How Payment Banks Work?


Payment banks are a new elementary version of banks conceptualised by the Reserve Bank of India (RBI). These banks almost provide every service and banking operations similar to other banks but the difference is they operate on smaller scale without involving any credit risk or can’t advance loans or issue credit cards.

Payment banks can accept a restricted deposit, which is currently limited to 1 lakh for per customer but it may seem like a very low limit to most of the people reading this, but if you’re normally outside the banking system, then it is a actually comfortable amount and may be increased further. For customers both current account and savings accounts can be operated by such banks. Payments banks can provide services such as ATM cards, debit cards, net banking and mobile banking. For instance, Airtel has launched India’s first live payments bank of which ‘Paytm’ is the second such service to be launched in the India.Airtel-Payment-Bank-1L-Bank-Accounts

The guidelines for licensing of payment banks were announced in November 2014 and the Reserve Bank of India (RBI) gave an ‘in-principle’ approval to 11 of the 41 applicants. The list includes, Aditya Birla Nuvo, Reliance Industries, Vodafone, and Airtel and adding it will move to give such licences more regularly in the future. The goal behind creating these payment banks is to bring about financial addition by making it easier for anyone to get a bank account easily.

What Payment Banks can do?

  • Payment Banks allow transfers and payment through a mobile phone.
  • Payment Banks offer forex services at charges lower than banks.
  • They issue forex cards to the travellers, which can be used in all over India as debit or ATM card
  • Payment Banks can offer services such as automatic payments of bills and purchases in cashless, cheque less transactions through a mobile phone.
  • Payment Banks can issue debit cards, ATM cards and net banking.
  • Payment Banks can even transfer money directly to bank accounts at near with no cost that connects banks.
  • They also offer card acceptance instrument to third parties like the ‘Apple Pay.’
  • They cannot provide loans but can raise the deposits of up to Rs.1 lakh, and has to pay interest on these balances similar as a savings bank account does on specific date.
  • They can offer basic financial services such as mutual funds, insurance products etc.
  • There carry charges on withdrawal over a specified limit.

What they cannot do?

  • Payment banks cannot undertake lending activities such as loans
  • No timed-deposits such as FDs etc
  • They cannot issue credit cards.

How Payment Banks will work?

The term Payment Banks needs to be focused to Rural India where people still make all transaction in cash. An account will be opened on the basis of unique mobile number on which customer can make a transaction or payments through web based mobile application (App) or through IVR/USSD gateway to registered as a user. Payment Bank users can withdraw cash or refill their accounts from points known by their payment bank service provider.

As a commission payment banks will charge a certain percentage of the transaction which will be their source of earnings. However, new payment banks can also earn by investing in government securities.

Who is eligible to start a Payments Bank

Entities like Non-banking finance companies (NBFCs), Business correspondents, supermarket chains, mobile telephone companies, real sector cooperative, and public sectors can apply to set up the Payments banks. Though, the minimum capital requirement to set up payment banks is Rs 100 crore. The RBI has issued that 25% of payments must be in the unbanked rural area which will benefiting the rural area, and as per FDI rule, foreign shareholding will be allowed in these banks.

Why these Payment banks so important?

Payments banks will majorly focus on the organized sectors and empower those who have not transacted in cash. Generally, traditional banks have less possibility to open banks in small villages Because of less economical value, and that is where payments banks can be proved useful. Today the people are shifting towards a cashless economy by operating their accounts on mobile phones and transact digitally thus people can look ahead to banking services and the Payments banks will be their rescuer.

Payment banks can also play a vital role in executing the government’s direct benefit transfer scheme in which the subsidies on healthcare, gas and education are be paid directly to beneficiaries’ accounts.

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