concept of a payment bank has been coined primarily to address this issue of poor
financial inclusion.
Since many players from varied backgrounds shown interest in entering the payment bank space,
the industry will have a steep competition from the players as they will bring with them different
set of expertise.
Apart from this internal competition, many other parallel credit sources/ mechanisms have
emerged over the years which will also pose a significant competition to the nascent payment
banks. Hence it is essential to study the competition from both the lenses, internal as well as
external, to get an overview of the competition.

INTERNAL COMPETITION FROM OTHER PAYMENT BANK PLAYERS

On 19th August 2015, the Reserve Bank of India gave ‘in-principle’ approval to 11 entities out of
the 41 applicants to launch payment banks. Out of these 11 entities, 3 players - Tech Mahindra,
Cholamandalam Finance and Dilip Shanghvi-IDFC Bank-Telenor joint venture have already
dropped out of the race in May 2016.
In this section, we will analyse the strategies applied by the remaining eight players to establish as
a strong payment bank in this competitive market. These players can be broadly categorized into
three segments - Telecom majors, Technological players and Conglomerates. This section will also
cover some of common reasons leading to the exist of the three players.

1. TELECOM PLAYERS – JIO, AIRTEL, VODAFONE:

All the three telecom providers have a good subscriber base in India with telecom subscription
crossing 1.2 billion subscribers on August 2017, with urban telecom subscribers at 707 million
and rural telecom subscribers at 502.8 million. All these three telecom subscribers have good
amount of market share, with Bharti airtel the market share is 23%, Vodafone commands market
share of 17.50% & the new entrant Jio has a market share of 11.70 %.
Vodafone has a prior experience of providing an alternative of mobile payments to the weakly
penetrated banking system in Kenya and other African countries. Using its money transfer service,
M-Pesa, Vodafone offered a range of services including money deposits, withdrawals, remittances
and bill payments in Kenya. In 2013, 43% of Kenya’s GDP flowed through M-Pesa and it has
extended financial inclusion to nearly 50% Kenyan population. Vodafone will surely try to
leverage this experience for its financial venture in India.
Airtel has been providing money transfer services since 2011 with its mobile wallet - Airtel Money.
It has presence in 800+ towns of India. With the payment bank license, this M-commerce business
will be merged with Airtel payment bank. For last mile delivery, the payment bank can leverage

29
on Airtel’s existing distribution channel of 1.5 million outlets across the country. They also have
a partnership with Kotak Mahindra Bank to deliver financial expertise
Reliance Industries Limited (RIL) has the reputation of starting it big the first time, with the launch
of Reliance JIO which will provide 4G services across the nation at dirt cheap rates.
Now RIL wants to enter the payment bank space with a huge dent. RIL has already made a joint
venture with State Bank of India (SBI), country’s largest commercial bank. Thus, the payment
bank will be leveraging on Reliance Jio’s pan India telecom network, Reliance retail’s online and
offline business model, and SBI’s product structuring capabilities Together RIL and SBI, can
create an extensive distribution network for payment banks in India.

2. GOVERNMENT PLAYER - INDIAN POST PAYMENTS BANK

The government has established INDIAN POST PAYMENT BANK(IPPB) which is 100%
subsidiary of Department of Post (DOP). It will leverage the widespread network of DOP, its local
knowledge and deeper customer awareness.
India post has an experience of providing savings products, payment and remittance services,
insurance and third-party products such as mutual funds. In fact, it has one of largest deposit base
in this country, second on to SBI. This will provide an edge to IPPB over all its competitors.
Overall, it will strengthen the financial services offered through the postal network by adopting
new age technologies such as mobile and internet banking, micro ATM, digital wallets and
improved customer service through doorstep banking, service agents, voice banking services.
In India majority of population is unbanked or under banked with IPPB having 1.55 lakh branches
spread across the nation & getting a proposal of setting up to 650 additional branches and reaching
to the rural areas where banks can reach it will help to bring this population in the formal economy.
IPPB’s objective is to provide easy to use and trustworthy financial services and products to the
unbaked and under-banked populace of the country.
With nearly 90% of its branches in rural areas, India post’s rural network is larger than all the
commercial banks put together. Hence IPPB can leverage on India Post’s vast network of post
offices to reach out to the rural and semi-urban unbanked population.
The target segments for IPPB include migrant labourers, daily wage earners, blue collar workers,
housewives, pensioners and micro/ small & medium enterprises. In order to achieve this objective,
government has proposed to open 650 branches of IPPB to cover all the districts of the country by
2018.
These branches will be linked to the post offices, which will operate as customer access points for
the payment bank. IPPB will ensure the delivery of all types of government to citizen payments
like subsidy payments, MNERGA wages and DBT through the postal network and its own
branches.

30
 3. CONGLOMERATE – ADITYA BRILA GROUP
The Aditya Birla group led by Mr Kumar Manglam Birla bring with them the financial muscle
necessary to take up losses in the initial years of the business. As per the preliminary assessment
payment banks are not expected to be profitable in the first 3-4 years. Hence the ability to
accommodate losses in this phase is very critical.
It is evident that establishing a new physical network of payment bank branches is not going to be
economically viable. Accordingly, Aditya Birla Nuvo has formed a joint venture with Idea cellular,
a telecom operator under the same Aditya Birla group of companies, to bring down the hassle of
creating a pipeline of distribution outlets.
The payment bank will be leveraging Aditya Birla group’s 45 million digital customers and Idea’s
2 million retail distribution channels across 3.9 lakh towns and villages. For financial expertise, it
can partner with the financial services arm of the group.

4. PLAYERS WHO WITHDRAWN

Many of the players did not quote the real reasons for their withdrawal from the payment bank
licensing process. However, lack of proper scrutiny while applying for the license can be termed
as the major reason for the back-out after receiving in-principle approval. Some of the other
common reasons could be:
Lack of synergy between payment bank operations and the existing businesses of the players
Overcrowding of the market which nevertheless offered very less margins
Competition from players who already have a country wide contact points which can be easily
converted to facilities offering cash-in, cash-out services
Long gestation period given huge initial investment and a thin margin on products and services
that could be offered

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EXTERNAL COMPETITION FROM NON-PAYMENT BANK PLAYERS
In this section, the competition posed to payment banks from other players in the industry will be
analysed.

1. BANKS /NBFC / MICRO-FINANCE INSTITUTIONS-

The traditional banks are not able to fully tap the potential of digital customers and hence this will
be a target area for the upcoming payment banks.
The addition of new 8 entities (11 licensees less 3 back outs) will pose additional competition to
the fairly competitive banking and finance industry. Using the latest technology solutions payment
banks can design their cost structure much more effectively than the existing commercial banks.
Unlike these banks, payment banks will not have restrictions such as mandatory physical presence
in rural geographies, lending to primary sector, burden of bad loans.
Hence payment banks can offer competitive interest rates on the deposits. If this is supported by a
good customer service and an easy to operate interface many people will move certain portions of
their deposits from their regular bank accounts to the payment bank accounts.
However, there is also another aspect to this competition. Most of the payment bank services will
be complementary to the services offered by traditional commercial banks. Given the restriction
in offering credit based products, payment banks are extending partnerships with financial
institutions.
Through these tie-ups, payment banks will be cross-selling the products offered by their partners
through their counters. Therefore, while the payment banks will pose some competition to the
tradition banking system in terms of attracting short term depositors, they will also offer new
opportunities to sell financial products and services to remote areas where traditional banks cannot
reach otherwise.

2. MONEY LENDERS
Even after continued efforts from the government for many years, moneylenders continue to
dominate the informal sources of credit in rural India even though they charge exorbitant interest
rates (anywhere between 24% to 48% per annum). Also, due to cash based nature of transactions,
the borrowers of these loans never really develop any credit history.
Payment banks can offer a no frills accounts to this population with ATM/ debit cards. Due to
various remittances, subsidy transfers and payment services many people are expected to use these
accounts for their day-today transactions.
This will eventually develop a credit history for the present unbanked population. Though payment
banks cannot lend themselves, they will channelize credit products of existing players through
their counters.
Though in the short run this might not become successful due to minimal credit history of the
borrowers, it can have a significant impact in the long run by helping this population develop a
credit history and avail much cheaper formal credit.

32
 3. UNIFIED PAYMENT INTERFACE (UPI)
UPI is designed by the National Payment Corporation of India (NPCI) with the core objective of
integrating various retail payment systems with a uniform and standard interface. It will work as a
central repository which will facilitate transactions between different counter parties through their
Payment Support Providers (PSP)
This new technology will bring down the cost of transaction to as low as Rs. 0.45. This technology
is based on virtual addresses and will be linked to the mobile numbers/ Aadhar cards of the users.
Hence users will not have share their bank account details with anyone. Using this technology,
PSPs (typically banks) will be able to offer similar services as that of mobile wallets and hence
UPI possess a threat to mobile wallets. But the primary revenue for payment banks will come from
offering remittances and transfers and by cross-selling third-party products. Hence the reduced
cost of transaction and safe connectivity between different PSPs will only bring positive value to
the payment bank services.

33
SWOT ANLAYSIS OF PAYMENT BANKS
Payment Banks are new type of banks which have been set up by RBI on the basis of Nachiket
Mor committee to increase financial inclusion in India. In this section we will be discussing what
are the strengths of this new model & how it can handle the responsibilities of this financial system
& also what threats it poses from other players like banks & IPPB

STRENGTH
• Nationwide coverage –
As payment banks will be operating via digital platform so there is no need to setup the branches
across the nation, with the help of applications & internet payment banks can be used across the
nation to pay or send money to relatives, family or friends, thus the customer can send money or
pay bills with just one click.

• Large existing customer base-

Payments bank have acquired large customer base because of government major reform like
demonetization, during this reform when government demonetized Rs 500 & Rs 1000 notes.
People started to do more transaction from payment banks or payment apps like Paytm, Freecharge
or Mobowik this has led to acquire large customer base during this reform.

• Anytime Banking-
In payment banks the customer can do banking transaction at any time i.e. 24hrs. In traditional
banking where a customer can do banking transaction when the branch is opened but in this the
customer can do banking anytime as the customer has to install an application on his mobile and
get registered with payment bank. After the customer is registered he can do banking transactions
like send money via IMPS, pay bills, recharge mobile number, buy insurance or E-gold etc.

• Lower servicing and customer acquisition cost-

Payment banks have a benefit over traditional banks which is they have lower customer acquisition
cost then traditional banks. Payment banks have to invest less to acquire a customer as they don’t
have to set branches like traditional banks or to employee a large number of employees like
traditional banks. As payments bank maximum amount of investment goes into technological &
networking infrastructure they have low cost to acquire a customer.

• Financial Inclusion –
The report which was submitted by Nachiket Mor committee has mentioned that payments bank
will play an important role in financial inclusion as they will help to expand banking services in
the country. Payment Banks are a partnership between Banks and telecom companies. Since the
rural and remote areas lack the infrastructure for institutional development of Banks and financing
systems, these banks are likely to aid the disadvantaged groups to carry out transactions
electronically eliminating the role of middlemen, while at the same time facilitating organized
finances throughout the country.

34
WEAKNESS –
• Loss of business due to poor network / internet-
Payment Banks have a risk of losing business due to poor network infrastructure because their
most of the transactions done by the payment bank clients are done through apps or software
so any glitch in software or poorly connected servers can lead to dissatisfaction in customers.

• Low margin business-

Payment banks profitability is very low as they don’t have their in-house products & neither
they can lend the deposited money to any creditor to earn interest so they have to cross sell the
financial products like insurance, mutual funds, third party loans etc also the amount of
commission on this product is very low which makes it less possible

• Restriction on fund deployment-

Payments banks are required to invest 75% of their CASA balances in Statutory Liquidity
Ratio (SLR) eligible government bonds or T-Bills. For the balance 25%, the option is deposits
with other SCBs. While this is considered as a safety net for depositors, it restricts their ability
to optimize treasury operations.

• No lending. No NII (Net Interest Income) or IRR (Internal Rate of Return)-

Scheduled Commercial Banks (SCB) and Small Finance Banks (SFB) earn anywhere between 4
to 10% NII from working capital loans and as high as 30% IRR on small-ticket business loans or
credit cards. Even the Micro Finance Institutions (MFI) lend at a rate of 25%. Payments banks are
not permitted to lend. Their investment in stipulated government securities and bank FDs would
yield 2-4% net of cost of funds (or negative if they try to aggressively mobilize balances at higher
rates like Airtel). Adjusted for other operating costs, the net return may fall to sub 1% levels, again
corroborating the high volume-low margin nature of this business.

35
 OPPORTUNITIES

• Immense potential for market expansion-

Payment banks have immense potential for market expansion as most of the population
which resides in rural areas in unbanked or underbanked. Payment banks have the potential
to reach the furthest areas of a village with the help of technology to bring those unbanked
population to the banking system & they can also increase their customer base to cross sell
their products & increase margins.

• Technology to help to offer right product to right customer-

Payments banks have large amount of database of their customers which helps them to
analyse the transactions & the needs of their customer with the help of data analysing
software & database management system they can use the technology to assess the needs
of their customers & offer the right product to the right customer after assessing his risk
appetite & needs.

• Simplification-

With the government initiative on JAM (Jan Dhan-Aadhar-mobile) and more

recently demonetization, there is a push for digitization. Despite this, cash would still be a
preferred mode for small value transaction, in absence of better alternatives that are as
anonymous, convenient and free.

MDR (Merchant Discount Rate) of 0.75-1.0% on debit cards and 1.5-2.5% on credit cards
are obscenely high and unviable for small traders. Even the RTGS and NEFT are not free
and OTP-based digital solutions offered by banks are too cumbersome and require a higher
level of technology comfort.

Payments banks can utilize the payments infrastructure of National Payments Corporation
of India (NPCI), where the SCBs may have some lag due to their legacy systems.
Biometrics is another opportunity where the trend is yet to catch on. It is imperative for
payments banks to move quickly, offer simplified solutions and occupy a specific niche or
segment before everybody else.

36
 THREATS

• Lack of awareness among people on latest technology and products –

In India most of the population resides in rural areas & rural population has less
technological awareness then urban population so payment banks face risk as there is less
technological awareness in rural areas where financial inclusion is needed the most & thus
they face a risk of customers shifting to traditional banks of NBFC.

• Cash dominated economy-

In India 95% of transactions are doe through cash & 5% of transactions are done through
credit cards, debit cards & digital payments. People done transactions more through cash
as they don’t have trust on digital payment systems because of security concerns like
hacking, spamming etc

• Competition from private players-

Payment bank will need to establish various competencies in order to set up a successful
banking model Most crucial competency will be technological sophistication and cost-
effectiveness. All other private players will have an upper hand in technology and cost
effectiveness.

These private players are also trying to firm up their last mile presence by tying up with
retail /kirana stores, mobile recharge points. In addition, most of these players have deep
pockets and can easily sustain short term losses to capture long term business opportunities.
Hence overall, the competition is going to be very fierce in this space.

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DIFFFEERENCE BETWEEEN PAYMENT BANKS & COMMERCIAL BANKS
Payments Banks are a new breed of bank that have evolved in the fast-changing financial
ecosystem of India. The concept of Payments Banks evolved from the need of increasing financial
inclusion in India. RBI approved several companies to set up Payments Banks simply because the
mainstream banks or commercial banks were not providing enough coverage to the most remote
parts of India. Thus, the objective of financial inclusion was not getting enough traction. Payments
Banks are expected to fill in the gap and provide a medium for people to get included in the banking
world.

DIFFERENCE Commercial Banks PAYMENTS BANKS

SR.NO
POINT
Payments banks did not get
Commercial banks are known
clearance from RBI to
for their lending operations like
1 LENDING home loans, automotive loans,
venture into lending world.
Simply put, they cannot lend
etc.
money to anyone.

Commercial banks can take

2 DEPOSITS
Payments banks are not
large amounts of deposits from
allowed to take deposits
customers. A single customer
exceeding INR 1,00,000 (that
can deposit crores of rupees in
is, 1 lakh rupees).
a single account.

Payments banks are allowed

3 INVESTMENT
to invest the deposits they
Commercial banks are allowed
collect but they can deposit
to invest the money they
only in government bonds. If
collect in form of deposits in
they don’t want to invest, they
open market – shares, equities,
can give the money to
debt instruments etc.
commercial banks for
investing.

The minimum balance

Commercial banks put a
restriction of minimum balance
MINIMUM on accounts. This means that if
4 BALANCE you want to deposit money
with a commercial bank, you
will have to maintain a
requirement is totally non-
existent in case of Payments
Banks. All accounts are
basically zero-balance
accounts. Unlike commercial
banks which earn revenue by
interest spread between loans

38
 minimum monthly or quarterly and deposits, Payments banks
balance in your account. will earn revenue from
transaction charges.

Payments banks cannot issue

Commercial banks are allowed
credit cards because they are
5 CREDIT CARD to issue credit cards (lending
not allowed to venture in
business).
credit business.

Payments banks are designed

Commercial banks primarily
cater in the urban sectors.
Those who cater in semi-urban
SERVICE
6 as well as rural areas have the
CATERING
problem of insufficient bank
branches and hence, they
cannot penetrate deep.
Commercial banks are
gradually adopting technology.
They are coming up with
7 TECHNOLOGY mobile banking, internet
banking and even wallets. Still,
they are yet to embrace
technology properly.
Commercial banks have forex
services. Different commercial
banks have different rates and
8 FOREX they are usually pretty high.
Banks make a lot of profit by
rendering forex services.
to specifically cater to
unorganized sectors, small
business, migrant workforce,
households with low income
etc. Their primary focus is on
semi-urban areas and rural
areas.
Payments banks are totally
technology driven right from
the beginning. They need to
use technology for increased
penetration of banking
facilities in India’s unbanked
sectors. They will rely mostly
on mobile phones to extend
banking services in areas
where mainstream banks do
not set up branches because
doing so will not be very
economical for them.
Payments banks are allowed
to offer forex services
however, they need to charge
less than commercial banks
for those forex services.

39
 Payments banks on the other
hand need only INR 100 crore
Commercial banks have as capital. Of these 100
CAPITAL enormous amounts of capital. crores, 40 percent need to
9 REQUIREMENT Their balance sheets are also come from promoters
extremely enormous. themselves. This means that
the minimum capital they will
have is INR 40 crores.
Payments banks have also
bagged approval from RBI to
distribute such financial
products. However, unlike
Banks are allowed to offer a lot commercial banks which can
FINANCIAL
10 financial product like actually create (sometimes in
PRODUCTS insurances, mutual funds etc. association with other
companies) and distribute
products, Payments banks can
only distribute products but
cannot create them.

40
ROLE OF PAYMENT BANKS IN ACHIEVING THE FINANCIAL INCLUSION
The Reserve Bank of India’s latest initiative of introducing ‘Payment Banks’ finds resonance with
Economist Adam Smith’s Theory* of employing Division of Labour to exponentially increase
productivity. The new Business Model adopted will create a revolutionary trend in the Indian
Banking Industry and will accelerate Government’s Mission of improving Financial Literacy and
achieving Total Financial Inclusion (TFI), both vital for a country’s Economic Development.

Payment Banks will offer the following Advantages

• Currency Circulation
Presently, currency circulation is less in urban areas due to the use of Debit/Credit Cards and
Internet/Mobile Banking compared to rural and semi urban areas. With Payment Banks using
Technology-mobile phones and bio-metric system (Aadhar Card enabled bank accounts)-the use
of currency circulation in these areas too will decrease drastically. Payment of utility bills, tax
payments, and small business transactions will change to Wire Transactions. This will help fight
the problem of forged notes and reduce the import of paper for printing currency.
• A Narrow Banking Model
Attracting deposits for lending is one of the core activities of the Commercial Banking system.
However, mobilising deposits and investing them in safe mode-in treasury bills, government

41
securities-is called Narrow Banking. Since Payment Banks are mandated to invest their mobilised
funds in government securities, these maybe classified under the ‘Narrow Banking Model’. This
is the safest model as there is no Credit Risk involved, and the Spreads are high due to the
mobilisation of low-cost deposits.
• High Spread
The Operational Cost for these banks is less compared to Conventional Banking system. Further
the use of latest Technology will increase the Spread of their business operations. In addition to
Spreads, as these banks are authorised to sell other financial products such as Life Insurance,
General Insurance and Mutual Funds like SIPs, etc. Presently Life and General Insurance
penetration levels are low in India when compared to other countries. Payment Banks will increase
the penetration level of these products. Moreover, the fee-based income through Cross Selling will
add to their Bottom-Line.
• One Segment One Product
Payment banks are authorised to mobilise Savings Bank accounts up to Rs.1,00,000/- from salaried
employees, petty vendors, agriculturists, landless laborers and small scales. This one product
approach will be hugely beneficial as marketing skills required to sell this product is minimal.
Further, this niche segment is not fully tapped by Commercial Banks. The differential service
provided by the Payment Banks to the customer will result in high profitability.
• Reach
In India, Mobile Usage is increasing and people-including rural population is well informed about
its usage and functionalities. Mobile Service Providers have been allotted licenses to start Payment
Banks. These providers using latest technology will reach the customers in the corner of the
country easily incurring least cost of operations.
• Low Cost of Operations
Brick and Mortar Banking is a Capital-intensive Business Model and Commercial Banks would
find it difficult to open branches in the unbanked and far-flung areas as incremental cost would
exceed incremental benefit. With the help of Business Correspondents or Franchise Banking
System, Payment Banks will provide Low Cost services to the Customers located in the Remote
Areas.

• Asset Liabilities Management (ALM)

ALM mismatch will be minimal in Payment Banks as deposits mobilised will be mostly invested
in secure instruments like government securities. As these banks do not have any Credit Lending
activity, Liquidity Risk will not arise. The RBI’s Monetary Policy will not affect Payment Banks
due to these reasons. Due to Low Operational Cost and Spreads these banks can offer Higher Rate
of Interest to Savings Bank deposit accounts when compared to Commercial Banks. As a result,
attrition or migration of SB Accounts from Commercial Banks to Payment Banks will occur. This
poses a huge challenge for the former.

42
 • KYC
Out of the Eleven Payment Bank Licences issued by RBI, most of them have been allotted to
Mobile Service Providers. When a customer wants to open an account with the payment banks of
the mobile service providers, obtaining KYC becomes seamless as most of these Companies would
have complied with the KYC Guidelines for providing the Mobile Phone, DTH or Landline
Service. Hence, these providers can open an account to all their existing customers by default.
Those who wish to use the account can begin operations without the hassle of documentation,
photograph, address proof and identity proof.
• The Last Mile Bridge
From time to time the Government of India, and State Governments offer various subsidies and
benefits to the people, particularly the social security schemes. These benefits will directly be
credited to the beneficiaries through Payment Banks.

• Implementation of Basel III

Three main risks in the Banking Industry are Credit Risk, Market Risk, and Operational Risk-
Banks have to provide Capital Adequacy Norms i.e., a minimum of 9% to cover these risks. As
Payment Banks will not sanction any Credit or Loans to the Public, Credit Risk for these banks is
zero. As for Market Risk, most of its investments will be either Treasury Bills or Government
Securities and hence this risk is also minimal. And as the regulator will monitor their performance
closely in the initial stages, Compliance Risk is also less. However, there is some Operational Risk
related to the implementation, usage and adaptation of Technology. The Overall Risk Profile for
Payment Banks is very less when compared to the Conventional Banking System in India. Hence,
the CRAR or CAR for Payment Banks is less and they need not bother about the implementation
of Basel III accord in full before 31st March, 2019.

43
PAYMENT BANK VS BANK ACCOUNT: WHERE SHOULD YOU PARK YOUR
MONEY?
The recommendations given by Nachiket Mor committee to set up a new type of bank called
Payment banks. So now after the declaration from RBI about payment banks where should an
investor park his money.
The main difference between PBs and traditional banks is that the former can only receive deposits
and remittances; they cannot offer any financial products, say loans, of their own. Opening an
account in a scheduled bank takes time because it requires a lot of documentation and verification.
But PBs, being primarily driven by mobile technology, can simplify the process and make it quick
and paperless. Furthermore, they can only accept deposits of up to Rs 1 lakh per customer in a
savings/current account. Their raison d'etre is to reach out to the unbanked masses, which
according to a recent Assocham-EY report is over 19% of our population.
But all this does not mean that PBs are good only for low-income households, migrant workers
and those living in the boondocks. Even if you already have multiple banking relationships with
the likes of HDFC Bank, SBI and HSBC, you might consider opening a PB account, too, for the
following reasons:
• More convenience
A major USP of PBs is their wide distribution network since the model allows retail outlets, fuel
stations, post offices, dairy milk collection centres and everything in between to double as a mini
bank branch. So, there is a good chance that your PB branch will be located a lot closer to you than
your regular bank's nearest branch. Moreover, most of these banking points will operate well
beyond normal banking hours.
• Avail higher interest rates on a zero-balance account
Most traditional banks limit the zero-account balance option to the basic savings bank deposit
accounts that they are mandated to offer to the underprivileged. Premium customers, who get
access to benefits like preferentially-priced product and specialised investment solutions, have to
maintain a minimum monthly balance of anywhere between Rs 3,000 to Rs 1 lakh, depending on
the bank. The interest that this locked money earns is a measly 3.5-4% for most banks.
Airtel Payments Bank, in contrast, is offering an interest rate of 7.25%, which is more in line with
fixed deposit rates, while India Post Payments Bank offers 5.5%. And you never have to worry
about paying a fine for not maintaining a minimum balance in the account. However, the interest
rate of the other two PBs is 4%.
• Best for cashless transactions
Agreed that life got a lot easier with the advent of digital wallets, but they don't let you withdraw
money, make deposits, or earn interest on your balance. As Nitin Bhatia, a leading real estate and
personal finance blogger, puts it, a PB account provides best of both the worlds, mobile wallets
and direct bank debit. After all, the focus of these banks is high-volume, seamless transactions in
a secure technology-driven environment.

44
"Based on my personal experience, I can conclude that a PB account can come handy for monthly
online payments. For example, if I earn Rs 1 lakh then I would spend approximately Rs 30,000
online towards grocery, electricity bill, other utility bills, shopping, mobile recharge, DTH
recharge, etc. So, I transfer this amount from my current account to my PB account for all my
online spends," says Bhatia on his blog nitinbhatia.in. "The best part is that I am earning higher
interest on this amount till I actually spend it," he adds.
• Freebies to sweeten the deal

PBs are not only offering discounts and cashbacks, similar to e-wallet deals, to woo customers,
but also benefits ranging from free accident insurance cover and free mobile talk time to doorstep
banking at a nominal fee of Rs 15-35 and completely free online fund transfers (scheduled banks
charge customers for online interbank fund transfers, typically Rs 5 plus GST for IMPS transfers
of up to Rs 1 lakh and Rs 2.50 plus GST for NEFT transfers of up to Rs 10,000). So be sure to
compare deals being offered by the four PBs and factor in your lifestyle before choosing where to
open an account.

45
PAYMENT BANKS: A STEP TOWARDS CASHLESS SOCIETY
As Payments Banks scale up and diversify their customer base, the end state visualized for
consumers will be one of a financial services provider becoming accessible to everyone and
moving to self-serve channels.
It is expected that once financial access, financial literacy and usage become widespread,
customers will be proficient enough to create authenticated accounts, make investment decisions
and apply for loans on their own through their Payments Banks. Hence, Payments Banks could
take the financial-inclusion effort beyond merely owning and operating accounts, to creating
financially literate society in India.

In order to achieve these dimensions, Payments Banks need to take a long-term view, identify non-
traditional revenue models that are commercially viable for the provider and add meaningful value
to the customers.

3.1 Instant documentation and onboarding process

One of the reasons for low levels of banking access in India is a lack of identity and address proof
documents, especially for people migrating to cities. Collection and maintenance of multiple
identification proofs make the customer on-boarding process difficult for both banks and
customers.
Aadhaar based e-KYC promises a solution for simplification of the customer on-boarding process.
Over 1 billion13 Aadhaar cards have been issued in India. Aadhaar could be used for instant KYC
and customer on-boarding and banks can process quicker, paperless on-boarding through Aadhaar-
based authentication in three simple ways.

46
 Aadhaar- and OTP-based authentication for KYC could be the most simplified kind of
authentication, that allows banks and other entities to authenticate customers through an OTP
delivered to their registered mobile numbers or email address.
The OTP would be generated when a customer initiates the on-boarding, and the KYC would be
performed through easy-to-follow steps. These could be done online or in person at a branch or
any other physical touch point and does not necessarily require any assistance. However, this can
be used only by those Aadhaar users who have correctly registered their mobile numbers.
3.2 Near zero marginal cost of transactions
Building mass financial access and services that cater to all sections of the society involves high
operating expenses with substantial initial setup costs. Most financial institutions face similar
challenges as they go digital and, in turn, they pass on these costs to their end customers.

Customer enters The customer downloads the Payments Bank's mobile application to register for an account
Aadhaar ID during
1 on-boarding
To register, the customer is given an option to provide his or her Aadhaar number along with
number
mobile

OTP is sent to the  The Payments Bank routes the Aadhaar and mobile numbers for validation, and if they match the
2 registered mobile
number 
details in the Aadhaar database, an OTP is sent to the customer
The customer enters the OTP in the mobile application

 The Payments Bank’s mobile application captures the Aadhaar number and the OTP, and routes this
information for validation
3 OTP is verified
 After successful Aadhaar + OTP validation, the bank receives the customer’s KYC details: name, address
and photograph

 The details as received can be populated in the mobile app and can be reviewed by the customer
4 Payments Bank  A digital consent can be taken from the customer to open a bank account
confirms identity

Bank sets up  The account number is generated instantly and displayed to the customer
account  The customer can see the key features of the account on the app itself
5  Based on the geo-location, the branches/BCs in the vicinity can be displayed on the app

At present, cash transactions are free for customers and merchants, and that is the proposition that
needs to be made for digital payments as well. Payments Banks will need to push the adoption of
low-cost digital channels right from the start of their banking relationships to reduce their own and
consequently their customers’ costs.
A critical aspect of the relationship will be to incentivize customers to transact within the system,
reducing the cash out requirements and managing low-cost cash operations.
It will be critical for new Payments Banks to build a technologically advanced payments ecosystem
that allows customers to access various options for payments, transfers and investments while
ensuring that funds remain within the Payments Banks ecosystem.

47
This would require tie-ups with multiple parties, such as banks, third-party aggregators and
vendors, PPIs and merchants. Payments Banks could facilitate this implementation by making
transactions or transfers within the ecosystem almost free.
In effect, a very large closed user group could be created by Payments Banks with suitable
disincentives for a cash-out such as withdrawal charges.
Merchants will play a major role in ensuring that cash is retained within the system, thus reducing
the values and volume of cash-out transactions.
Payments Banks will have to simplify the acquiring process and move ahead of the traditional cost
structure of merchant acquiring, where a merchant is charged a transaction fee, which is a
percentage of the transaction (the transaction fee varies based on the card type — debit or credit
— and is higher for credit cards).

3.3 Adopting a digital first approach

India has a high mobile density with total subscriptions touching 1 billion. More recently, there
has been an increase in the penetration of smartphones and the level of data usage on mobile. In
both urban and rural India, the mobile internet user base has grown significantly over the years.
Further, an increasing proportion of active internet users use mobile phone as the primary channel
for internet access.
As a result, the Indian consumer market will not only leapfrog many technology adoption trends
(such as bypassing desktop and going mobile), but also adapt to new disruptive ideas (such as the
evolution of India’s digital landscape into a hyper-local and on-demand market). Several major
players such as on-demand cab aggregators, e-commerce giants and digital wallets have already
flagged off the dawn of a new era of digital transactions.
Hence, it is imperative for Payments Banks to adopt a digital first approach toward their consumer
offerings and internal processes. There should be substantial focus on developing paperless
processes, digitizing transactions and building a true digital experience. Smartphones can be one
of the means to achieve this. However, there is a large base of unbanked.

3.4 Complete interoperability across all systems participating in a transaction

Fragmented financial infrastructure and low-ticket size of transactions are compelling reasons for
banks to serve the unbanked and the under-banked population through digital channels. However,
most digital services are restricted in a certain way and there is no uniformity of banking services
across the various platforms that banks employ.
In order to overcome such challenges, enable scale and develop multiple touch points within the
bank’s ecosystem, interoperability is a critical aspect that Payments Banks must factor in while
developing their solutions.

3.5 Solutions designed for everyone, across customer segments

Across the overall consumer spectrum covering both individual and small business, there are
segments that have received less focus from mainstream banks. Payments Banks have the
opportunity to address these segments and need to develop products and solutions for all.

48
Being legacy free, Payments Banks are better equipped than other banks to offer digital services
to the under-banked rural segments and low-cost acceptance services to merchants. Hence, a multi-
pronged approach needs to be adopted by Payments Bank for catering to the requirements of a
wider customer base.

3.6 Data-led near real-time decision making

Traditionally, most decisions in a bank are made through manual analysis and operationally
intensive processes. Incorporating real-time analytics into a bank’s structure could significantly
improve the quality and the turnaround time for such decisions.
Analytics tools can help Payments Banks carve out a differentiated proposition for their customers
and can influence their customers’ financial decisions by assessing multiple patterns relating to
their expenses, upcoming obligations and due payments. These tools can even provide information
on sellers providing the best price for their upcoming purchases - something that can be extended
to goal-based savings, where a goal is linked to a product or a value target.
Additionally, focus on analytics and data-led decision making can help Payments Banks develop
propositions around the management of household expenditures, investment and savings advice

49
PAYTM PAYMENT BANK

INTRODUCTION OF THE COMPANY

Paytm, as its abbreviation states, Pay Through Mobile was launched in 2010 by One97
communications as a prepaid mobile and DTH recharge company. In 2014 Paytm has
started the business same like as the facilities are getting from the other E- Commerce
company such as Flipkart, Amazon, and Snapdeal.

Today, it is India's most popular online destination for prepaid mobile & DTH recharges
and shopping, and its Android and iOS apps have been ranked among the most popular
apps.

Paytm got a major boost in e-commerce when Indian industrialist Ratan Tata made
personal investment in the firm in March 2015.In the same month, the company received
a $575 million investment from Chinese e-commerce company Alibaba Group, after Ant
Financial Services Group, an Alibaba Group affiliate, took 25% stake in One97 as part of
a strategic agreement.

In only 3 years since the founding, the company created a user base of 25 million wallet
users and 10 million app downloads.

Paytm works with all mobile operators in all states in India for prepaid mobile, DTH and
Data card recharges and post-paid mobile, landline and Data card bill payments. Its partners
with the multiple national banks, for credit card, debit card and net banking payments. Pay
tm also works with various billers for utility bill payments

Paytm payment bank received license from RBI on 23rd may 2017 the holding company is
of paytm payment bank is ONE97 COMMUNICATIONS which are setup in Noida. Paytm
payment Bank is the second payment bank to get license from RBI to initiate its operation
on PAN India level as a payment bank.

It has five board member panels. Paytm aims to invest Rs400 crore over the next two years
to build its banking network across the country. The first physical branch of Paytm
Payments Bank went live in Noida

50
The board will include P.V. Bhaskar, former executive director at the Reserve Bank of
India, Ash Lilani, co-founder and managing partner at Saama Capital, and G.S. Sundarajan,
a former director at the Shriram Group, as independent directors. Vijay Shekhar Sharma,
founder and chief executive of Paytm (One97 Communications Ltd) and Renu Satti, chief
executive of Paytm Payments Bank, will also be on the board.

Paytm Payments Bank will offer accounts with a zero-balance requirement and every
online transaction, such as immediate payment service (IMPS) transfers, will be offered
free of charge. For savings accounts, the company will also offer an interest of 4% per
annum, much lower than competitor Airtel Payment Bank’s 7.2%

Paytm Payments Bank will also offer a cashback of Rs250 to its first million customers
who reach a deposit of Rs25,000. The company will issue debit cards with an annual fee
of Rs100 in partnership with RuPay.

Paytm Payments Bank has already received investment of about Rs220 crore from One97
Communications Ltd and its founder Sharma in November. Sharma was one of the 11
recipients of the Reserve Bank of India’s payments bank licence and has personally
invested Rs112 crore of the total investment received.

51
52
 FEATURES OF & CHARGES OF PAYTM PAYMENT BANKS

1. Paytm bank offers cashback on deposits –

If you transfer more than Rs. 25,000 into your Paytm payments bank account, you will get
a cash back of Rs. 250 (1 percent), up to four times. There is no minimum balance
requirement in a Paytm Payment Bank Savings Account.

2. 4 percent interest rate –

A big difference between a wallet and a payments bank is that the latter can offer interest.
Paytm will be paying 4 percent per annum. This is lower than the 7.5 percent interest that
Airtel payments bank is offering, and in line with what you get from Axis, ICICI, and
HDFC. Balance amount in excess of Rs 1 lakh will be moved to a Fixed Deposit with
Paytm Bank's partner bank.

3. No minimum-balance requirements, no charges for online transactions –

There is no minimum balance requirement for the bank account. Also, online transactions
(such as IMPS, NEFT, RTGS) will not have any charges.

4. Paytm bank offers debit cards but no credit cards –

Unlike wallets, payments banks can offer debit (but not credit) cards. According to Paytm's
website, physical services such as a chequebook, demand drafts, and debit cards, will be
available from the Paytm payments bank, at a nominal fee. Interestingly, Airtel isn't
offering a physical debit card, but a virtual one to use online. The Paytm bank will issue a
Rupay debit card, which will be free, but it will charge Rs. 100 + delivery as an annual fee;
a lost card replacement will also be Rs. 100 + delivery. A 10-leaves chequebook will also
cost you Rs. 100 + delivery charges.

5. ATM withdrawals on Paytm bank debit cards –

Paytm isn't bringing out its own ATMs. However, its debit card can be used with no charges
five times at any non-metro ATM, or three times at metro ATMs. After that there will be a
Rs. 20 cash withdrawal charge, while other transactions such as balance checks will cost
Rs. 5. Customers will get a Digital RuPay card which is linked to their Paytm Payments
Bank Savings Account. They can view the card details in your Paytm app under 'Passbook'
option.

53
54
DIFFERENCE BETWEEN PAYTM PAYMENT BANK, AIRTEL PAYMENT BANK & IPPB

PAYTM PAYMENT AIRTEL

POINTS BANK PAYMENT BANK
IPPB
INTEREST
4% 7.25% 5.5%
RATES
MINIMUM
NIL ₹50 NIL
BALANCE
MAXIMUM
₹1,00,000 ₹1,00,000 ₹1,00,00
BALANCE
Free at India Post &
Punjab National Bank
ATMs
• 3 free/month
Other ATMs
in metro cities
• 3 free in metro
• 5 free/month
ATM No physical/virtual cities
in non-metro
TRANSACTION debit card • 5 free in non-
cities
metro cities
• ₹20 /cash • After
withdrawal that, ₹20/cash
withdrawal

• Within Airtel
Payments
Bank: Free
Internet Branch and Doorstep
Banking, banking
• NEFT: ₹2.5 to
Mobile App 5/txn
ONLINE FUND Free & USSD • IMPS: ₹ 5/txn
TRANSFER NEFT,UPI,IMPS • From Airtel Mobile Banking
Payments • NEFT – free
Bank to • IMPS – ₹4/txn
another
Bank: 0.5%
of amount

• Free Virtual • First year: Free

• Free Virtual Debit Card
DEBIT CARD Debit card (MasterCard) • Annual
ANNUAL • Ru Pay debit maintenance
SUBSCRIPTION card ₹ 100 • Free: charges (from
+Delivery Membership, 2ndYear): ₹ 100
FEE
charges Activation,
Replacement

55
 & Duplicate
card on
account of
loss of virtual
card
• No annual
fee
Doorstep Banking
• ₹15 for
< ₹2001
• ₹ 25 for ₹2001
CASH – ₹5000
No cash withdrawal 0.65% of
WIHDRAWAL • ₹ 35 for ₹ 5001
allowed withdrawal amount
CHARGE – ₹₹10,000
Cash transactions
above 10,000 will not
be offered at doorstep

Personalized Card
• ₹50,000/txn
• ₹50,000/day
ATM
₹10,000/txn non-Personalized ₹10,000/txn
WITHDRAWAL
₹25,000/day Card ₹25,000/day
LIMITATIONS • ₹ 25,000/txn
• ₹ 25,000/day

56
REASONS TO USE PAYTM
Paytm has gained a lot of popularity during demonetization & reasons why people use
more patym are as follows:

• Easy Accessible:
The paytm side easy to accessible they are much easy as compare to other site people are like
them for their easy accessible specialty .paytm also available on the mobile, tablets, laptops , and
for paytm the high speed data connection is not required .it is easily work on mobile without any
problem.

• Mobile Friendly:
Paytm payment bank is also available in mobile so you can easily download and use this
application in your mobile anywhere. On other hand we can say that it’s a mobile friendly
application. They are available on many store.

• Safe And Secure Payment:

Paytm uses many trusted software for their security purpose they used many security application
they provided best security when any transaction are done, they uses 256 bit of encryption for their
security purpose.

• RBI Approved:
They have been approved by the reserve bank of India(RBI). So people are trusted on their paytm
service. That means They follow all the rules and regulation they are required to work as a payment
bank. They provide 45+ banks for net banking.(one of the largest Payment Gateways in India.)
You can also Rs 1 lakh plus money transfer (follow the KYC(know your customer ) rule and
regulation) otherwise its RS 10000 .

57
AIRTEL PAYMENT BANKS

INTRODUCTION TO THE COMPANY

Bharti Airtel Limited is an Indian global telecommunications services company based in New
Delhi, India. It operates in 17 countries across South Asia and Africa. Airtel provides GSM, 3G
and 4G LTE mobile services, fixed line broadband and voice services depending upon the country
of operation. Airtel had also rolled out its VoLTE technology across ten cities namely Mumbai,
Maharashtra, Goa, Madhya Pradesh, Chhattisgarh, Gujarat in India and should roll out the
technology in rest cities by march 2018.
A Payments Bank is a differentiated bank that provides essential financial services to its customers
and is a giant leap towards making financial inclusion a reality for every Indian. Bharti Airtel
Limited saw this as an opportunity to provide banking in its smartest and simplest way with its
subsidiary Airtel Payments Bank Limited (erstwhile Airtel M-Commerce Services Limited and
popularly known as AMSL). Kotak Mahindra Bank Limited also has a stake in the bank.Airtel
Payments Bank is the first entity to get the final licence from Reserve Bank of India for launching
a Payments Bank.
Airtel Payments Bank Limited will leverage the distribution network of Bharti Airtel spread across
1.5 million outlets, with network presence spreading across 87% of the country, covering more
than 400,000 villages and 5,000 census towns. With banking, we are going to make financial
inclusion a reality for every Indian, by enabling them to do banking on their own terms, and enjoy
products that are intuitive, easy to use and more accessible.
Board Of Directors
• Sunil Bharti Mittal (Non-Executive Chairman)
Mr Mittal is the Founder and Chairman of Bharti Enterprises, one of India's leading conglomerates
with diversified interests in telecom, insurance, real estate, agri and food, besides other ventures.
Bharti has joint ventures with several global leaders: Singtel, SoftBank, AXA, Del Monte amongst
others.

• Gopal Vittal (Non-Executive Director)

Mr Vittal is the MD & CEO of Bharti Airtel (India & South Asia). A graduate from IIM Calcutta
in 1990, he joined Hindustan Unilever Limited. One of his biggest achievements in HUL was

58
Project Bharat, a successful rural-reach strategy that incentivized people in rural areas to try HUL's
products.
• Shashi Arora (MD and CEO)
Mr Arora is the Managing Director and Chief Executive Officer of Airtel Payments Bank. Prior to
this, he was the CEO of Bharti Telemedia Ltd, a subsidiary of Bharti Airtel that provides DTH
services. A MBA graduate from XLRI, Jamshedpur, Mr Arora started his career with HUL post
which he joined Kotak Mahindra Bank as Group Marketing Head.
• Ashish Das (Independent Director)
Ashish Das is Professor in IIT Bombay, Mumbai. He has Research and teaching experience of
over 25 years in theoretical and applied Statistics
• Arijit Ranjan Sarker (Independent Director)
Arijit Ranjan Sarker is Co-President, Master Card Asia Pacific, and Singapore. He has over 22
years of International experience covering payments and technology industry spanning across
various markets of Europe, Asia and America.
• Mohan Narayan Shenoi (Non-executive Director)
Mohan Narayan Shenoi is President, Merger integration Management, Integration Management
Office (IMO), Kotak Mahindra Bank since December, 2014. Has 37 years of experience in the
financial sector, 13 years of which have been with Kotak Group.

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60
 FEATURES OF AIRTEL PAYMENT BANK
Airtel payment bank recieved licence from RBI on 11th April 2016. Airtel Payments Bank is the
first entity to get the final licence from Reserve Bank of India for launching a Payments Bank.
Kotak Mahindra Bank Limited also has a stake in the bank. Airtel Payments Bank Limited will
leverage the distribution network of Bharti Airtel spread across 1.5 million outlets, with network
presence spreading across 87% of the country, covering more than 400,000 villages and 5,000
census towns.
The feature of Airtel Payment Banks are as follows :

1. You do not have to be an Airtel subscriber to open an account with the bank. Anyone with an
Aadhaar card can get an account with the Airtel payments bank - your account is opened after a
paperless eKYC, authenticated with your fingerprint.

2. The Airtel retail outlets will double up as branches of the Airtel bank. You will be able to create
an account, deposit or withdraw money, all at the Airtel stores.

3. The move is supposed to boost financial inclusion - mobile companies have been able to set up
stores in small towns and even villages, while bank branches are limited in reach because of the
need for greater infrastructure. Now these mobile stores can function as branches.

4. Though payment banks can issue ATM or debit cards, Airtel has decided not to do so - you will
need to go to the Airtel outlet to withdraw money.

5. Airtel is paying an interest of 7.25 percent per year on accounts. Banks such as Axis, ICICI, and
HDFC offer 4 percent interest, while Yes Bank and Kotak offer 6 percent. RBL Bank offers 7.1
percent interest, but only for accounts with a balance of above Rs. 10 lakhs.

6. Aside from the retail store, if you have a Smartphone, you will be able to access your account
through the Airtel Money app. You will be able to check your balance, or transfer money. This
can also be done by sending short messages via SMS if you have a basic feature phone.

7. The payment bank accounts have a balance limit of Rs. 1 lakh - the same as a mobile wallet after
KYC.

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8. One big difference from wallets is that the payments bank can pay interest, and can choose to offer
ATM and debit cards.

9. Payments banks are not allowed to offer loans, or offer credit cards. The payments banks can also
only invest the money people deposit in government securities.

10. Airtel Payments Bank UPI, you will be able to access all your bank accounts from a single app,
which is extremely helpful if you have multiple bank accounts.

11. Airtel Payments Bank UPI system works 24 hours a day, seven days a week. So, you’ll always be
able to use it. This is especially useful in the current festive season where you’ll be buying things
during the festive season.

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SCHEDULE OF CHARGES: AIRTEL PAYMENT BANK
Service Fee/Charges (Rs)
Account Opening* Free
Cash Deposit / Load Cash
(Internet banking, Mobile App & Banking Free
Points)
Cash Withdrawal 0.65% of withdrawal amount
Funds Transfer

Within Airtel Payments Bank

FREE
(Internet banking, Mobile App & USSD)

From Airtel Payments Bank to another Bank

0.5% of amount transferred
(Internet banking, Mobile App & USSD)**

Set-off balance*** 50

Description Limits
Minimum Cash Deposit Amount 10
Minimum Cash Withdrawal Amount 10
Minimum Amount for Funds Transfer
5
(Mobile App)
Maximum Cash Deposit per day at a
Banking Point**** 1,00,000

Maximum Cash Withdrawal per

25,000
transaction
Maximum Savings Account Balance 1,00,000
Maximum Money can be added using Debit
25,000
Card per day
Transaction limit on a transfer to another
1,00,000
Airtel Payments Bank account
Transaction limit on a transfer to a non-
Airtel Payments Bank account through 1,00,000
NEFT
Transaction limit on a transfer to a non-
Airtel Payments Bank account through 1,00,000
IMPS
Maximum number of transactions allowed
10,000
per month

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CUSTOMER AWARENESS ABOUT PAYMENT BANKS IN INDIA
Payment banks have been established recently and to find out whether citizens are aware of this
payment banks and whether they know what benefits a payment bank is providing to the customers.
So, in this project a data has been collected where it will give an insight how much awareness
about payment banks have been reached to the citizens of India. A data of 50 individuals aged
between 20 to 55
The responses are as follows:

Q1 Are you aware of payment banks

In this question out of 50 individuals 29 individuals are aware about payment banks & 21
individuals are unaware about payment bank. The 29 individuals who are aware are aged between
20 to 35 & the rest remaining individuals who are unaware about payment bank are aged around
40 to 55.

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Q2 If yes in which payment bank you have your account

In this question around 29 individuals have payment bank account out of which 96% have opened
account with Paytm payment banks, 20.7% have opened account with airtel payment banks &
6.9% have opened account with Vodafone M-Pesa

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Q3 Why do you use payment banks?

In this question 29 individuals responded out of which 89.7% use payment banks for mobile
recharge, 16.21% use payment banks for paying electricity bills, 27.6% use payment bank for
paying grocery bills & 48.3% use payment banks to book tickets.

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Q4 How often do you use payment banks to pay bills

In this question almost 44.8% of individuals use payment banks regularly to pay bills & book
tickets while 55.2% of individuals still pay their bills through cash for the goods & services they
purchased.

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Q5 How much amount of transaction you do from payment banks

In this question almost 44.3% of individuals do transactions between Rs1000-Rs5000 through

payment banks, 31% of individuals do transactions between Rs500-Rs1000 through payment
banks & the remaining 20.7% of individuals do transactions of less than Rs 500 through payment
banks.

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Q6 Which financial product you purchased form payment banks

In this question 37.9% of individuals purchased third party loans through payment banks, 20.7%
of individuals paid their amount for Mutual funds investments through payment banks & 41.4%
of individuals paid life insurance premium or purchased life insurance through payment banks.

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Q7 Kindly rank the reasons for your preference in particular payment bank

In this question 65.5% of individuals liked payment bank for the cash back offers provided to their
customers, 48.3% of individuals liked payment banks for earning interest on zero balance account,
37.9% of individuals liked payment banks for free deals given to their customers & a 72.4 % of
individuals liked payment banks for paying bills by using payment banks & thus decreasing the
risk to carry cash while shopping.

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Q8 Can Payment Bank will help to achieve financial inclusion of India

In this question 62.1% of individuals feel that payment banks will help the country to achieve
financial inclusion by giving rural people an access to banking facilities this individual think that
because of increase in smartphone demand & the software infrastructure which payment banks
will provide will help rural people to access banking facilities. The rest 37.9 % think that payment
banks cannot help country to achieve financial inclusion as they think that already NBFC, s &
Micro finance institutions are partnering with major banks to provide banking facilities to
customers

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CUSTOMER AWARENESS ABOUT PAYMENT BANKS QUESTIONNAIRE

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73
CONCLUSION
India has traditionally been a cash-based economy with limited penetration of formal banking
and financial services. The financial sector in India is witnessing a transformation: new banks
are coming up in the country and the dream of a fully banked society is now nearing reality.
Currently the world’s 12th largest consumer market, India is set to experience tremendous
growth in private consumption in the coming years.
The need for financial services among low-income groups in India is high, consisting of a
variety of services such as domestic remittances, access to credit, receiving government welfare
payments and utility payments.
The willingness to pay for such services is also clear from the high dependency on money-
lenders, whose charges far exceed those of banks. Additionally, other routes of payments
services – transfer through informal networks of friends and relatives or couriers – are slow,
expensive and risky. low-income groups remain limited.
With high costs of acquisition and small deposit and transaction amounts, low-income groups
have been low priority for the banking sector.
Therefore, the limited presence of organized banking has led to fragmented financial service
offerings to these groups, dominated by localized moneylenders or informal networks. Apart
from individuals, microbusinesses in these groups also face similar challenges in accessing
credit through formal banking and financial services
Significant progress has been made in expanding access to formal banking in India through a
host of reforms by the Government of India. Through the Pradhan Mantri Jan Dhan Yojana
(PMJDY), there has been a significant increase in access to banking across households.
Subsequent schemes for insurance and pensions have attempted to extend access to a wider
gamut of financial products – the Pradhan Mantri Suraksha Bima Yojana (accidental death and
disability insurance), the Pradhan Mantri Jeevan Jyoti Bima Yojana (life Insurance) and the
Atal Pension Yojna (pension).
Conceptualization of Payments Banks is a bold policy reform well suited to both broadening
access to and creating usage of organized financial services. Payments Banks are permitted to
offer basic bank accounts (current and savings with a balance limit of INR 100,000) but are not
permitted to extend credit or accept term deposits.
They can accept demand deposits, pay bills, facilitate remittances and government welfare
payments to their customers, and provide other basic banking services to individuals and small
businesses.

Payments and remittances have traditionally been a part of the service offering of banks and
post offices.
Over the last five to seven years, non-bank players such as telecom companies (through mobile
money services), business correspondents (BCs,) — entities that assist banks in providing basic

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banking services in rural areas — and prepaid payment instrument issuers (PPIs) have made
significant contributions toward making domestic remittances widespread in India.
In a country where significant migration of workforce occurs from rural areas to industrial
centres and large cities, domestic remittance corridors have emerged between these
employment hubs to the hinterland. While the emergence of nonbank players has helped in
making domestic remittance accessible for many within the country’s migrant workforce, the
impact on the extended financial system has been limited.
Payment banks would help workers or labours to send their money to their villages by using
the smartphone & software infrastructures with the help of technology a payment bank can
provide basic banking facilities to the people living in rural areas
India has a high mobile density with total subscriptions touching 1 billion.14 More recently,
there has been an increase in the penetration of smartphones and the level of data usage on
mobile. In both urban and rural India, the mobile internet user base has grown significantly
over the years. Further, an increasing proportion of active internet users use mobile phone as
the primary channel for internet access.
As a result, the Indian consumer market will not only leapfrog many technology adoption
trends (such as bypassing desktop and going mobile), but also adapt to new disruptive ideas
(such as the evolution of India’s digital landscape into a hyper-local and on-demand market).
Several major players such as on-demand cab aggregators, e-commerce giants and digital
wallets have already flagged off the dawn of a new era of digital transactions
Hence, it is imperative for Payments Banks to adopt a digital first approach toward their
consumer offerings and internal processes. There should be substantial focus on developing
paperless processes, digitizing transactions and building a true digital experience. Smartphones
can be one of the means to achieve this.
However, there is a large base of unbanked and semi-literate customers who may not be
conversant with smartphones, and hence enabling services through feature phones should also
be explored. Payments Banks can benefit significantly by becoming one of the first-movers
and riding this mobile wave to reach out to a wider customer base across the country.

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WEBILOGRAPHY
http://www.paytmbank.com/
https://www.airtel.in/bank
https://www.gsmaintelligence.com/research/?file=9F52D8AEB08BF5BE0CAF5750B
E4F1EB5&download
https://www.scribd.com/
http://www.businesstoday.in/current/corporate/paytm-payments-bank-rs-3000-crore-
to-set-up-1-lakh-banking-points-paytm-atms-over-3-years/story/265312.html
https://economictimes.indiatimes.com/topic/Paytm-payments-bank
https://webforms.ey.com/Publication/vwLUAssets/ey-alternate-revenue-models-for-
payments-banks/$FILE/ey-alternate-revenue-models-for-payments-banks.pdf

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