Payment banks

So what exactly is a payment bank?

Payment banks can accept deposits restricted to Rs. 1 lakh per customer, and are allowed to pay customers interest on the money that is being deposited. They can be used for either current accounts or savings accounts. For companies that have operated as mobile wallets (which are a type of Pre-Paid Instrument aka PPI), this is a big step forward as it raises the funds limit, and allows interest to be paid on the deposits, making it more attractive for users to store their money with a Paytm or m-Pesa.

Unlike a regular bank however, a payment bank can't loan money to people, or issue credit cards. Also, the payment banks are only allowed to invest the money customers deposit into government securities.

While the payment banks can't issue credit cards, they can issue ATM and debit cards. Since many of the 11 new license holders already operate mobile wallets, the ability to issue an ATM card helps close the loop and makes it easier to convert virtual money into cash, and vice versa.

This is also very important when considered from the perspective of financial inclusion, as someone could now fill cash into a m-Commerce bank account from Delhi, and a relative in a small town who holds the debit card could withdraw cash from any ATM frictionlessly, or even in a more rural location, through any point of sale terminal with a "business correspondent", essentially an authorised partner for the bank. It's these partners - and theoretically the small convenience shop in a village that sells mobile recharges could be one of them - that will serve the purpose of bank branches, though the payment banks can set up branches if they want.

Payment banks can be integrated with your savings bank accounts via IMPS and NEFT transfers. As already mentioned, the payment banks ATM or debit cards will also work on all banks' machines. Payment banks can't accept NRI deposits, which makes sense considering the goal of financial inclusion.

What they can and can’t do

-They can’t offer loans but can raise deposits of upto Rs. 1 lakh, and pay interest on these balances just like a savings bank account does.

-They can enable transfers and remittances through a mobile phone.

-They can offer services such as automatic payments of bills, and purchases in cashless, chequeless transactions through a phone.

-They can issue debit cards and ATM cards usable on ATM networks of all banks.

-They can transfer money directly to bank accounts at nearly no cost being a part of the gateway that connects banks.

-They can provide forex cards to travellers, usable again as a debit or ATM card all over India.

-They can offer forex services at charges lower than banks.

-They can also offer card acceptance mechanisms to third parties such as the ‘Apple Pay.’

Who has Reserve Bank granted in-principle approval to be a payment bank?

-Aditya Birla Nuvo Ltd

-Airtel M Commerce Services Ltd

-Cholamandalam Distribution Services Ltd

-Department of Posts

-Fino PayTech Ltd

-National Securities Depository Ltd

-Reliance Industries Ltd

-Dilip Shantilal Shanghvi

-Vijay Shekhar Sharma

-Tech Mahindra Ltd

-Vodafone m-pesa Ltd

Why are they going to be a game-changer?

This is for the first time in the history of India's banking sector that RBI is giving out differentiated licences for specific activities. RBI is expected to come out with a second set of such licences — for small finance banks — and the process for those is in its final stage. The move is seen as a major step in pushing financial inclusion in the country.

It’s a step to redefine banking in India. The Reserve Bank expects payment banks to target India’s migrant labourers, low-income households and small businesses, offering savings accounts and remittance services with a low transaction cost. It hopes payments banks will enable poorer citizens who transact only in cash to take their first step into formal banking. It could be uneconomical for traditional banks to open branches in every village but the mobile phones coverage is a promising low-cost platform for quickly taking basic banking services to every rural citizen. The innovation is also expected to accelerate India’s journey into a cashless economy.

India’s domestic remittance market is estimated to be about Rs. 800-900 billion and growing. With money transfers made possible through mobile phones, a big chunk of it, especially that of the migrant labour, could shift to this new platform. Payment banks can also play a crucial role in implementing the government’s direct benefit transfer scheme, where subsidies on healthcare, education and gas are paid directly to beneficiaries’ accounts.

Also, this is the first time since banks were nationalized, that private sector business groups have bagged the RBI’s nod for banking services.

What has the experience been in other countries?

Payment technologies have proved hugely popular in other developing countries. In Kenya, the most cited success story, Vodafone’s M-Pesa is used by two in three of adults to store money, make purchases and transfer funds to friends and relatives.

The vision of Digital India

The vision of Digital India programme aims at inclusive growth in areas of electronic services, products, manufacturing and job opportunities etc. The vision of Digital India is centred on three key areas -

(i) Digital Infrastructure as a utility to every citizen

(ii) Governance & services on demand

(iii) Digital Empowerment of citizens

The Digital India programme aims to provide broadband highways, universal access to mobile connectivity, public internet access programme, e-governance: Reforming government through technology, eKranti - Electronic delivery of services, Information for all, Electronics manufacturing: Target net zero imports, IT for jobs and early harvest programmes.

In line with these objectives, the government has launched some inititaives. Others are being readied for launch. We take a look at some of them:

1. Digital Locker System aims to minimize the usage of physical documents and enable sharing of e-documents across agencies. The sharing of the e-documents will be done through registered repositories thereby ensuring the authenticity of the documents online, says the government.

2. MyGov.in has been implemented as a platform for citizen engagement in governance, through a "Discuss", "Do" and "Disseminate" approach. The mobile app for MyGov would bring these features to users on a mobile phone.

3. Swachh Bharat Mission (SBM) Mobile app would be used by people and Government organizations for achieving the goals of Swachh Bharat Mission.

4. eSign framework would allow citizens to digitally sign a document online using Aadhaar authentication.

5. The Online Registration System (ORS) under the eHospital application has been introduced. This application provides important services such as online registration, payment of fees and appointment, online diagnostic reports, enquiring availability of blood online etc, the government claims.

6. National Scholarships Portal is said to be a one stop solution for end to end scholarship process right from submission of student application, verification, sanction and disbursal to end beneficiary for all the scholarships provided by the Government of India.

7. DeitY has undertaken an initiative namely Digitize India Platform (DIP) for large scale digitization of records in the country that would facilitate efficient delivery of services to the citizens.

8. The Government of India has undertaken an initiative namely Bharat Net, a high speed digital highway to connect all 2.5 lakh Gram Panchayats of country. This would be the world's largest rural broadband connectivity project using optical fibre.

9. Policy initiatives have also been undertaken by DeitY in the e-Governance domain like e-Kranti Framework, Policy on Adoption of Open Source Software for Government of India, Framework for Adoption of Open Source Software in e-Governance Systems, Policy on Open Application Programming Interfaces (APIs) for Government of India, E-mail Policy of Government of India, Policy on Use of IT Resources of Government of India, Policy on Collaborative Application Development by Opening the Source Code of Government Applications, Application Development & Re-Engineering Guidelines for Cloud Ready Applications

10. BSNL has introduced Next Generation Network (NGN), to replace 30 year old exchanges, which is an IP based technology to manage all types of services like voice, data, multimedia/ video and other types of packet switched communication services.

11. BSNL has undertaken large scale deployment of Wi-Fi hotspots throughout the country. The user can latch on the BSNL Wi-Fi network through their mobile devices.

12. BPO Policy has been approved to create BPO centres in different North Eastern states and also in smaller / mofussil towns of other states.

13. Electronics Development Fund (EDF) Policy aims to promote Innovation, R&D, and Product Development and to create a resource pool of IP within the country to create a self-sustaining eco-system of Venture Funds.

14. National Centre for Flexible Electronics (NCFlexE) is an initiative of Government of India to promote research and innovation in the emerging area of Flexible Electronics.

15. Centre of Excellence on Internet on Things (IoT) is a joint initiative of Department of Electronics & Information Technology (DeitY), ERNET and NASSCOM.

"The estimated impact of Digital India by 2019 would be cross cutting, ranging from broadband connectivity in all Panchayats, Wi-fi in schools and universities and Public Wi-Fihotspots. The programme will generate huge number of IT, Telecom and Electronics jobs, both directly and indirectly. Success of this programme will make India Digitally empowered and the leader in usage of IT in delivery of services related to various domains such as health, education, agriculture, banking, etc,"

Credit Information Bureau (India) Limited (CIBIL)

Credit Information Bureau (India) Limited is India’s first Credit Information Company (CIC) founded in August 2000. CIBIL collects and maintains records of an individual’s payments pertaining to loans and credit cards. These records are submitted to CIBIL by member banks and credit institutions, on a monthly basis. This information is then used to create Credit Information Reports (CIR) and credit scores which are provided to credit institutions in order to help evaluate and approve loan applications. CIBIL was created to play a critical role in India’s financial system, helping loan providers manage their business and helping consumers secure credit quicker and on better terms.

CIBIL collects and maintains records of an individual‘s payments pertaining to loans and credit cards. These records are submitted to CIBIL by banks and other lenders, on a monthly basis. This information is then used to create Credit Information Reports (CIR) and credit scores which are provided to lenders in order to help evaluate and approve loan applications.

Since, the credit score and CIR not only helps loan providers identify consumers who are likely to be able to pay back their loans, but also helps them to do this more quickly and economically. This translates into faster loan approvals.

Until recently, there was little visibility and transparency with regards to the loan approval process and the elements that loan providers used to evaluate your loan application. Since, CIBIL has made your credit score and CIR available to you, you will be able to see how valuable a customer you are to loan providers.

CIBIL empowers both loan providers and individuals to see their world more clearly and hence, take better and more informed decisions.

For credit grantors to gain a complete picture of the payment history of a credit applicant, they must be able to gain access to the applicant's complete credit record that may be spread over different institutions. CIBIL collects commercial and consumer credit-related data and collates such data to create and distribute credit reports to its Members which are credit institutions and banks in India. CIBIL’s over 1300 strong member base includes all leading public & private sector banks, financial institutions, non-banking financial companies and housing finance companies.

CIBIL’s products, especially the Credit Information Report (CIR) and CIBIL TransUnion Score are very important in the loan approval process. Once the loan provider has decided which set of loan applicants to evaluate, it analyzes the CIR / Score in order to determine the applicant’s eligibility. Eligibility basically means the applicants ability to take additional debt and repay additional outflows given their current commitments. Post completion of these first 2 steps the loan provider will request for the applicants income proof and other relevant documents in order to finally sanction the loan.

The CIR and Credit Score not only help loan providers identify consumers who are likely to be able to pay back their loans, but also help them to do this more quickly and economically. This translates into faster loan approvals for consumers. An individual with a credit score above 750 has better bargaining power with the lenders, since he is perceived as a responsible borrower. Since consumers can now access their Credit Scores and CIRs directly from CIBIL at the cost of INR 500, they can see for themselves how they are perceived by the lenders before applying for a loan. Hence, CIBIL empowers both loan providers and individuals to see their financial and credit history more clearly and hence, take better and more informed decisions.

CIBIL is ISO 27001:2005 certified- the most recognized security standard in the world. CIBIL is one of the 1000 companies in the world, which have achieved ISO 27001 certification, and one of the first few in India.