A study on Payment Bank

A project submitted to
University of Mumbai for partial completion of the Degree of
Bachelor’s of commerce ( Financial Market) under the Facility of commerce

By
Dhananjay Rao
Under of the Guiding Teacher
Prof shipra. Routray
Parle Tilak vidyalayas Association
Mulund college of commerce
Sarojini Naidu Road , Near court , Ashok Nagar
Mulund West , Mumbai , Maharashtra 400080

February 2022
 Declaration

I the undersign master Dhananjay Girish Rao

Herby Declare that the work embodied in this project
Work titled as study on Payment Bank
Forms my own contribution of the Research work
Carried out under Shipra Routray is a Result of my
Reaserch work carried and has not been
Submitted for Degree or diploma of any university

Wherever reference have been made to previous

Work of other it has been clearly indicated as such
And mention has also been made in the bibliography

I herby further declare all the information of this

Has been obtained and presented in accordance
With academic rules and conduct

Dhananjay Girish Rao

Certified by
Sipra Routey
 Acknowledgement

I take this opportunity as a Pleasure to present in front of you the project

On study of payment Bank which is a result of co operation and hard work

I would like to express deep sense of gratitude towards

My project Guide prof Shipra Routey whose Guidance and inspiration
Form the conceptualization to the finishing stages proved to be very
Essential and valuable in the completion of project

Lastly I would like to Thank each person who directly or indirectly helped me
In the completion of project especially my parents and peer who supported
Me throughout this project.
Index
Chapter 1 Introduction

Chapter 2 Research Methodology

Chapter 3 Literature review

Chapter 4 Data Analysis

Chapter 5 Finding

Chapter 6 Suggestion

Chapter 7 Conclusion
 Chapter 1 – introduction

Meaning of payment Bank

A Payments bank is 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 banks is an Indian new model of banks conceptualised by the Reserve Bank of India (RBI) without
issuing credit. These banks can accept a restricted deposit, which is currently limited to ₹200,000 per customer
and may be increased further. These banks cannot issue loans and credit cards. Both current account and
savings accounts can be operated by such banks. Payments banks can issue ATM cards or debit cards and
provide online or mobile banking. Bharti Airtel set up India’s first payments bank, Airtel

What are Payment Bank

Based on the recommendations of the Nachiket Mor Committee, Payments Bank was set up to operate on a
smaller scale with minimal credit risk.
The main objective is to advance financial inclusion by offering banking and financial services to the unbanked
and underbanked areas, helping the migrant labour force, low-income households, small entrepreneurs etc.
They are registered under the Companies Act 2013 but are governed by a host of legislations such as Banking
Regulation Act, 1949; RBI Act, 1934; Foreign Exchange Management Act, 1999, Payment and Settlement
Systems Act, 2007 and the like.
India currently has 6 Payment Banks namely, Airtel Payment Bank, India Post Payment Bank, Fino, Paytm
Payment Bank, NSDL Payment Bank and Jio Payment Bank.
 Features of Payment Bank

Payments banks will do almost all the work that is currently being done by commercial banks, but the
payments banks will work under certain restrictions like

1) As the commercial banks, the payment banks will also accept the money of the people as a deposit but
the limit is fixed, which means the payments banks can accept deposits up to a maximum of Rs. 1 lakh
from a customer.

2) Payments banks; will be entitled to issue ATM or debit cards to their customers but cannot issue a credit
card.

3) Payments banks; will be authorised to open both savings and current accounts of their customers.

4) Payments banks cannot provide loans or lending services to customers.

5) Payments banks cannot accept deposits from the Non-Resident Indians (NRIs). It means; the people of
Indian origin who have settled abroad cannot deposit their money in the payment banks.

6) Payments banks will be allowed to make personal payments and receive remittances from the cross
border on the current accounts.

7) Payments banks will have to deposit the amount in the form of a Cash Reserve Ratio (CRR) with RBI as
other commercial banks do.

8) Payments Banks will have to invest a minimum of 75% of its demand deposits in government
treasury/securities bills with maturity up to one year and hold a maximum of 25 %in currents and fixed
deposits with other commercial banks for operational purposes.

9) Payment banks can provide the Facility of utility bill payments to its customers and the general public.

10) Payments banks can not open subsidiaries to undertake Non-Banking Financial Services activities

11) Payments bank; with approval from RBI, can work as a partner with other commercial banks and also
can sell mutual funds, pension products, and insurance products.

12) Payments banks must use the word “Payments Bank” in their names to look different from other banks.

13) Payments banks will be allowed to provide internet banking and mobile banking facility to their
customers
 14) Payments banks can become a business representative of any other bank, but it will have to comply with
the guidelines of the Reserve Bank of India.

15) The payments banks can accept remittances to be sent to or receive remittances from multiple
Banks through payment mechanism approved by RBI, such as RTGS / NEFT / IMPS.

On November 27, 2014; the Reserve Bank of India has granted “in-principle” approval to the following 11
applicants to set up payment banks in the country. As of now, only 6 banks are working
1. Payments Bank Limited

2. India Post Payments Bank Limited

3. Fino Payments Bank Limited

4. Paytm Payments Bank Limited

5. NSDL Payments Bank Limited

6. Jio Payments Bank Limited

 Activities that can be performed by Payment Bank
Payment banks receive a ‘differentiated’ bank license from the RBI and hence cannot lend.
Payment banks cannot issue credit cards.It cannot accept time deposits or NRI deposits.
It cannot issue loans.cannot set up subsidiaries to undertake non-banking financial activities.

Activities that can be done by Payment Bank

Payment banks can take deposits up to Rs. 2,00,000. It can accept demand deposits in the form of
Saving and current accounts.The money received as deposits can be invested in secure government
Securities only in the form of Statutory Liquidity Ratio (SLR). This must amount to 75% of the
Demand deposit balance The remaining 25% is to be placed as time deposits with other scheduled
Commercial bank.Payments banks will be permitted to make personal payments and receive cross border
remittances on the current accounts. It can issue debit card
 How Does payment Bank work

The payments bank works with an online wallet that is digitally maintained. It is connected to Aadhar and
phone number of an individual. The online wallet contains virtual money whose value is similar to Indian
Rupees. The transaction of the money can be made with one wallet to another or it can directly submit it into the
Bank account. This Payments Banks is just like a bank account but with certain limitation. This limitation
includes- no loans from Payments Banks, no Credit Cards. The money transferred steps consist of the receiver’s
id and the amount to send and the payment of the money is done. It is very convenient that makes it popular
among the new generation. As the technology evolving our way to transfer money is also evolving and
Payments Bank is one such example. This innovation in the financial sector helped millions of people during
the demonetization of the 500 and 2000 bank notes.

Scope of payment Bank

Acceptance of demand deposits. Payments bank will initially be restricted to holding a maximum balance of Rs.
100,000 per individual customer. Issuance of ATM/debit cards. Payments banks, however, cannot issue credit
cards.Payments and remittance services through various channels.BC of another bank, subject to the Reserve
Bank guidelines on BCs. Distribution of non-risk sharing simple financial products like mutual fund units and
insurance products, etc.
 Advantage of Payment bank to the customer’s
Individuals can use the payment bank account to make daily or monthly cash transactions, either through debit
card or through mobile.This can also help guard against debit card fraud, since you can keep a smaller balance
in these accounts.Since there is no restriction on the income levels of those who wish to open accounts in
payment banks, those who have salary accounts in regular bank accounts can also open an account in a payment
bank.Students living away from home would also be able to use facilities of payment banks to pay their fees
Small businesses — that have five or six employees — can operate salary accounts in payment banks, instead of
paying out cash..While a full-fledged commercial bank offers all these services, they charge fees and also have
stringent Know Your Customer (KYC) norms. In a payment bank, KYC norms may be simplified and charges
may be lower. Payments banks will target the non-banking population. So, they might have linient KYC norms.
Also, as they will be more technology-intensive, their fees would be lower than regular banks.For a retail chain,
a payment bank can also be a good way to retain customers. “If a customer deposits money with a supermarket
and uses its banking facilities, they will remain loyal to the store. The store can also offer other services to the
customer. So, you can pay your bills while shopping. Similarly, mobile companies also want to retain
customers, as the cost of acquiring a new customer is higher,” says Abizer Diwanji, national head of financial
services, EY India.Payment banks may also offer a higher rate of interest on savings bank accounts, in order to
attract customers.However the real attraction for customers, will not be the interest on deposits, but the
convenience of carrying out banking transactions at their doorstep.The biggest advantage of a payment bank is
that it can provide the last-mile connectivity, which regular banks cannot. So, it is possible that your
neighbourhood store can function as a bank branch. While many of them already offer payment services
through companies like PayTM now, as banks, these will be regulated.Finally, Payment bank will enjoy all the
rights and responsibilities of a Scheduled commercial banks , but they cannot assume credit risk (meaning they
cannot give out loans) and since they cannot give out loans=> there is no danger of loan default/NPA. Payment
bank can invest money in SLR securities, but they are safe investments, you can easily recover money. In short,
Payment bank faces near-zero risk of default. So, they don’t need a large capital for emergency backup.
Payment banks’ main advantage is that their customers will majorly use technology or mobiles to transact
versus bank branches for regular banks. For this, we need to understand why they were introduced.
The primary reason for introduction of payment banks is for financial inclusion of the ‘unbanked’ population
(those who do not have bank accounts). However, even the banked customers could use some payment banks’
mobile wallets for ease of making day-to-day payments such as utility bills, taxi services, etc. Paytm, Airtel,
Vodafone are some of the payment banks granted approvals that have mobile wallets. Rapid growth of
smartphone users across income groups, combined with ease of payments would mean payment banks will be
able to penetrate a much larger population versus the regular banks.Further, due to their reach, they will be the
government’s preferred mode for disbursement of social welfare and subsidy schemes such as LPG gas
subsidies, fertilizer subsidies, etc. This cannot be expected from a SBI or ICICI. Moreover, mobile banking and
reach can enable contactless payments too in the future. Debit cards given by these payment banks can be
digitally loaded to the customers’ smartphones and could be just shown at the POS (Point of Sale) terminals at
the retailers without the need for swiping those cards.

.
 Regulation of Payment Bank
The minimum capital requirement is ₹100 crore. For the first five years, the stake of the promoter should remain
at least 40%. Foreign share holding will be allowed in these banks as per the rules for FDI in private banks in
India. The voting rights will be regulated by the Banking Regulation Act, 1949. The voting right of any
shareholder is capped at 10%, which can be raised to 26% by the Reserve Bank of India. Any acquisition of
more than 5% will require approval of the RBI. The majority of the bank’s board of directors should consist of
independent directors, appointed according to RBI guidelines.The bank should be fully networked from the
beginning. The bank can accept utility bills. It cannot form subsidiaries to undertake non-banking activities.
Initially, the deposits will be capped at ₹100,000 per customer, but it may be raised by the RBI based on the
performance of the bank. Payment Banks are not permitted to lend to any person including their directors. 25%
of its branches must be in the unbanked rural area. The bank must use the term “payments bank” in its name to
differentiate it from other types of bank. The banks will be licensed as payments banks under Section 22 of the
Banking Regulation Act, 1949, and will be registered as public limited company under the Companies Act,
2013.payment bank is a new model introduced by the Reserve Bank of India(RBI) which facilitates transactions
like a regular bank with the exception of lending and issuing credit cards. Payment bank makes banking life
better due to the flexibility and convenience they provide.They also offer a bouquet of services to the consumers
through secured digital platforms which help the government in their motive of “Digital India”. It is mandatory
to obtain a payment bank license in order to open a payment bank. The Reserve Bank of India (RBI) issues the
license as per Section 22 of the Banking Regulation Act 1949.

Procedure to apply for a payment Bank licence

The payment bank shall be registered as a public limited company under the Companies Act 2013 and shall be
issued a license under Section 22 of the Banking Regulation Act 1949.As per Rule 11 of the Banking
Regulation(Companies) Rules 1949, any company incorporated in India and desiring to commence banking
business shall make an application using Form III for payment bank license.The application shall be addressed
to the Chief General Manager of the Department of Banking Regulation, RBI.The initial screening shall be
conducted by the RBI to check the prima facie eligibility and if need be additional criteria may also be applied.
An External Advisory Committee (EAC), consisting of eminent professionals like Chartered Accountants,
Bankers, Finance Professionals, etc. shall assess the applications.The EAC may call for information as well as
have discussions with applicants as may be required by it.The decision to issue an in-principle approval shall be
made by the RBI, and it shall be final.The in-principle approval shall stay valid for 18 months which means the
bank has to be set up within such period.In case any adverse features are noticed post-issuance of the in-
principle approval, the RBI may impose additional conditions and if required, it may withdraw the in-principle
approval.The minimum required paid-up equity capital for opening a payment bank according to RBI is Rs 100
crore. Also, for the first five years of commencement of establishment, the promoter must contribute at least
40% of the paid up equity capital. The foreign shareholding will be permitted in payment banks for Foreign
Direct Investment (FDI) in private banks in India as per the Foreign Direct Investment policy (FDI Policy) as
amended from time to time
 Qualifying promoter of Payment Bank
RBI has defined a long list of qualified players for the Payment Bank License, as it requires a minimum of Rs
100 crore in the form of paid-up capital. The promoters who qualify for the Payment Bank License procedure
include

Existing non-bank Pre-paid Payment Instrument issuers authorised under the Payment and Settlement Systems
Act, 2007
Individuals/professionals
NBFCs
Corporate business correspondents
Mobile telephone companies
Supermarket chains
Companies
Real sector co-operatives
Public sector entities

Requisites of setting up a payment Bank

The payment bank shall be required to invest a minimum 75% of its demand deposit balances in securities
issued by the Government or Treasury Bills having maturity up to 1 year that is identified by RBI as eligible
securities for maintenance of Statutory Liquidity Ratio (SLR).Maintain a maximum of 25% in current and time
deposits with other scheduled commercial banks for its operations and also for the management of liquidity
The bank shall have a minimum paid-up capital of Rs 100 crore.capital adequacy ratio of minimum of 15% of
its risk-weighted assets and a leverage ratio of not less than 3% shall be maintained.The FDI policy for private
banks shall be the guiding policy for foreign shareholding.As the payment bank may face operational or
liquidity risk, they shall be required to follow the guidelines laid down by RBI with regard to liquidity risk
management.
 History of Payment Bank

The Committee on Comprehensive Financial Services for Small Business and Low-Income Households, headed
by Nachiket Mor, was formed on September 2013 by the RBI. The committee submitted its final
recommendation on January 7th, 2014 which elaborated upon the formation of a new type of bank called
payment bank. In July the same year, the RBI created a draft for guidelines that would govern payments bank
while inviting comments from major stakeholders and the general public. The final guidelines were issued on
27th November 2014. In February 2015, RBI released the list of entities which had applied for a payment bank
licence. There were 41 applicants. It was also announced that an external advisory committee (EAC) headed by
Nachiket Mor would evaluate the licence applications. On 28 February 2015, during the presentation of the
Budget, it was announced that India Post will use its large network to run payment bank. The external advisory
committee headed by Nachiket Mor submitted its findings on 6 July 2015. The applicant entities were examined
for their financial track record and governance issues. On 19 August 2015, the Reserve Bank of India gave “in-
principle” licences to eleven entities to launch payment banks. The “in-principle” license was valid for 18
months within which the entities must fulfil the requirements and they were not allowed to engage in banking
activities within the period. The RBI will grant full licenses under Section 22 of the Banking Regulation Act,
1949 after it is satisfied that the conditions have been fulfilled.March 2019 witness, Paytm account for over
19% of all mobile-banking transactions while Airtel’s Payments Bank contributed more than 5% to the 867
million transactions made during the month. In contrast, State Bank of India (SBI), the largest lender in the
country by assets, recorded 145 million transactions, accounting for under 17%.The only banks ahead of Airtel
Payments Bank are SBI and the three largest private-sector banks – HDFC Bank, ICICI Bank and Axis Bank.
Indeed, ICICI Bank saw close to 60 million mobile-banking transactions in March 2019 though it was just a
whisker ahead of Airtel, with under 7% of the market.[13] Paytm Payments Bank and Airtel Payments Bank
together command over 88% of the deposits in payment banks in India in 2018.According to the Reserve Bank
of India's report on ‘Trend and progress of Banking in India 2017-2018’, the payment banks reported losses in
the financial year 2017-2018, after a weak performance in the FY 2016-17

Evolution of Payment system

The payment system in India has Gone under significant changes from 1980’sThe Indian banking system has
always been a front-runner in adopting modern and latest technology. The Reserve Bank of India (RBI) adopted
computerised settlement facilities at all its clearing houses as early as 1988. This was followed by the
installation of a core banking software in 2000 and the introduction of internet banking in 2001. In 2007, the
Indian Parliament passed the Payment and Settlement Systems Act. Since the inception of this Act, the
government has been striving towards a cashless economy. Initiatives taken by the government have created a
catalytic environment for the greater proliferation and growth of digital payments. The establishment of the
National Payments Corporation of India (NPCI)1 in 2008 and introduction of Real-Time Gross Settlement
(RTGS) in 2004, the National Electronic Funds Transfer (NEFT) in 2005, the Immediate Payment Service
(IMPS) in 2010, and Unified Payments Interface (UPI) in 2016, are examples of the government’s initiatives in
this regard. With the aim of restructuring the banking system rbi released a paper on 2013The paper stressed the
importance of empowering the Indian banking sector to cater to the needs of a growing and globalising
economy as well as furthering financial inclusion. The paper argued for the need to adopt innovative approaches
in banking and to provide access to the formal banking system to low-income households. Subsequent to the
release of the paper, in September 2013, the RBI formed an expert committee under the chairmanship of Dr
Nachiket Mor to frame a clear and detailed vision for financial inclusion and financial deepening in the country,
in addition to several other objectives. The committee submitted its report to the RBI in January 2014, which
strongly recommended the licensing of payments banks to offer financial services to the hitherto excluded
segments of the population. Later in the same year, in the Union Budget 2014-15 presented in July 2014,
Finance Minister Arun Jaitley announced that, “After making suitable changes to [the] current framework, a
structure will be put in place for [the] continuous authorisation of universal banks in the private sector in the
current financial year. [The] RBI will create a framework for licensing small banks and other differentiated
banks. Differentiated banks serving niche interests, local area banks, payments banks, etc., are contemplated to
meet credit and remittance needs of small businesses, unorganised sector, low income households, farmers and
migrant.
After incorporating the comments and suggestions given on the draft guidelines, the final guidelines were issued
by the RBI in November 2014 to license payments banks

Emergence of Payment Bank

Out of 41 applications, the RBI issued in-principle licences to 11 applicants to undertake banking business
under Section 22(1) of the Banking Regulation Act, 1949. This marked the start of payments banks in India.
One of the prime motives behind the establishment of these banks was to provide universal access to banking.
Payments banks operate like any other bank, but on a smaller scale. These banks are expected to reach
customers mainly through mobile phones rather than traditional bank branches.this point it is very difficult to
comment on the revenue model of these banks. None of them have published annual reports yet. However,
based on the existing information, it is likely that the primary source of their revenue is transaction fees.
Payments banks generally charge customers fee for making a transaction, say transferring money to another
bank or withdrawing money from own account. Secondly, they are likely to get a fair amount of revenue from
the payment merchants for facilitating remittances and bill payments. For example, when a customer makes an
online payment for electricity bill using payments bank account, the bank charges the issuer of the bill
(electricity board in this case) for facilitating the services. Just like commercial banks, payment banks make
money in the form of commissions from transactions through point-of-sale (PoS) terminals and resultant MDR
(merchant discount rate). Interest arbitrage is another way in which they may make money: payments bank can
deposit money with some other bank and/or government deposits and offers higher rate of interest than they
provide to their customers.Till now four payments banks have started operations in India. Airtel Payments Bank
was the first such bank to start its commercial operation in November 2016 on a pilot basis covering only
Rajasthan initially and extending nationwide later in January 2017. Airtel Payments Bank has a network of
250,000 retail stores that also function as banking points. This was followed by India Post Payments Bank
(IPPB), which started its branches in Raipur (Chhattisgarh) and Ranchi (Jharkhand) in January 2017, also on a
pilot basis. Although the aim was to have pan-India presence with all post offices acting as banking points,
IPPB has not been able to add any more branches till date. It had announced plans to open 650 branches by
April 2018. It is to be noted that it is the only public sector entity that has been issued a licence to operate a
payments bank. Fino Payments Bank, which started operation in July 2017, claims to have 410 branches and
more than 25,000 banking points. The latest addition in this list is Paytm Payments Bank. It started operation
with the inauguration of its first branch in Noida, Uttar Pradesh, on 28 November 2017. Paytm aims to add 500
million customers by 2020.and UPI in 2016 are some examples
 Payment Bank different from mobile banking system

Payments bank is different from a mobile banking system. A payment bank is a full-fledged bank, which does
not necessarily require a physical branch. It generally uses mobile as medium of operation. On the other hand, a
mobile banking system is merely a web-based application that enables the customer of a traditional bank to
perform banking activities. This mobile application of a traditional bank does not work as a standalone entity
like a payments bank. One needs to have an account in a branch of a traditional bank to transact through the
mobile banking system.

What are mobile wallets and how they are different from payment banks
Mobile wallet is an application that allows you to use smart devices to save money and make transactions
(payments and collections.In general, it works similar to debit or credit cards, except that the information is
stored on the smartphone or in the cloud and not on the plastic card chip. In addition, the communication
between the devices is wireless (Near Field Communication).
These apps differ from those of “mobile payment” in that they do not necessarily have to be linked to a bank
and its technological infrastructure.Among the advantages of digital exchange, and in particular mobile wallets,
is the reduction of costs and transaction times between users. They also mean savings in both directions for
banks.addition, its use increases security in monetary transactions, since it has several security devices such as
biometric authentication of the face (selfie) or a fingerprint, identity validation mechanisms through the
generation of single-use keys (soft-token), and / or QR code.Perhaps the main disadvantage of these tools is in
the technological gap, since it is necessary to have mobile devices, in some cases of last generation, to be able
to use them. In this sense, they can be exclusive.On the other hand, the loss or theft of the cell phone or mobile
device can bring serious security drawbacks, especially in the short term, since it is possible to check the
defenses of the device.payment bank, which is a new model introduced by the Reserve Bank of India, is a bank
that operates on a smaller scale without involving credit risk and whose banking functions are limited. In simple
terms, a payment bank can receive deposits and offer remittances, but it cannot advance loans or issue credit
cards.One of the advantages of licensed payment banks is that they offer interest on the remaining unused
money. While wallets do not offer additional features, payment banks offer fund transfers and withdrawals via
ATMs. In addition, users are allowed to use net banking and internet banking in their transactions.
Among the disadvantages of payment banks, is that, although they offer debit cards and cheque books, they do
not offer credit cards. As already mentioned, payment banks do not offer any loan or credit facility, as these
operations involve credit risk. Conclusion on the topic Since both mobile wallets and payment banks have their
own pros and cons, choosing the right payment mode is extremely important. Thus, it is strongly recommended
thinking which option will best fit your business model when making this decision.Regardless of the payment
mode you choose for your business, remember that you can always offer your customers both of them.
 Objective of Payment Bank

As per the RBI data, around 60% of the population in the country are still not connected with the banking
sector. Moreover, it mostly includes lower income people living in the rural areas who work in the unorganized
sector and migrate to the urban areas for employment. Hence, the main objective of the payment banks is to
widen the spread of financial services and payments to low income groups, small businesses, and migrant
labour workforce. It is said to be done in a secure and technologically enhanced manner.
Payment bank aims at providing banking services in rural and unorganized sectors. These banks serve the needs
of migrant workers, small businesses, and low-income households in remote areas. Payment banks have
connected more and more rural areas with the banking sector which traditional banks cannot do.
These banks encourage saving habits among low-income earners by accepting small amounts of deposits.
Payment banks provide the facility to customers of opening accounts even with zero balance. People can
deposit small amounts as per their convenience and are not required to maintain any minimum amount.
Payment banks provide a higher amount of interest on deposits in comparison to other commercial banks. These
banks pay up to 7.25% interest on people’s deposits which helps them in earning higher returns.
The Introduction of payment banks has facilitated the easy movement of funds among people belonging to the
undeveloped sector. These banks establish most of their branches in unbanked rural areas. It makes doing
payments and transfers of funds quite easy for peoples.Payment banks have led to reducing regional imbalances
across the country. They are providing all banking services to people of rural areas where other commercial
banks do not operate. People are availing better facilities with the minimum cost through these banks which
removes regional disparities.The main objective of the payment banks is to increase financial inclusion by
offering small saving accounts and payment remittance services to low-income households, migrant labour
workforce, small businesses and other unorganised sector entities and other similar users. It will also enable
high volume-low value transactions in deposit and payment/remittance services in a technology-driven
environment.There is a need for transactions and savings accounts for the underserved in the population. Also
remittances have both macro-economic benefits for the region receiving them as well as micro-economic
benefits to the recipients. Higher transaction costs of making remittances diminish these benefits. Therefore, the
primary objective of setting up of payments banks will be to further financial inclusion by providing (i) small
savings accounts and (ii) payments / remittance services to migrant labour workforce, low income households,
small businesses, other unorganised sector entities and other users, by enabling high volume-low value
transactions in deposits and payments / remittance services in a secured technology-driven environment.
 Foreign share holding in payment Banks
The foreign shareholding in the payments bank would be as per the Foreign Direct Investment (FDI) policy for
private sector banks as amended from time to time. As per the current FDI policy, the aggregate foreign
investment in a private sector bank from all sources will be allowed upto a maximum of 74 per cent of the paid-
up capital of the bank (automatic upto 49 per cent and approval route beyond 49 per cent to 74 per cent). At all
times, at least 26 per cent of the paid-up capital will have to be held by residents. In the case of Foreign
Institutional Investors (FIIs) / Foreign Portfolio Investors (FPIs), individual FII / FPI holding is restricted to
below 10 per cent of the total paid-up capital, aggregate limit for all FIIs /FPIs / Qualified Foreign Investors
(QFIs) cannot exceed 24 per cent of the total paid-up capital, which can be raised to 49 per cent of the total
paid-up capital by the bank concerned through a resolution by its Board of Directors followed by a special
resolution to that effect by its General Body. In the case of NRIs, the individual holding is restricted to 5 per
cent of the total paid-up capital both on repatriation and non-repatriation basis and aggregate limit cannot
exceed 10 per cent of the total paid-up capital both on repatriation and non-repatriation basis. However, Non-
Resident Indian (NRI) holding can be allowed upto 24 per cent of the total paid-up capital both on repatriation
and non-repatriation basis provided the banking company passes a special resolution to that effect in the
General Body.As per Section 12 (2) of the Banking Regulation Act, 1949, any shareholder’s voting rights in
private sector banks are capped at 10 per cent. This limit can be raised to 26 per cent in a phased manner by the
RBI. Further, as per Section 12B of the Act ibid, any acquisition of 5 per cent or more of paid-up share capital
in a private sector bank will require prior approval of RBI. This will also apply to the payments banks.

10. Prudential norms

As the payments bank will not have loans and advances in its portfolio, the prudential norms and regulations of
RBI as applicable to loans and advances, will therefore, not apply to it. However, the payments bank will be
exposed to operational risk and should establish a robust operational risk management system. Further, it may
face liquidity risk, and therefore is required to follow RBI’s guidelines on liquidity risk management, to the
extent applicable.

11. Business plan

The applicants for the payments banks licence will be required to furnish their business plans and project
reports with their applications. The business plan will have to address how the bank proposes to achieve the
objectives of setting up of payments banks. The business plan, inter alia, should cover aspects relating to
business model proposed to be used; bank’s access points in rural and semi-urban areas; control over its BCs
and customer grievance redressal; joint venture partnership with a scheduled commercial bank, if any; etc. The
business plan submitted by the applicant should be realistic and viable. Preference will be given to those
applicants who propose to set up payments banks with access points primarily in the under-banked States /
districts in the North-East, East and Central regions of the country. However, to be effective, the payments
banks should ensure widespread network of access points particularly to remote areas, either through their own
branch network, ATMs or BCs or through networks provided by others. The payments bank is expected to
adapt technological solutions to lower costs and extend its network.
In case of deviation from the stated business plan after issue of licence, RBI may consider restricting the
payment bank’s expansion, effecting change in management and imposing other penal measures as may be
necessary.

Procedure for RBI Decisions

The applications will be initially screened by RBI to ensure prima facie eligibility of the applicants. RBI may
apply additional criteria to determine the suitability of applications, in addition to the prescribed ‘fit and proper’
criteria.

ii. Thereafter an External Advisory Committee (EAC) comprising eminent professionals like bankers, chartered
accountants, finance professionals, etc. will evaluate the applications. The names of the professionals in EAC
will be placed on RBI’s website.

iii. The EAC will reserve the right to call for more information as well as have discussions with any applicant/s
and seek clarification on any issue as may be required by it. The EAC will submit its recommendations to RBI
for consideration. The decision to issue an in-principle approval for setting up of a bank will be taken by RBI.
RBI’s decision in this regard will be final.

iv. The validity of the in-principle approval issued by RBI will be eighteen months from the date of granting
such in-principle approval and would thereafter lapse automatically. Therefore, the bank will have to be set up
within eighteen months of grant of in-principle approval.

v. After issue of the in-principle approval for setting up of a bank, if any adverse features are noticed
subsequently regarding the promoters or the companies/entities with which the promoters are associated and the
group in which they have interest, the RBI may impose additional conditions and if warranted, it may withdraw
the in-principle approval.

vi. In order to ensure transparency, the names of applicants for bank licences will be placed on the RBI website
on receipt of the applications. The names of successful applicants will also be placed on the RBI website.

vii. Banking being a highly leveraged business, licences shall be issued on a very selective basis to those who
conform to the above requirements, who have an impeccable track record and who are likely to conform to the
best standards of customer service and efficiency. Therefore, it may not be possible for RBI to issue licences to
all the applicants meeting the eligibility criteria prescribed above. RBI will adopt a cautious approach in
licensing payments banks in the initial years, and with experience gained, may suitably revise the approach.
 Additional information to be Furnished
Existing structure
Information on the individual promoter :

Name of the promoter, date of birth, residential status, parents’ names, PAN No., branch and bank account
details including the credit facilities.

Detailed information on the background and experience of the individual promoter, his/her expertise, track
record of business and financial worth, details of promoter’s direct and indirect interests in various
entities/companies/industries, etc.

2. Information on the entity promoting the bank :

Shareholding pattern of the promoter entity, Memorandum and Articles of Association and financial statements
of the promoter entity for the past five years (including a tabulation of important financial indicators for the said
years), and income tax returns for last three years.

3. Information on the individuals and entities in the promoter group :

Names of the individuals and entities, details of shareholding, management and corporate structure of all the
entities, a pictorial organogram indicating the structure, shareholding and total assets of the entities.

Annual reports of the past five years of all the group entities.

Tabulation of names of all the individuals and entities in the promoter group (including financial, non-financial
and overseas entities) with details of date of incorporation, Registered Office address, activity of the entity,
PAN No., TAN No., CIN No., income tax circle to which the entity belongs, account number, branch and bank
account details of the entities including the credit facilities and regulators of the entity (registration details in the
case of entities regulated by SEBI), details of listing (on stock exchanges) of the entities in the group.

Propsed structure
The applicants should furnish detailed information about the persons/entities, who would subscribe to 5 per cent
or more of the paid-up equity capital (shareholding pattern) of the proposed bank, including foreign equity
participation, in the proposed bank and the sources of capital of the proposed investors.

III. Project Report

Project report covering business potential and viability of the proposed bank, the business plan2, any other
financial services proposed to be offered, etc. as per the guidelines, and any other information that is considered
relevant. The business plan, inter alia, should cover aspects relating to business model proposed to be used;
bank’s access points in rural and semi-urban areas; control over its BCs and customer grievance redressal; joint
venture partnership with a scheduled commercial bank, if any; etc. The project report should give as much
concrete details as feasible, based on adequate ground level information and avoid unrealistic or unduly
ambitious projections. The business plan should address how the bank proposes to achieve financial inclusion3

Any other information

The promoters may furnish any other relevant information and documents supporting the applications. Further,
the RBI may call for any other additional information, as may be required, in due course.
Terms of Rule 2 clause (fb) of the Prevention of Money-laundering (Maintenance of Records of the Nature and
Value of Transactions, the Procedure and Manner of Maintaining and Time for Furnishing Information and
Verification and Maintenance of Records of the Identity of the Clients of the Banking Companies, Financial
Institutions and Intermediaries) Rules, 2005 (Notification No. 14/2010/F.No.6/2/2007-E.S dated December 16,
2010) ‘small account’ means a savings account in a banking company where:

The aggregate of all credits in a financial year does not exceed rupees one lakh;

The aggregate of all withdrawals and transfers in a month does not exceed rupees ten thousand; and

The balance at any point of time does not exceed rupees fifty thousand.
2 Business plan should, inter alia, include (but not limited to), the underlying assumptions, the existing
infrastructure/ network/ branches, and the proposed product lines, target clientele, target locations, risk
management, plans relating to human resources, branch network, alternative points of presence, usage of
technology, financial projections for five years, etc.

6 Best payment banks of India

1) Airtel payment banks

Bharti Airtel, India’s largest telecom provider, launched Airtel Payment Bank in January 2017 to
support the government of India’s promised cashless revolution.

Airtel Payment Bank Features

Individuals can open a Savings account at any branch ( 5 lakh+ banking points)
Bank customer is eligible for a free personal accident insurance cover of Rs 1 Lac
They can earn a 3.0% rate of interest
The savings account offers an online debit card facility.
Benefits for merchant banking:

QR Code Scanning
Payment to a phone number
BHIM UPI
Merchant Initiated Payment.
2) Indian post Payment Bank

Indian Post Payment Bank (IIPB) is backed by India’s post offices, they have a wide
network of 1.55 lakh post offices and over 3 lakh employees to provide doorstep banking
services.
You can open a zero balance saving account.
Your current post office savings account can be changed to a Payment bank savings
account. That will result in a better interest rate. Aadhaar based Direct Benefit Transfer.
The account can be opened with zero balance. Availability of funds at your doorstep,
upon request and secure banking with QR card.
 3) Fino Payment Bank

With a Fino Payment Bank Savings account, you can now ease your banking by taking advantage of the
account’s multiple benefits. Fino Payment Bank Limited was founded on April 4, 2017, under the name
Fino Payments Bank Limited. They have impacted the lives of over 100 million customers over the
years across over 25000 touch points in 499 districts across 28 Indian states.

Features of Fino payment Bank

Transfer money instantly to any bank account across India.
You can withdraw money from ATMs around the country.
Shop at online and offline retailers with the Fino Payment Bank debit card.
Bank customers can earn up to 6.25% per annum by opting for Sweep account facility
The Fino branches have ICICI ATMs installed.
Free cash deposit limit up to Rs 25,000 per month.
Install the Bpay app on your phone for easy payments.
 4) Paytm payment Banks

Paytm has developed a separate, unique Passcode for each of its customers to ensure the protection of their
money in Paytm bank. Every month, you will usually receive 2.75 percent interest.

Features of Paytm payment Banks

There are no account opening fees or minimum balance requirements with Paytm Payments Bank’s Savings
Account.
Make online transactions with your free virtual card at any retailer that accepts RuPay cards.
In Paytm Passbook, you can see your transaction and balance in real-time.
Through the Paytm App, account holders may request a physical Debit Card.
The bank offers a free insurance policy of up to Rs 2 lacs in the case of death or permanent complete disability.
 5) Jio Payment Banks

The Reserve Bank of India (‘RBI’) has given Reliance Industries Limited in-principle approval to create a new
Payments Bank under the Banking Regulation Act, 1949.

In November 2016, it joined forces with the State Bank of India to support the ambitious Payments bank
capacity-building initiative for all Indians, and Jio Payments Bank Limited.

Features of jio payment banks

There is no minimum balance requirement for the Jio Payments Bank account.
No debit card will be issued by Jio Payments Bank
You can open a Jio Payment Bank account even without a Jio number
Once you open a Jio Payment Bank account, you will get a Jio UPI to handle. You can define your own Jio
UPI handle while opening your account.
 6) NSDL payment Banks

NSDL Jiffy is NSDL’s Payment bank, which keeps you stable, smooth, and quick transactions across your
banking experience. In October 2018, NSDL Payment Bank started operations to help the initiative to provide
streamlined banking services to all Indians.

Features of NSDL payment banks

The minimum average monthly balance to be maintained is Rs 10,000. Free virtual debit card to make online
purchases. You can request a physical debit card from your NSDL Jiffy App.
 Adoption of game changing technology by payment banks
The Indian payment and banking industries have been experiencing an almost endless series of innovations over
the past decade. These include cardless cash withdrawals at ATMs, Digital Wallets, Bharat QR, UPI, RuPay
Card, Cash Recycling and White Label ATMs. Thanks to such advancements, both cash and digital payments
have evolved at a rapid pace in the last decade.has also aided the growth of digital payments in the country,
besides making banking services more accessible to the underserved and unserved sections of society.
The role of the banking and payment systems in our economy cannot be emphasised as it caters to financial
needs across the society. Various technological advancements have led to major changes in the banking and
payments landscape. So much so, doorstep banking is now not limited to only large cities, but is reaching the
remotest corners of the country with the help of technology, and is further driving financial inclusion. In a way,
it was inevitable as familiarity with modern technology, increase in literacy levels, globalisation, liberalisation
and privatisation had all contributed to heightened customer expectations. Thanks to technology and doorstep
banking, the traditional over-the-counter banking is slowly losing its prominence.The Payments Industry has
been an early adopter of technology by automating systems, streamlining operational processes and introducing
innovations to further grow in the changing market environment and drive penetration. Thus, players were able
to deliver the best of services to customers, which in turn, led to building up of customer confidence in new
solutions – while further driving adoption and usage.Technological advancements such as UPI, QR, Digital
Wallets, Contactless Payments, Cash Recycling and Automation Technology has led to major advancements in
the payments industry. Digital payment methods have witnessed massive developments in the last six to eight
years, and we will see even more changes in the coming future. Be rest assured that we are only at the
beginning of what will be the reinvention of payment experiences.

Emv Technology
EMV is short for Europay, MasterCard and Visa and commonly refers to a credit and debit card with a
smart chip. The EMV standard is a security technology used worldwide for all payments done with
credit, debit and prepaid EMV smart cards. The EMV technology brings increased security and global
interoperability to card and mobile payments across platforms and devices.

UPI
The United Payments Interface (UPI) is an instant payment system developed by NPCI. UPI has been
instrumental in the rapid growth of digital payments in the country, especially during COVID time, with over
2.5 billion transactions clocked during May 2021 alone. With its interoperability, ease of use and various
benefits, the UPI is amongst the preferred mode of payments for customers and will further continue to drive
retail digital transactions in the country.

Innovative pos Technology

Along with the traditional merchant POS (Point of Sale), innovations such as NFC-based contactless POS,
integrated POS for large retailers and government institutions, compact POS devices such as the mobile POS
(MPOS), and Soft POS that enables merchants to accept payments via their smartphones – are transforming the
digital payment experience for customers and merchants alike. Further AEPS, which uses Aadhaar
authentication at POS terminals or Micro ATMs, will further drive penetration of banking services in the
country.

Cash Recycling and automation technology

Innovative ATM technologies such as Cash Recycling Machines (CRMs) are not only enhancing customer
convenience but driving operational, cost and staff efficiency while helping to reduce the cash in circulation.
CRMs are also designed to support the Digital India initiatives by display of Bharat QR for Cardless
withdrawal, soft-keyboard for data-entry of UPI transactions and Aadhaar-enabled biometric authentication.

QR Code
QR codes have rapidly picked up pace, especially after the demonetisation phase and with
COVID-19. Many banks and merchants aggregators have introduced QR codes as part of a no-
contact checkout strategy. Data loss and security breach is also minimised since the user only
scans the QR. Product innovations such as UPI are equipped to facilitate QR code payments.
QR codes offer a low-cost payment acceptance mode while further accelerating digital payment
penetration

Contactless payment
Contactless payment is a secure payment method using a debit or credit card, smartcard, or another payment
device by using near-field communication (NFC) technology. This is a speedy and convenient way to pay since
it doesn’t require consumers to input a PIN upto a certain limit. With social distancing due to the pandemic, this
method of payment has found increased takers.

Ai and machine learning

Artificial Intelligence (AI) and Machine Learning (ML) are two of the most-used technologies in Fintech.
Machine learning in payments is enabling banks, fintech players and payment providers to join forces and
support customers in their payment preferences. Some applications of AI and ML pertinent to the payments
industry include credit scoring, fraud detection and prevention, regulatory compliance, on-boarding vendors
among others.

Cloud Technology
Most cloud hosting platforms support a variety of payments, processing and security products that allow service
providers, banks and merchants to deliver speed, ease and security, thereby adding convenience, providing
enhanced security of data and reducing costs to consumers

Biometric authentication
With the rise in the problems of identity theft and fraud, biometric authentication is emerging as a reliable and
secure option for all transactions. Biometric payment through a point of sale (POS) or ATM uses biometric
authentication to identify the user and authorize the deduction of funds from a bank account. The fingerprint
authentication is the most common biometric payment method. With the integration of Aadhaar, this method
has tremendous potential going forward.

Voice based payment

Voice authentication-based services such as Voice-based banking, Voice-enabled payments, Voice-driven
customer service etc. is the new frontier in how tech is transforming the payment landscape. Customers adept at
using voice-based assistants will appreciate and adopt the convenience and accessibility of this technology.
With the growth of technology and the ever-changing demands of financial markets, the changes are inevitable.
Each year has and will transform payments industry in a new way. These technological advancements and
transformations will play a vital role in shaping the future of the payments industry in the country.

The G sec Hurdle

Look at the investment structure and the revenue stream will further clarify what has gone wrong with their
viability. For starters, the minimum paid-up equity capital requirement for each payments bank is INR 100 Cr.
They are required to maintain 75% of their deposits in government securities, or G-Secs, for a year and only
25% of the deposits could be parked with small commercial banks. But there is a cap on user deposit here.
Each customer can only deposit a maximum of INR 100K in his/her PB account, which means the total deposit
would never reach the levels of a traditional bank and the overall earning on the deposit would be much less.
The mandatory G-Sec deposit for a specific period does not help either, thanks to steadily dipping interest rates.
The yield on one-year G-Sec was 7-8% for the past three-four years, but in the past few months, it has fallen
below 5.5% and will further squeeze their earnings.The payment banks’ customised service bouquets cannot
rake in the moolah too. PBs are allowed to offer remittance services as well as other day-to-day banking
services, including deposit charges as applicable, mobile payment, doorstep banking, bill payments, fund
transfer across the interbank payment network, withdrawal via ATM/debit cards and shopping at merchant PoS.
Additionally, they can deal in third-party financial products such as insurance, carry out transactions for other
banks who deploy their business correspondents (BCs) and undertake non-risk activities such as Aadhaar
enrolment or become members of clearing houses. PBs charge up to 1% commission on each transaction, but
unless it is done on a massive scale, the revenue stream will remain weak.
 Why lending matters

What hinders payments banks most is the underlying no-lending business model – they cannot lend money from
their deposits, and hence, they have no scope to earn high interest on a user’s borrowed capital. Credit as a
product does not exist for PBs, placing them at a great disadvantage against commercial banks. The idea is to
protect them against non-performing assets (NPAs), a major bane of the Indian banking ecosystem in the
current decade, but it has taken its toll on the revenue stream.weak revenue stream and consequential losses
incurred by most of the PBs (more on that later) are bound to hinder customer acquisition at scale. The PBs
entered the market with high-interest rates on deposits as their operational costs were estimated to be low, given
the low-cost infrastructural footprint and greater usage of technology. In 2017, Fino, Airtel, Paytm and
IndiaPost were offering 4%, 7.25%, 4.5 and 5.5%, respectively, which proved to be quite lucrative
As of November 2020, the big four are offering 2.75%, 2.5%, 2.75%, and 2.75%, respectively as they sought
to safeguard their margins, even below what most banks pay for low-value savings deposits. The slide in
interest rates may easily lead to a dwindling customer base and a major loss of business as ‘scale’ lies at the
heart of payments banks. They must grow their users and leverage low-value transactions to the hilt in a bid to
survive.

UPI VS Payment Banks

Payments banks are also facing stiff competition from totally unexpected quarters. The Indian payment
ecosystem was quite different in 2017. India was still reeling under demonetisation; the Unified Payments
Interface was yet to catch the fancy of the masses, and the wallets ruling the digital payment space were plagued
by regulatory headwinds. None of the PB aspirants was prepared for the sudden popularity and the wide
adoption of the UPI in the next couple of years. Its seamless interoperability, stringent security and huge
cashbacks from third-party payments apps on the platform soon made UPI the star of digital transactions. And
much like the wallets, the transaction side of the payments banks has been hugely impacted by the third-party
UPI apps ecosystem.Unlike payment banks, the UPI app (third party) has a simple interface that is not subject to
banking regulations. It is a single-tap solution that a user can directly initiate without the need for KYC. In
contrast, the PBs have targeted the unbanked millions, especially in the non-urban areas, and aimed to monetise
their vast user databases for credit risk profiling, insurance sale and other purposes. The telecom and fintech
companies in play also wanted to leverage and grow their existing databases. But it is unclear whether the PBs
are exploring this possible usage of bank data or have a long-term analytics strategy in place to boost their
revenues.Interestingly, most of these fundamental constraints, especially the non-lending parameter, were
known to the stakeholders from the beginning. Experts, however, say that most of the licensees wanted to come
in for a different reason. Eventually, they were planning to expand to mainstream (banking) roles and building
the expertise and a captive user base required for the same. For telcos, it was all about ensuring better
engagement with their subscriber base and providing complementary services.fact, an internal report by the RBI
working group last week has recommended that a PB should be allowed to apply for a small finance bank (SFB)
licence after three years of operations instead of five years as mandated earlier this year. Unlike payment banks,
SFBs cater to small borrowers and can lend up to INR 25 lakh (subject to RBI norms). The report also
recommended that NBFCs with an asset size of INR 50,000 Cr and above, including those which are owned by
a corporate house, may be considered for conversion into banks subject to completion of 10 years of operations.
Is it one way of resurrecting the fast-dwindling payments banks?
 Payment banks playing to there strengths

As Indian payments banks fail to find their revenue dreams, most of them are trying to leverage their core
strengths to reach the market. For instance, each operator in the ecosystem is servicing different financial
products. Some have enabled PoS transactions or got into FasTAG partnerships or focussed on utility payments
in rural areas. But these are only a few scattered solutions and not well-orchestrated, long-term strategies.
Take, for instance, IndiaPost PB (IPPB). Based on its massive presence in 650 districts and among 3.5 crore
customers, the IPPB has set up a full suite of banking services and strong linkages with all interoperable
payment and settlement systems. It is now focussing on pan-India G2C (government-to-citizen) payments,
especially rural DBT (direct benefit transfer) disbursements under the Pradhan Mantri Garib Kalyan Yojana
Unlike other payments banks, IPPB does not use PoS devices or issue debit cards. Its local agents – postmen,
postwomen or BCs, initiate transactions by taking a customer’s biometrics and Aadhaar number which are
stored in a QR card. Unlike debit cards which need personal identification numbers (PINs) for payment
initiation, QR cards use the QR code to scan and pay. In spite of these benefits, the bureaucratic weight has held
IPPB back from utilising its full potential and taking digital payments to remote regions, say industry experts.
Contrast, Fino PB has utilised its massive BC network to reach out to people. “We cannot sell Mercedes to a
customer who wants a Maruti,” says Rishi Gupta, managing director and chief executive officer of Fino.
Fino’s case, experts see a good model that utilises the existing BC network. But it has not helped the company
realise the ‘digital’ vision of the payments banks.Gupta, however, thinks that the ability to enable microcredits
will most certainly give it an edge in the PB model. “With our deep BC penetration across the country, we are
poised to take care of recovery as well. We are not a small finance bank, but we want to use our infrastructure to
complete the portfolio of solutions with microcredit for our last-mile customers if the RBI allows it,” he says
Most fintech experts concur, saying both IndiaPost and Fino have demonstrated the best use cases in the current
PB ecosystem Both Fino PB and IPPB have enabled an Aadhaar-enabled payment system (AePS) for maximum
convenience. Airtel PB has also set up a cardless cash withdrawal system called Instant Money Transfer (IMT),
which can be used via its mobile app. Apart from this recent e-PoS initiative, its AePS can be used to transact at
micro-ATMs manned by BCs. During the Q3 earnings call of Bharti Airtel, the company indicated new
initiatives for the PB business, which would be rolled out soon. With a network of more than 10 lakh retailers,
Airtel PB has the most extensive merchant reach in the country. Paytm, on the other hand, has several payment
solutions in its portfolio. For the PB business, the company has roped in a number of big-ticket partnerships,
including tie-ups with major auto manufacturers for FASTags under the National Electronic Toll Collection
programme. But a large number of products across its ecosystem often dilutes Paytm’s PB performance.
 Chapter 2 – Research methodology

Motivation For introducing payment Bank in India came from lack of access and prelevant
Financial literacy before initiating and setting payment Banks the Reserve Bank of India
Went under several policy consideration to Promote Financial inclusion so to create
Financial inclusion payment Bank came into existence

Objective
• To study various aspects of Payment Bank in Detail

• To know the past and current performance of different payment Banks

• To know How the Payment Bank is Helping to provide Financial inclusion

• To know how payment bank is connecting the Rural population with payment Bank

• To Do comparison Between Payment Banks , Mobile Banking and UPI

• To know why some Payment Banks are Failing

• To conclude how Payment Banks can win

• To bring awareness in people of payment banks to connect with the population of India which
Is still not connected to the Banking system of India
B) Scope of Study
• To study the Profits earned by Payment Bank

•To study how the Payment Bank helped the Rural population where physical branch of banks
Is not possible because it is noz profitable

• To Study why payment Bank in developing slowly , How payment Bank can Gain confidence

• To study can payment Bank help other developing countries how it helped India

C) Limitations
• we cannot judge the Future performance of payment Bank just by it’s past performance

• The attitude and behaviour of people of Different rural villages will differ the same technique
Cannot be used to Gain confidence

• As payment Bank is a New concept it still has not reached 1/4th of Rural population
It is difficult to say about it’s future right now

D ) Methods of Data collection

Data is collected By the way of secondary method also by visiting the website of different payment
Banks and by newspaper and Books
E) significance
• it will provide last couple of years of performance by different Payment Banks

• it will show what is the attitude of rural people towards payment banks

• it will show how payment Bank is helping in Financial inclusion

• it will help to create awareness about payment banks

• it will help people to select which payment Bank to select

• it will help people on how to use Payment Banks

 Chapter 3 – Review of Literature
Arun Jaitley (2017) - The impact of payments bank that were announced by RBI in 2015, will be felt now.
Payment banks, will not have any geographical limitations. The telephone company stores will run as payments
banks. The post office in the country wil Turn into Bank Branches As compared to banks, the overhead costs of
payments bank are very less because their infrastructure already exists and are making an alternative use of that

Bill gates (2016) - Digital payment systems can do more for equality in poor countries than they can do
anywhere else, and we would like them to emerge there even if it takes longer in richer countries. We’re not
waiting for it to trickle down as we do for many advanced technologies. That’s not good enough.
We need banking but we don’t need banks anymore. Do you think someday we can open bank account or ask
for loan without physically have to come to the bank

Naciket mor (2015) - What we need here are providers who see a real business case in establishing
infrastructure in every village of the country,” the Gates Foundation’s Radcliffe explains. The payments bank
model seeks to leverage the existing physical presence of nonbank organizations in parts of the country not
reached by traditional banks. For example, three of the companies to receive preliminary licenses are
telecommunications providers that could develop mobile money applications, immediately reaching all of their
current cell phone subscribers in India’s countryside. Hoisting rural India out of poverty is a daunting task with
or without payments banks in the mix, but Radcliffe stresses that the government’s trial-and-error approach
could serve as a road map for developed as well as emerging nations. “We see India as being not only a
powerful demonstration case for improving government through payment connections but also a powerful
model for how the public sector can create shared infrastructure that unlocks so much potential

Vijay Mani (2013) – payment Banks may need to reexamine there customer and merchant
Acquisition / Retention strategies and associated revenue models in Light of the changing competitive
Landscape . Lending can be a useful element in this effort but it should not be seen as a panacea
It has to go Hand in hand with customer focus

Shipla mankar Ahluwila (2014) – The Payment Bank model Did not take off way it was
Intended because they were subject to Regulation on Risk and securities much like other bank
But no revenue model exist For them in a way UPI was able to tap that space as it was more
Technology Driven

Seema Prem (2014) - payment banks hoped to reach a scale that would help to earn
From transaction charges . But that scale has not Been Achieved Yet even Though
The scope Exists They have been working Agressively on cross – subsidation
Solution like insurance products but they were disadvantaged Right from the conceptual
Stage

Suhani Verma (2014) – As of now payment Banks have wafer thin margins they
Have to keep large part of there funds (75%) in Government securities and remaining
With commercial banks . The majority of there Revenue was Going to come from
Remittances , insurance and other financial services .bu the competition is tough
And it is difficult to earn a significant chunk of revenue from those segment . So
Even a Government owned like Indian post payment Bank is struggling in spite
Of high transaction volume

Rishi Gupta (2014) – we cannot sell Mercedes to a customer who wants maruti
The focus has been on distribution in a way that would compete with our telecom
Peers and we did it without any Fanfare

Surendra Verma (2017) – Today only Paytm payment banks appear to be a

Success story with profits coming in but the company is doing so many other
Things to achieve this in fact the customer acquisition cost is huge in this
Sector

Ravi mani (2012) – we have more than 500 million smartphone users and atleast
A hundred million more addressable feature phone user but maybe no more
Than 175 million users of mobile payment the next 5 years will see the market
Aggressively realising this growth potential . Therefore it is going to be a
Critical period for payment Banks let’s hope for the best

Padashetty S, Kishore KS (2013) pointed in their study the factors such as perceived ease of use,
expressiveness and trust affect adoption of digital wallet as payment method. These factors
Are termed as artifilators they play a crucial role in payment Banks

Ron shelving ( 2015) – The challenges for bank isn’t becoming digital
It’providing values that consumers are comfortable paying for

David breat ( 2013 ) – payment Bank will be the heart and blood of the banking
Industry for many years to come and if big banks do not make the most of it
The new player’s from fintevh and large technology companies will surely win

Ajit Ranade (2020) - The stark reality is that most poor people in the world still lack access to sustainable
financial services, whether it is savings, credit or insurance. The great challenge before us is to address the
constraints that exclude people from full participation in the financial sector. Together, we can and must build
inclusive financial sectors that help people i-mprove their

Dalbherg T, Mallat N , ondrus J , zmijewska (2008) - explained in their research, A Doing payments
via mobile phones has been in use for many years and is now set to explode. Also mobiles are increasingly
being used by consumers for making payments. A comprehensive model „Payment Mode Influencing
Consumer Purchase Model‟ was proposed by Braga and Mazzon. This model considered factors such as
temporal orientation and separation, self-control and pain of payment constructs for digital wallet as a new
payment mode. Consumer perspective of mobile payments and mobile payment technologies are two most
important factors of mobile payments research

Shen ziderman (2009) - ested a comprehensive model of consumer acceptance in the context
of mobile payment. It used the unified theory of acceptance and use of technology (UTAUT)
model with constructs of security, trust, social influence, and self-efficacy. The model
confirmed the classical role of technology acceptance factors (i.e., perceived to users‟
attitude), the results also showed that users‟ attitudes and intentions are influenced by
perceived security and trust. In the extended model, the moderating effects of demographics on
the relations among the variables were found to be significant. Digital wallets offer the
consumers the convenience of payments without swiping their debit or credit cards. Instant
Cash availability and renders seamless mobility is also a unique feature of these digital apps, for
instance the balance in your Paytm wallet can be very easily transferred to your bank
account as and when you want
Narendra Modi (2016) - IPPB is going to bring a huge change in the country's economic, social
situation and will reach to every nook and corner of the country. This payments bank will
revolutionise banking and digital payments.IPPB will also be a great help for the farmers and
schemes like PMFBY (PM’s crop insurance scheme) will gain more strength from it.”

Sunil Mittal (2015) - I wish that will happen soon (licences are issued) and we will be allowed
to participate in the financial inclusion in a meaningful way Banks have to recognise that they
will never be able to be efficient on the lower end of the spectrum of financial inclusion. It’s not
at all possible for them to deliver without making huge losses. They must leave that space for
the telecom companies

Chapter 4 – Data analysis

Growth analysis of Different payment Banks of India Let’s start 1st with
Fino payment Bank Growth Report

The Navi Mumbai-based fintech company Fino Payments Bank will be the first payments bank to get listed on
the stock exchanges, that too while making profits.The company claims to be the first profitable player in the
payments bank space to hit the Indian stock market. Paytm is another payments bank firm in line to get listed
soon. Although Paytm has received SEBI’s nod, it is yet to announce dates to launch its initial public offering
(IPO).We are the only scheduled payment bank, which is profitable, we have set up the bank on very low
capital,” said Rishi Gupta, managing director and chief executive officer (CEO) of the payment bank.
Paytm Payment Bank Growth Report
February 2021, the Paytm Payments Bank acted as the remitter bank for nearly 150 million UPI-transactions in
India. This figure fluctuated over the last one year. The Paytm Payments Bank is one of the new payments
banks in India licensed in 2015. They provide mainly online and mobile payment services and cannot issue
credit or loans cards.Unified Payments Interface (UPI) is a product of the National Payments Corporation of
India (NPCI) and was launched in 2016. It allows users of payment service providers like PhonePe or
GooglePay to use NPCI as switch to connect with banks and transfer money. It is more user-friendly than older
transaction modes such as IMPS.
Airtel payment Bank Growth report
Airtel Payments Bank has seen a surge in business volumes in FY21 as lockdown curbs and migrants heading
back to villages spurred new accounts as well as transactions, and the company is eyeing a break-even this
fiscal, a top official said.Factors like growth in revenues, expanded scale of operations, and higher realisation
per user from cross selling of products are expected to drive break-even in the current financial year.
The pandemic and subsequent lockdown curbs fuelled uptake as customers, both in rural interiors and urban
cities, sought banking solutions closer home, opting for convenient and secure digital payment options.
The bank witnessed a strong traction for its diversified product offerings such digital payments, money
transfers, insurance, direct benefit transfer credits, Aadhaar-enabled payment system and collection
management services.senior company official, who did not wish to be named, said Airtel Payments Bank is
“confident” of a break-even this year, having reached the “right level of scale” with its large base of user
Mail sent to the company did not elicit a response.Meanwhile, the official said the company has build an
adequate infrastructure, backed by investments in technology, to serve consumers and hence fixed costs and
incremental investments are expected to remain in check.The current user base of 5.5 crore reflects a large
distributed cost base across customers for the company, the official said noting that the losses too have nearly
halved in Q4 of FY21, compared to the year ago period.Losses for full year FY21 were at about Rs 420 crore,
while the fourth quarter losses stood at nearly Rs 70 crore.The company logged over 32 per cent growth in
revenue at almost Rs 627 crore for FY21 from Rs 474 crore in previous fiscal.COVID induced movement
restrictions and curfews in different parts of the country had made it difficult for those living in villages as also
migrants returning to their hometowns, to access conventional bank branches located some distance away to
withdraw money.Airtel Payments Bank – which has one of largest retail networks with over 500,000
neighbourhood banking points – saw marked increase in new accounts opening during the FY21, as transactions
too rose, the company official said.present, one in six villages in the country is being served by Airtel Payments
Bank.The company expects the digital payment momentum to continue, even accelerate in coming times, the
official said Earlier this year, Airtel Payments Bank announced its customers will get an increased interest rate
of six per cent per annum on savings account deposit of over Rs 1 lakh. The move, announced in May this year,
followed Airtel Payments Bank becoming the first payments bank to implement an enhanced day-end savings
limit of Rs 2 lakh, as per the Reserve Bank of India (RBI) guidelines.The interest rate is at 2.5 per cent per
annum for a deposit up to Rs 1 lakh

India Post Payment Bank Growth Report

India Post Payments Bank (IPPB) on Tuesday said it has crossed 5-crore customer mark which makes it third
largest entity in the segment after Paytm and Airtel Payments Bank. IPPB opened these five crore accounts in
digital and paperless mode by leveraging 1.36 lakh post offices, out of which 1.20 lakh are in rural areas, with
the help of about 1.47 lakh doorstep banking service providers At India Post, we are committed towards
becoming one of the largest financial inclusion networks in India, covering both urban and rural India. Reaching
to five crore customers in a short span of 3 years speaks of the success of this model of providing cost -
effective, simple, easy and secure digital ecosystem, particularly to rural India," Department of Posts Secretary
Vineet Pandey said in a statement. IPPB claims to have achieved the world’s largest digital financial literacy
programme by building a financially aware and empowered customer-base leveraging the strength of 2.8 lakh
post office employees.a moment of pride for the Bank, as we have moved from strength to strength while
building this customer base while providing uninterrupted banking and G2C services even during the COVID-
19 pandemic. The Bank is able to scale its customer acquisition on a fully digital and paperless banking
platform serving people at their doorstep,” IPPB MD and CEO J Venkatramu said.Out of the total account
holders, around 48 per cent are women while 52 per cent are male.About 98 per cent of accounts of women
were opened at the doorsteps and over 68 per cent of women were availing DBT benefits. In yet another
milestone, IPPB revealed that it attracted youths to avail digital banking services. Over 41 per cent of account
holders were in the age group of 18 to 35 years,” the statement said.Account-wise, IPPB is getting more people
on board. On March 31, 2020, the bank had 2.36 crore (23.6 million) customers, which grew to 4.31 crore (43.1
million) on March 31, 2021, amounting to 83 percent year-on-year growth, according to IPPB’s annual report.
In March 2019, it had just 55 lakh (5.5 million) accounts. ”Today, we have nearly five crore (50 million)
accounts,” the official said.As of March 31, 2021, IPPB had deposits of Rs 2,300 crore compared to Rs 855
crore on March 31, 2020. In March 2019, IPPB had deposits worth Rs 93 crore. The net expenditure, which
includes general administration, operations, salaries, agency services and others (audit and accounts, civil
engineering, amenities to staff, stationery and printing, etc) was Rs 17,894 crore in 2014-2015 and grew
gradually. It was Rs 18,946 crore in 2015-16, Rs 23,480 crore in 2016-17, Rs 27,129 crore in 2018-19 and Rs
28,371 crore in 2019-20. The deficit has grown over the years. It was Rs 6,258 crore in 2014-2015, Rs 6,007
crore in 2015-16, Rs 11,969 crore in 2016-17, Rs 13,646 crore in 2018-19 and Rs 14,813 crore in 2019-20.
India Post has more than 400,000 employees, the postal official said, explaining the expenditure. “More than 90
percent of the expenses go into salaries and pension; 2.5 lakh (.24 million) employees get pension. We pay
salaries and increments irrespective of whether we make money or not.”We are not like any other private
company, where salaries are linked to their financial performance. It is not that revenue is not growing, but the
expenses are also huge,” the official explained.
Chart showing Frequency of using Payment Bank by Different age Group
Status of Payment Bank in India
Payments banks mobilised deposits worth nearly Rs 883 crore in the financial year ended

March 2019 compared with Rs 438 crore in 2017-18, the Reserve Bank of India said in its
report on ‘Trend and Progress of Banking in India for 2018-19’. At the same time, consolidated
losses of all payments banks rose to Rs 626.8 crore in 2018-19 from Rs 515.6 crore a year ago.
2018-19, transactions through unified payments interface took over from e-wallets as the most
prominent channel for inward and outward remittances in terms of both value and volume,” the
report said.
In 2018-19, transactions through unified payments interface took over from e-wallets as the
most prominent channel for inward and outward remittances in terms of both value and
volume,” the report said.
Inward remittance transactions processed by payments banks jumped nearly fourfold year-on-
year to Rs 89,653 crore in 2018-19.
But outward remittance transactions, too, increased more than twofold over the last year to
about Rs 1.11 lakh crore in 2018-19.
2018-19, transactions through unified payments interface took over from e-wallets as the most
prominent channel for inward and outward remittances in terms of both value and volume,” the
report said.
Inward remittances processed through e-wallets fell to Rs 5,659 crore in 2018-19 from Rs
24,340 crore in 2017-18
Outward remittance transactions via e-wallets reduced to Rs 11,562 crore in 2018-19 from Rs
16,545 crore in 2017-19.
Inward remittance transactions on UPI rose to Rs 56,543 crore in 2018-19 from Rs 1,648 crore
in 2017-18
Outward remittance transactions on UPI increased to Rs 57,220 crore in 2018-19 from 2,343
crore in 2017-18.
Shows the Region wise distribution of Payment Bank Branches indian post payment Bank

Has the best spread branches across all the Region While the plan is for all post office
To be enabled as touch points in terms of branches only 650 have been set up for
Each district each of these branches work as touch points for there districts
Due to the full district coverage policy Indian post payment Bank is the only
Payment Bank which is able to mark it’s presence in the North East India
Based on its strong presence in western region looks like Fino payment banks
Wants to appear as a strong regional player whereas Airtel and Paytm have
Have 14 Branches across the country whereas there access point are 6 Lakh
In Number indicating there non brach strategy
Population wise Distribution of payment Bank Branches Rural areas have the least number
Whereas the urban areas have the highest number of branches Indian post payment Bank
Branches are Relatively higher in semi urban areas however these are only branches
They hardly have any relation with the Number of touch points
Proportion of centers in underbanked region across various types of bank as of March 2022
Centers with fewer than 5 branches were considered under banked for the purpose of
This analysis rural banks have 75% of branches In underbanks sectors Whereas only
7% of payment Bank branches are there in these centres Indian post payment Bank
Accounts for 60% of these Branches

Average value of Transactions shown in the upper diagram

Average volume of transaction shown in below diagram
Growth of individual deposits in payment banks for depositers having equal access

To both payment banks and physical banks don’t see payment Bank as an interesting
Opportunity due to the less interest rate compared to physical bank. Payment Bank
May not be able to further reduce the intrest rate as they work on tight regulatory
Requirement which is 75% in risk free investment SLR . Providing small saving
Account to poor people
Financial Ratios of payment Banks

Understandably, PBs must invest to expand their reach across the payment landscape, but their
revenue structure is not in sync with it. According to RBI data for FY2018-19, the ratio of
operating expense to total income was around showing high input cost, even though the
majority of the PB revenue comes from low-return SLR (statutory liquid ratio) investments in
G-Secs. SLR investment indicates the proportion of deposit a bank has to keep in assets (gold
and government bonds and securities) as specified by the RBI.
Transaction vs deposit in payment Banks

The high volume and value of transactions compared to deposits clearly show that PB account
holders have been transacting more than depositing in these accounts, which beats the
fundamental principle of consumer banking – making it easier for people to save and invest.
Currently, RBI data on the number of accounts and deposit balances in payments banks is not
available.
 Analysis method

Interview transcription and open coding were the first steps of data analysis which helped identify key points
emerging from the transcriptions and assigning a ‘code’ to each of them. The constant comparison method and
theoretical sampling herein helped us to formulate a strategy which would then drive the process of data
collection (Giske and Artinian 2007). The constant comparison technique required us to verify that ever code
created was new (Gandomani and Nafchi 2016) and hence paved the way for creating emerging categories for
non-adoption of PB. Each category takes the analysis further, encompassing several-related concepts (Glaser
1978). Memos were maintained to help establish relationship between interviews and the concepts that emerged
from those interviews. The initial analysis allowed us to group small pieces of data and label them based on
their characteristics. The emergence of new concepts and categories guided us with the theoretical sampling
process. This included looking for respondents possessing different perspectives to the problem at hand, for
example, interviewing PB managers in addition to the target customer segments.
Glaser (1978) proposes to hold progression to selective coding until a core category is found during the open
coding phase. These core categories act like the first step around which we aim to explain the phenomena under
study. Each core category was worked out after making sure that other emerging categories and their properties
were meaningfully related to the core category and all the primary issues of the respondents revolved around the
core category of this study. Our analysis of the data revealed ‘Impediments to adoption’ as the core category
leading to low customer adoption of PB services. These impediments appeared to be a serious challenge faced
by the target customers which were reconfirmed by our conversations with the bank managers. Finally, to begin
with the process of integration and refining the findings, we moved on to selective coding to identify categories
that were closely related to the core category. After establishing the core category, this study moved on to
selective coding, wherein codes where restricted to those variables which were related to the core category
(Glaser 1978). Codes at this stage were integrated, and they in turn helped us to refine the findings and build a
framework for the core category of our study. Memos from the interviews highlighted factors such as awareness
about the PB, process impediments like documentation issues faced by the non-users and others. The coding
reports that were manually generated and the memos in particular were helpful as we could see how these
concepts and patterns naturally emerged from the data and were not forced. Theoretical coding was the last step
undertaken during the course of the analysis. Theoretical codes give integrative scope, broad pictures and a new
perspective (Glaser and Holton 2004). It was used to study and look for connections that existed between the
core category and other categories of impediments that emerged from the data analysis. At this stage, the core
category and other categories like adoption facilitators for the PB were framed. As we moved forward with the
theoretical coding, we looked at different ways of relating the findings to each other, so that the impediments to
adoption could be woven together into a model.
 Chapter 5 – Finding on payment Banks
This section, the researchers analyze the factors or categories affecting the adoption of the PB by the intended
customers that act as impediments. An important insight of this research was that the factors that affect the
adoption of PB differ across both our respondent categories. The researchers analyzed the factors or categories
affecting the adoption of the PB which is a central phenomenon and present propositions derived from the
interviews conducted with the migrant laborers, migrant self-employed population, small-business owners and
branch managers of PBs. Our findings have automatically led to these respondents getting grouped under two
categories: factors affecting the adoption of PB by migrant laborers and factors affecting the adoption of PB by
small businesses, which includes migrants who are self-employed (see Fig. 2). The branch managers’ responses
have been used to corroborate the findings emanating out of the interviews of the primary respondents.
Convenience as a research construct has been widely discussed in the marketing and consumer behavior
literature (Berry et al. 2002; Jih 2007; Ng-Kruelle et al. 2002). During the analysis, we found several factors
contributing to this phenomenon. Most of the vendors, suppliers and shopkeepers interviewed belonged to the
unorganized sector and they preferred cash to any other mode of payment, which is in line with their workflow,
practices and habits. Small businesses that we interviewed during the course of this research revealed how cash
was preferred over any other mode of payment, as only cash was extensively used by all the suppliers of these
small businesses. Cash still remains a preferred choice of payment for most Indians, and this can also be
substantiated by the fact that around 84–93% of the transactions conducted in the mandis of India in the year
2018–2019 were conducted on cash basis (RBI 2019b). Introducing digital mode of payments in this scenario
brings resistance and requires the consumers to compromise cash.
As one of our respondents (Respondent 14) puts it,“I have a small family. Me and my wife live here and I work
here as a small-time tailor. Whoever we know, accepts cash. Why to go through so much of trouble when I can
conveniently use cash? The suppliers ask for cash. They do not accept any other mode as it is also very
convenient for them.”

Value barrier

Innovations that entail modifications in users’ routine require a comparatively elongated course before it begins
to gain consumers’ acceptance (Herbig and Day 1992). Molesworth and Suortti (2002) explain value as the
price-performance ratio in comparison to the substitutes of the product available in the market. Apart from
being convenient, cash carries the reputation of being the cheapest mode of exchange. The respondents revealed
how they thought that upfront costs with respect to opening an account, withdrawing funds and maintaining the
account, offered them no incentive to switch over to PB. Studies in the past have shown how lack of value acts
as single biggest inhibitor for adoption of innovations (Kleijnen et al. 2007).
In the words of Respondent 16, “Each time I use the PB service, I’ll have to spend money. There are costs
associated with these transactions. Firstly, I’ll have to spend money to open the account. Secondly, my vendor
will not accept this, so I’ll have to withdraw money through a cheque or ATM card. You tell me with the small
business that I have, does this really makes sense? If I spend on all these things, what will I save?”

Easy to use
The Wallis Report (1997) highlights that technological innovations that are perceived as easy to use’ see
maximum adoption by the customers. For a total of 12 interviews that we conducted of small businesses and
self-employed migrants, ease of use was seen to be of utmost importance for five of our respondents.
Respondents revealed that they do not want to open an account with the PB because applications of PB are
difficult to operate. These respondents also found usage of technological products troublesome.
In the words of Respondent 20: “Sometimes after the customer sends money, we do not receive any message.
Then I am expected to open the application on my phone and see if the money has been deposited into my
account. Who will do this? I don’t know how to use this smart phone properly. It is a big trouble.”
 Low awareness
In order for the adoption of a new service or product to take off, it is necessary to create
awareness among the consumers about it (Sathye 1999). One of the most dominating factors in
the low adoption of PB among migrant labor turned out to be a lack of awareness of the
product/service. During our interaction on the field, we realized that 12 of our 22 respondents
were unaware of the existence of PB, much less the process or the benefits of opening an
account with a bank. This was corroborated by the managers and is validated in almost all the
interviews we conducted. Quaddus and Hofmeyer (2007) state that awareness of new
businesses often leads potential consumers to seek the implied potential benefits of the products
and services offered, which in turn, influence their decision to adopt a service.

Difficulty with process ( Documentation)

Our research revealed that the migrant labor population hesitates in getting a bank account opened because their
understanding is that the banks demand a local address proof, which they may not possess. Most migrant labor
stays on in a city only till such time they see a job market that can sustain them and enable them to send money
back home. Such perceived complexities emerge as barriers to the adoption of PB, as seen in the case of other
financial services too (Szmigin and Bourne 1999; Laukkanen and Lauronen 2005). Respondents during our
interaction revealed that officials at the PB demand for a local address proof to open an account with them.
Incidentally, the requirement for a local address proof had long been discontinued by the central bank,Footnote8
but seems to not have been properly communicated to the target audience (migrant laborer, small business
units). Additionally, the Government of India has also eased the rules and norms for migrant labors permitting
them to give a self-declared local address as a proof of residence.Footnote9 Lack of awareness, as discussed in
Sect. 4.2.1, further compounds the problem, especially when it affects at various levels of adoption.
According to Respondent 2, “It is very difficult to open a bank account for me. I don’t have a local address
proof to open a bank account. The last time I went to the back to get an account opened, they asked me for a
local address proof. I do not have that so I left it.”
 Alternative Channel available at Lower cost
In the year 2006, the RBI devised the business correspondent (BC) model to reach financial services into the
hinterland, across populations belonging to different economic strata. The BC model deploys BCs or bank
mitras (mitra stands for friend in Hindi) that work as multiple customer service points (CSP), to deliver doorstep
banking to the millions of unbanked Indians (Uzma and Pratihari 2019). The Bank Mitras are responsible for
delivering financial services like transfer of money, opening of a bank account, facilitating withdrawal and
deposits on a commission basis (Ujjawal et al., 2012). The commission that these BCs charge for an account-to-
account transfer usually varies from Rs. 5 to Rs. 10 per transfer, or 0.2% to 0.5% of the amount deposited,
typically more for withdrawals than deposits. Almost all the migrant labor interviewed was found to be using
the Bank Mitras, informally also known as the ‘Money Transfer Agents’ to send money to their families back
home. Here, the sender and the receiver do not need bank accounts to transfer or receive money. The receiver
can collect the money from the agent at a collection point on furnishing an identity proof. These agents charge a
minimal fee which is usually favored by the migrant laborers as seen from the statement of Respondent 7:

The agent sends money for Rs. 25–30 to my home. Why should I pay the bank Rs. 400 to open
an account that I would need to use only once a month?”

Lac of real need

Customers have been found to resist innovations that were incompatible with their existing workflows, practices
and behaviors (Ram and Sheth 1989). With over 95 percent of all transactions in India still conducted with cash
(Litvack and Vigne 2017), PB as an innovation seems to have fallen into this trap. In its report submitted to the
RBI, Mohanty (2015) recommended greater use of technology in financial services. In their words, “… despite
improved financial access, usage (of financial services) remains low, underscoring the need to better leverage
technology to facilitate usage” (Recommendation 2.1, p.13). In our sample, 7 of the 22 migrant laborers
interviewed, showed no inclination to adopt a cashless service like PBs among others. Sathye (1999) observes
that if the existing mode of service or product delivery is perceived to adequately fulfill the customers’ needs,
this perception becomes an impediment in the adoption of an alternative product or service. This would be
especially true if the target audience for a cashless service is the bottom-of-the-pyramid segment.
 Chapter 6 suggestion on payment Bank
The advent of payments banks in the Indian banking sector has been a striking step. The issue of financial
inclusion in a country with a low overall literacy rate could only be solved with something so radical.
Financial inclusion and literacy are crucial steps towards the formation and development of a digital
ecosystem. In addition, these banks have helped the government immensely in implementing government
welfare schemes, transfer schemes and subsidies in various sectors
These schemes and subsidies are now directly paid to the beneficiaries’ account rather than a physical
payment. Thus, creating competitiveness between the payments and commercial banks, beneficial for the
banking sector. Moreover, such competition will expand the quality of banking services and reduced service
costs.
Currently, the payments banks can be called game-changers of the banking sector due to their user-friendly
app-based platform and attractive services. Plus, they are a gateway for low income and middle-income groups
to access banking services in a more accessible form.
Although it’s too early to judge the competency of payments banks, the effects till now are positive. They are
becoming popular amongst the youth as a model of digital transaction, bill payment and recharging.

Is arguably one of the best strategies implemented for financial inclusion, which is showing benefits. This has
been a milestone achievement in bridging the gap between commercial banks and rural regions.
Here are some suggestions that could make payments banks a more accessible, sustainable and efficient aspect
of the banking sector.
The government should collaborate with these banks to organise awareness campaigns in areas/regions with less
financial literacy. This will make people more aware of the benefits of the financial services offered by the
regulated banking sector.
Something like payments banks needs steady and cheap internet access. So the government should make
provisions for internet access to the people in rural areas.
The government could draft separate legislation to streamline the governance of payments banks in India.
However, the legislation should be technologically unbiased and centred on payment activities.
The legislation should be clear and adaptive to the recent emerging services and products.
The legislation should also offer a risk-based framework for incorporation in the payments banks so that
activities can be differentiated based on their risk.
The existing PSS Act should be amended to accommodate and regulate all the services currently offered by the
payments.
While there is huge potential, such a banking initiative also faces several challenges. The only medium of
operation for these banks is the internet. India is struggling with very low internet speeds – far lower than the
global benchmarks. According to Akamai’s State of the Internet report, in the fourth quarter of 2016, the
average internet speed in India was 5.6mbps. India’s global rank in this regards is 97, a little behind China and
Indonesia, out of the 149 qualifying countries. The low internet speed in the country may hinder the growth of
these banks (Shah 2017). Furthermore, since they are entirely technology-based without any significant physical
presence, the payments banks appeal chiefly to the tech-savvy citizens. People from the rural areas and small
towns in India will find it difficult to participate in this type of banking facility. Efforts should be made to
familiarise them with the technology, and to also assure them of the safety of their money in this new banking
system, merely, adding customers or opening accounts in not the end game. Banks need to encourage people to
transact regularly. Although India has witnessed remarkable growth in this type of banking, there is still much
ground to cover The introduction of payments banks is an important step. However, although India has a
modern, technologically advanced banking and payments system, there is still much more effort needed in this
sector. It is important to bring more of the rural population under the ambit of formal banking system. After all,
this was the key purpose of setting up payments banks in the first place Lack of awareness among the masses to
access these services. Lack of incentives for the agents to involve themselves in these activities. Lack of
infrastructure and access to operational resources. Technological hurdles.
About the alternatives that can make payment banks in India a successful venture “Alternatively, the PB model
could still be a success – but only with the universal banks and telecom companies working together having
strong infrastructure, deep pockets and network in place. Some of the suggestions to revive the banks could be:
(i) Arrangement with Universal bank to automatically transfer funds in accounts exceeding Rs 1 lakh. (ii)
Access to Aadhaar based KYC, as manual KYC is at least three times in terms of cost to e-KYC. (iii) RBI
should allow PBs to tie up with third-party services to cross-sell products, as margins are small, so scale is very
important. The future is uncertain, but in time we hope PB business will expand and evolve, with the help of
regulatory and Government support. Then they will able to achieve their objectives.

Recently, Aditya Birla Payments Bank (ABPB) announced shutting down its operations from 18 Oct’19 citing
unanticipated developments in the business landscape that have made the economic model unviable. This is not
the first such development related to payment banks (PBs) . On July 15, Vodafone m-Pesa had also shut shop.
In 2014, RBI conceptualised the PB model on the recommendation of Nachiket Mor committee for furthering
financial inclusion by providing small savings accounts and payments/remittance services to unorganised sector
entities. However, it seems to have failed to achieve the stated objectives, as only 4-PBs are operational out of
the 11 licensed players. In 1990s also, RBI had made an attempt to create Local Area Banks (LABs) that are
currently facing a host of issues.
Currently face stringent regulations on both asset and liability side. On the asset side, PBs face a blanket ban on
any type of lending. On the liability side too, they cannot accept deposits higher than Rs 1 lakh. Besides, the
capital requirement is quite steep at 15 per cent capital to risk-weighted assets ratio. Though the business of PBs
is free from credit risk and faces relatively lower market risk, it is subject to operational and liquidity risk.”
Ghosh of SBI went on to add that PBs are turning out to be working merely as an aggregator – a
disintermediation vehicle for depositors to invest in G-secs. PBs emerging as a real competitor to banks is not a
near-term possibility with deposits up to Rs 1 lakh comprising only 9 per cent of total deposits of the banking
system in terms of value (70 per cent in terms of a number of accounts).payment banks in India as the sector
requires an urgent solution in terms of regulations, operations and level playing field. The largest public sector
bank in India is of the opinion that payment banks cannot accept deposits higher than Rs 1 lakh besides capital
requirement is quite steep at 15 per cent capital to risk-weighted assets ratio, which is a hurdle in its success
Payment bank model could still be a success but only with the universal banks and telecom companies working
together having strong infrastructure, deep pockets and network in place.
Chapter 7 – conclusion of Payment Bank

We have reviewed the history of payments banks in India and assessed the viability of this new category of
-financial institution. We have elucidated also the conditions required for payments banks to deliver on the
objective for which they have been created. We have argued that the current regulatory framework does not
adequately respond to the real challenge of enabling success for payments banks. In the interest of space, we
have not addressed the first research question occasioned by the arrival of payments banks on the scene. The
implicit assumption behind their conception seems to be that the availability of low-cost easy-to-use mobile
money will readily provide a venue for financial inclusion. This is by no means a certainty. Interdisciplinary
research on mobile money projects around the world is beginning to demonstrate that the deployment of mobile
money often runs against the grain of existing cultural practices and therefore is not always successful (Rea and
Nelms 2017). This research questions the very basis for adopting a “financial inclusion” frame for such
interventions, since the deployment of mobile money may not necessarily advance developmental goals such as
gender equality or the flattening of existing class or caste hierarchies that may be oppressive. Whether payments
banks perpetuate such developmental bottlenecks or not remains, therefore, an open question from a “cultural
economy” perspective, and we do not address this question in our paper, although we propose to take it up in
future research
Considerations of data privacy and the proper use of customer data, or more broadly, of customer protection,
remain important matters for regulatory oversight, but there is no reason why such considerations cannot be
folded into an ex post governance framework. At least, such a view appears to accord with the vision of the
Nilekani Committee’s recommendations for the regulation of digital payments (RBI 2019b). Then, there is also
the matter of the trilemma. Regulators may have to -consider providing something akin to a public good (as
des-cribed in the previous paragraph) but need not insist on competition as a constitutive feature of the market
for payment services. The case of M-Pesa is once again instructive, because the -M-Pesa platform enjoyed a de
facto monopoly at the time it started operations, but Kenyan regulators did not actively -resist or seek to
overturn this status (Heyer and Mas 2011). There is, in other words, such a thing as too much market -access,
-especially if the market for payment service providers is winner-take-all. Seen in this light, the October 2018
decision to provide PPIs the same kind of market access that payments banks enjoy, may well turn out to be
counterproductive.
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