Banking Awareness: The Rise of Payment Banks

by Yuvi K - December 16, 2023

Banking Awareness : The Rise of Payment Banks

At present, banking services provide their customers with the convenience to shop, make payments, withdraw cash and carry out banking transactions. However, the banking landscape is undergoing a massive transformation due to the emergence of Payment Banks. The Reserve Bank of India (RBI) has authorized the launch of several payment banks in order to channels the expansion of these exclusive banking segments for the payment, remittance and branchless banking services.

Payment banks are a special type of a banking institution, which offers the services associated with conventional banks, yet there are some restrictions when it comes to offering services like loans, credit cards, investments and insurance products.

What are Payment Banks?

Payment Banks are a type of ‘specialized’ bank, which are licensed by the RBI and provide banking and payments products and services to the unserved and underserved customer segments such as migrant labourers, low-income households and small businesses. This type of institution can receive deposits up to a limit of Rs 10 lakh per customer and provide services such as issuance of debit cards, use of internet/mobile banking, transfers, payments, utility payments, etc.

The Payment Banks will enable customers to deposit and withdraw money at different locations, while offering a much more convenient and reliable system of banking. Payment Banks also focus on providing a cashless system of transferring money and providing services through mobile phones or the Internet.

Advantages of Payment Banks:

• Lower Cost: Payment Banks offer lower cost as they are more cost efficient when compared to traditional banks, as they are doing away with the physical infrastructure associated with traditional banking. In addition, the lower overheads also translate to much lower turnaround time and higher customer satisfaction.
• Enhanced Accessibility: Payment banks provide greater accessibility of banking services and more convenience, especially to those customers who are not well served by traditional banking. With Payment Banks, customers can access their accounts and carry out transactions from wherever they are.
• Minimum Requirements: The requirements to open and operate an account with Payment Banks are kept to a minimum which means that customers with low income can also avail of these services without the complexity of minimum balance requirements.
• Inclusion of the Unbanked: Payment Banks will provide Financial Inclusion to those who are excluded from banking services due to their location, income levels or other factors.
• Increase in Transactions: Payment Banks will increase the scope of transactions facilitated by digital means, including transferring money from one bank account to another, payments for utility bills and digital payments.

Fundamental Principles for Payment Banks:

The RBI has issued a few principles for Payment Banks along with guidelines to enable smooth functioning:

• Minimum Capital: The minimum capital requirement for Payment Banks is ₹100 crore.
• Capital Adequacy: It is mandatory for Payment Banks to maintain a minimum CRAR (Capital to Risk Weighted Assets Ratio) of 15%.
• Balance Sheet Requirement: Payment Banks are required to submit a balance sheet to the RBI every year.
• Restrictions on Investment: Payment Banks are not allowed to invest in non-SLR (Statutory Liquidity Ratio) instruments.
• Restrictions on Loan: Payment Banks are not permitted to extend loans and advances.
• Accounts: Payment Banks are allowed to accept demand deposit accounts (DDA) or savings bank accounts up to Rs 1 lakh per customer.
• Concentration Risk: Payment Banks are disallowed to assign more than 25% of the total deposits of the bank to a single customer or group of related parties.
• Savings Rate: Payment Banks are bound to offer the same savings Interest rates as offered by any scheduled commercial bank.
• Technology: Payment Banks are to facilitate transactions through contemporary modes like internet, mobile & ATM.

Recent Developments in Payment Banks:

The RBI has already granted ‘in-principle’ approval to eleven applicants to set up Payment Banks in the year 2015. The list of players in this field include:

Payment Banks will go a long way in bridging the gap between customers and banks, by making customer banking experience simpler and more convenient. Payment Banks will take the banking revolution to the next level and will boost the economy in the respective countries.

This is an extremely exciting time for the banking sector. With Payment Banks, customers can expect improved access to financial services and greater convenience. Payment Banks will definitely have a positive impact on the entire banking landscape of the country.

This article is written by [name], an expert in banking knowledge.