What will be the Future of Payment Banks in India?

Sunday, July 31, 2016 0 Comments


 The payments bank model has been envisaged based on the success of M-Pesa in Kenya. A study by Bill and Melinda Gates Foundation identified four reasons why M-Pesa was able to reach a level of penetration that banks did not in Kenya. One, the cost of transferring cash to the villages from cities was extremely high (sometimes 20%). There was also a lack of safety in sending cash. Two, Safaricom, a telecom company, is a highly trusted brand, more so than Kenyan banks. Three, Kenyan banks were restricted from utilising banking correspondents beyond a certain distance, thereby limiting their scope of reach. Four, for nearly five years, Safaricom enjoyed a monopoly because banks did not have branches in remote areas due to high costs and because it made M-Pesa easily available by strategically tying up with those vendors who provided mobile phone services and recharge.


The extent of similarity between India and Kenya is limited to the lack of bank branch networks in remote areas. Indian banks, too, find it unprofitable to have branches in rural areas. But, the cost of transferring money in India is very low. Once bank accounts open under the Pradhan Mantri Jan-Dhan Yojana, operating bank accounts via mobile or through banking correspondents which include payments, savings and, in limited cases, credit services will neither be hard nor expensive. One wonders if a mobile money system would not be tantamount to a platform which already exists in the banking sector viz. National Payments Corporation of India and Unified Payments Interface.

Under the current regulatory framework, payments banks are not allowed to lend so their classification, as banks, in itself is incorrect. Their only purpose is to make payment services ubiquitous, which means, they may be, more appropriately, governed under the Payments and Settlements Act 2007. Payments banks have been mandated to hold 75% of their liabilities in SLR securities (yielding ~6.5%) and the remaining 25% as deposits with other banks (yielding ~7.25%). This means that payment banks have no risk on the asset side of the balance sheet. Assuming that the cost of funds for these payments banks will be comparable to current scheduled commercial banks, (we are stretching our imagination here), that leaves absolutely no net interest margin for these banks to cover their costs.


The cost of funds for payments banks (and even small banks) will definitely be higher than full service banks which have better credit as well as access to inter-bank options and RBI for overnight liquidity requirements. To counter this, the balances held with payments banks will give lower returns than the balances held with scheduled commercial banks.


There will be no incentive for customers to hold deposits in these payments banks. This leaves charging for payments as the only possible source of revenue for payments banks. This begs the question as to why anyone would keep any float in a payments or small bank account which presumably would not pay any interest (Paytm wallet, M-Pesa or Airtel money earn no interest currently). Almost all banks in India have implemented a core banking solution and are able to provide payment services via internet banking at almost negligible cost. There is a near zero transaction cost for a consumer (on most platforms) for transfer of money via NEFT or RTGS. Debit cards and ATM machines are also available widely but with an urban bias for now. The assumption seems to have been that payments banks will leverage technology and have minimal operating costs. Payments business is different from banking. It enables the transfer of funds from a payer to a beneficiary. Banks, payments networks like Visa, MasterCard and cash were the only mode of payments for a very long time. In the last decade, with the advent of technology, banks have faced a challenge to their monopoly on payments by a clutch of technology and telecom companies, most notably; M-Pesa, Apple Pay,Google Wallet and the like. India has been at the forefront of the payments revolution with systems like NEFT, RTGS and ECS, which were promoted by RBI and led to massive improvement in performance and customer services by banks. In the second version of this revolution, companies like Paytm and other digital wallets have garnered a lot of traction with tech-savvy consumers. Payment services like M-Pesa or Airtel money however have not taken off like they did in sub-Saharan Africa.

What the RBI needs to consider is that there are not many telecom or financial companies more trusted than some of the big PSU banks in India. They have a reach and presence that is unmatched by anyone else apart from India Post. A mobile wallet is a depreciating currency as every transaction incurs a transaction fee. Would the poor not prefer to transact via normal banks and not mobile money if similar payment and banking services are provided by banks? It is obvious that because of the restrictions imposed by RBI, payment banks have no business model. Of all the payment banks licensed, only telecom companies, IT players and retail chains have a different cost structure and technology platform than regular banks. These players were already in the payments business via wallets and mobile money applications. If only these companies had to remain in the fray, RBI need not have gone through the whole licensing charade, instead the RBI could have taken marginal yet effective measures to legitimise and rationalise the operations of existing players in the field.

Saurabh Roy & Nirupama Soundararajan

Soundararajan is senior fellow and Roy is fellow at Pahle India Foundation
Views are personal



 Courtesy: www.postbankofindia.org

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All Payment Banks in India are Closer to Reality

Sunday, July 31, 2016 0 Comments

Three have already backed out.

Off the remaining eight, four are expected to start operations soon.


This, in short, is the story of Reserve Bank of India's (RBI) bid to introduce alternate forms of banking in India.

It has been more than a year since RBI granted its ascent to 11 companies to begin their Payment Banks, initial setbacks were seen in the form of Tech Mahindra, Cholamandalam Finance and Dilip Shanghvi-IDFC Bank-Telenor JV. backing out.

However, with other companies, including Vijay Shekhar-led Paytm and Reliance Industries-State Bank of India (SBI) joint venture also firming up its plans to launch the Bank, the concept is now closer to reality.

In February 2015,  RIL and SBI entered into a non-binding memorandum of understanding to set out a principal terms for the venture.


Mukesh Ambani said in August last year, as quoted in a LiveMint report, “The payments bank is integral to RIL’s digital initiative in a rapidly converging world of telecom, Internet, commerce, media and financial services.”

Cabinet has also approved India Post to set up its own Payments Bank.

Around 650 branches of the postal payments bank will be opened across India connecting rural post offices.

The Bank is expected to be operational by September next year.

Paytm's Payment Bank, it seems, will be the first one to be operational. Vijay Shekha, founder, Paytm, has said that the Bank is expected to begin operations before Diwali this year.

This is likely to be followed by Bharati Airtel's Payment Bank.

The Airtel Payment bank is expected to starts its banking network by the second quarter of the current financial year.

Kotak Mahindra Bank is also a shareholder in this bank.

The last of these four is Aditya Birla Nuvo. "Targeting to launch services by the end of 2016-17, subject to regulatory approvals", ABNL said in a Business Standard.


The objectives of RBI for setting up of payments banks was to further financial inclusion by providing (i) small savings accounts and (ii) payments/remittance services to migrant labor workforce, low income households, small businesses, other unorganized sector entities and other users.

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Banking on Unbanked India through Payment Bank

Sunday, July 24, 2016 0 Comments

Close to a year after the Reserve Bank of India (RBI) gave ‘in-principle’ licences to 11 entities (only eight are in the fray now) to launch payments banks in the country, the concept seems to be finally inching closer to reality. Several licence-holders are accelerating preparations for the launch of their ambitious payments banks—a financial ecosystem that is said to redefine banking and push for India’s journey into a cashless economy. 


On June 30, Reliance Industries (RIL) signed a shareholder agreement with banking major State Bank of India (SBI) to set up their payments bank joint venture. The two entities had, in February this year, entered into a non-binding memorandum of understanding to set out the principal terms. This would bring together the nation’s largest banking network and a pan-India telecom and retail set-up. While RIL signed the subscription and shareholders’ agreement as the promoter with 70% equity contribution, SBI will contribute the remaining 30%.

A few weeks before that, the Union Cabinet approved a proposal to set up India Post Payments Bank (IPPB) as a public limited company under the department of posts with 100% government equity. The total corpus of the payments bank is R800 crore, which will have R400 crore equity and R400 crore grant. As per then telecom minister Ravi Shankar Prasad,


650 branches of the postal payments bank will be set up initially across India, which will be linked to rural post offices—India has 1.54 lakh post offices, of which 1.39 lakh are rural ones. The IPPB will obtain a banking licence from the RBI by March next year and, by September that year, all 650 branches of the postal payments bank will become operational, say reports.

All geared up Noida-based Paytm, another in-principle licence-holder, is all set to launch its payments bank before Diwali and is readying a budget of  R350-500 crore to roll out the venture, say reports. “We are looking at launching sometime between August and November. Our goal is to stay focused on our twin objectives: to digitise cash and to provide access to small-income households,” says Shinjini Kumar, CEO-designate, Paytm Payments Bank.

A former RBI executive and former partner at global consultancy firm PricewaterhouseCoopers, Kumar was brought into the fold of the Alibaba-backed mobile wallet and e-commerce firm to head its payments bank in March this year. She is expected to build a 2,500-strong team to roll out the venture. “We expect the benefits from this inclusive digitisation will accrue to the users of financial services, who have traditionally not been serviced due to high costs of distribution and associated risks of not having enough data points to understand consumer behaviour,” she adds.

In the first week of June, Airtel Payments Bank appointed Shashi Arora as the CEO and managing director of the company subject to the approval of the RBI. He replaced Manish Khera, who reportedly left the company to pursue an entrepreneurial journey. In an official statement, Airtel Payments Bank chairman Sunil Bharti Mittal said, “I am delighted to announce the appointment of Shashi Arora as the CEO and MD designate of the bank… I am confident that under Shashi’s leadership, our launch plans will gather further momentum, and we look forward to delivering an outstanding banking experience to millions of customers across the country.” Only in April this year, the telecom major’s wholly-owned subsidiary, Airtel M Commerce Services—as Airtel Payments Bank was known before being re-branded in May—became the first to be issued a payments bank licence by the RBI.

In February, Kotak Mahindra Bank signed an agreement to pick a 19.9% stake for R98.38 crore in Airtel M Commerce Services. After having gained a national footprint post its acquisition of ING Vysya Bank towards the end of 2014, Kotak Mahindra Bank is setting its eyes on grabbing a large pie of the payments bank business. The new payments bank will help Kotak Mahindra—the fourth-largest private-sector bank by assets—to break new ground among the unbanked and expand its reach in the huge rural market.

Concerns & challenges

The concept of payments banks came into being when, in February 2015, the RBI released the list of entities that had applied for a payments bank licence. There were 41 applicants. After examining the applicant entities for their financial track record and governance issues, the RBI finally gave ‘in-principle’ licences to 11 entities to launch payments banks on August 19, 2015.

However, by May this year, three applicants—Tech Mahindra, Cholamandalam Finance and Dilip Shanghvi-IDFC Bank-Telenor JV—dropped out, leaving only eight in the fray: India Post, Airtel Payments Bank, Reliance Industries, Paytm Payments Bank, Aditya Birla Nuvo, Vodafone M-Pesa, Fino PayTech and National Securities Depository.

The ‘in-principle’ licence would be valid for 18 months from the day of granting, within which the entities must fulfill the requirements—they are not allowed to engage in any banking activity within that period. The RBI was to consider granting full licences under Section 22 of the Banking Regulation Act, 1949, after it was satisfied that the conditions were fulfilled.

This is for the first time in the history of India’s banking sector that the RBI has given out differentiated licences for specific activities. The move is seen as a major step in pushing financial inclusion in the country. The RBI expects payments banks to target India’s migrant labourers, low-income households and small businesses, offering savings accounts and remittance services with a low transaction cost.

Why are then some firms shying away from their plans? “The fundamental premise was that we needed differentiated financial institutions—more nimble and focused—to unleash financial innovation and inclusion in India. Payments (banks) could be the ‘highway’ on which other financial services could ride,” says Varad Pande, a partner at Dalberg Global Development Advisors, a global strategic advisory firm that works to raise living standards in developing countries and address global challenges. Pande also co-leads Dalberg’s financial inclusion practice area. “The RBI deliberately gave licences to a wide range of applicants, as it didn’t want to pre-judge where innovation would come from. So we had telcos, NBFCs, wallet players and India Post in the picture. It is true that since payments banks won’t be able to disburse loans, their net interest income will be limited. So traditional banking economics isn’t so attractive. As some licensees delved deeper, they found that the economics didn’t make much sense for them or that there were other priorities they wanted to pursue,” explains Pande.

Clearing the air on its withdrawal from the payments bank race, IDFC Bank MD and CEO Rajiv Lall had recently said they were still open to any kind of partnerships, including for a payments bank. “Telenor, one of our significant partners, is re-evaluating its strategic footprint in India. So that was one factor. Likewise, (their other partner, industrialist) Dilip Shanghvi was also reviewing the competitive landscape that a payments bank would unveil in India, re-visiting his earlier plan for such a bank. We had been planning to put together a business plan in the light of what we learnt about the competition as it began to unfold. I would say a combination of all these reasons led us to not pursue,” he was quoted as saying in a media interview.

Of late, the industry is also talking about profitability and rising competition, among several other reasons. Is there really a cause for concern? “Competition is not a point to worry about. In fact, with 97% cash transactions in the economy and with a fast-growing population of smartphone and data users, we think everyone who does their bit to make the system cashless will help by shaping behaviour and reducing cash. In that sense, our competition is with cash,” says Kumar of Paytm Payments Bank.

As per Kumar, that is also her major challenge because while cash can be acquired, exchanged and used by anyone for any purpose, digital money can only be accessed after KYC (‘know your customer’, the process of a business verifying the identity of its clients) and requires behavioural change on handling security, etc. “Unfortunately, despite tall claims, policymakers have higher comfort with paper than with the digital medium. e-KYC is our commitment, but in many of our target geographies, data availability and Aadhaar penetration are not seamless. Traditional approach to KYC and cash management remain the biggest challenges. If we have the same requirements as large banks and can’t play to our digital connect with the consumer through the mobile, it is not easy to truly differentiate and achieve a different level of scale,” she adds.

Source: Financial Express

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India Post Payment Bank, IPPB Expects CEO from State Bank of India

Saturday, July 23, 2016 0 Comments

India Post Payments Bank, which is in a hurry to appoint a head, could get its first chief executive officer from the country’s largest lender State Bank of India (SBI).

The bank’s board comprising the CEO, chairperson, besides government nominees and five independent directors is expected to be in place by September.

India Post had written to top five government banks including SBI, Punjab National Bank and Bank of Baroda among others in identifying the chief.

Sources said that SBI chairman Arundhati Bhattacharya has already responded and proposed a name. However, at a later stage, the payments bank is likely to have a search and select committee in place for the appointment of a CEO.

“We are in a hurry to put everything in place as soon as possible, we sought suggestions from the top public sector banks to help us in finding a CEO,” SK Sinha, secretary, department of post, told.

The government set aside an initial corpus of ₹ 800 crore for the bank. While the bank will roll out 650 bank branches by September 2017, it will also use the 154,000 existing post offices to sell a host of its products and the new bank could hire about 2,000 people

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What Wikipedia Says About India Post Payment Bank or IPPB

Saturday, July 23, 2016 0 Comments

The India Post Payments Bank (IPPB) is a proposed state-owned commercial bank in India. The bank would use the existing network of the public-sector postal service, India Post.

History

In 2006, it was announced that India Post would open a bank to erase its ₹1,000 crore deficit during the 11th Five Year Plan, emulating Poste italiane. In February 2013, it was announced that India Post had hired Ernst and Young to prepare a report on the proposed bank. Some officials of the Ministry of Finance had opposed the plan saying that India Post did not have the expertise to provide banking services such as handling credit.


In August 2013, the Planning Commission of India said that even though it supported the plan, it was not feasible owing to financial difficulties at the moment. It also felt that converting post offices into bank branches may hamper their original function. In October 2013, the Cabinet of India rejected the proposal on the grounds that India Post did not have sufficient expertise in running a bank. In December 2013, India Post announced that it would install ATMs in 1000 of its office across India in the first half of 2014.

On 27 February 2014, India Post opened its first ATM in Chennai. In April 2014, the Reserve Bank of India (RBI) gave in-principle banking licences to IDFC and Bandhan Financial Services out of 26 applicants, but India Post was not considered for a licence because it had not received the mandatory clearance from the government. However, the RBI said that it would examine the proposal separately in consultation with the government.

In September 2014, a task force was formed by Prime Minister Narendra Modi which aimed to study ways in which the existing postal network could be leveraged. The task force was headed by T. S. R. Subramanian. On 4 December 2014, the task force submitted its report to Minister for Communications and Information Technology Ravi Shankar Prasad. The report said that more services should be provided in the field of banking, insurance and e-commerce.

In late December 2014, it was announced that India Post would issue ATM-cum-debit cards to its Post Office Savings Bank (POSB) account holders. In January 2015, it was announced that the Indian government was considering a legislature, to finalise the setting up of the bank, following which a banking license would be applied for at the Reserve Bank of India. On 28 February 2015, during the presentation of the Budget it was announced that India Post will use its large network to run a payments bank.

Role in financial inclusion

India Post has about 1,54,000 post offices, of them 90% are in rural areas. There is one post office for every 7176 people in India. India Post also has 2,96,000 agents in the rural area. About 2.2 crore people, already receive their National Rural Employment Guarantee Act (NREGA) payments by post offices. After State Bank of India, India Post has the largest deposits valued at ₹6 lakh crore.

T. S. R. Subramanian has said that it could aid in the ongoing Pradhan Mantri Jan Dhan Yojana financial inclusion plan.

Structure and funding

The Payments Bank will be set up on a lean operating model. It will focus on financial inclusion by harnessing low-cost technology based solutions to extend access to formal banking especially in rural areas and among unbanked and under banked segments of the society. It has proposed by the task force that the existing Post Office Savings Bank (POSB) should be continued to run parallel to the new bank initially. Later, it should be merged with the bank. The existing post offices shall provide banking services to customer, whereas the bank branches shall handle back-office work, like processing loan applications, assessing credit worthiness and risk assessment, investment operations etc.

The Post Bank shall also provide institutional accounts to panchayats and micro-credit agencies. Initially, the bank will operate separately from the postal business, with a branch in every district for the first three years. The bank will require an initial funding of ₹500 crore from the government.

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India Post to Start IPPB Branch in Every District in India

Saturday, July 23, 2016 0 Comments

India Post expects to start the first 50 branches of its payments bank by May 2017, seeking to widen financial inclusion in the country.

As per the current plan, India Post Payments Bank (IPPB) - as it has been termed will eventually have 650 branches across the country.

While the first set of branches will open by May, the remaining will start operations by September 2017, a top official of the Department of Posts said.

The department hopes to submit a final proposal to the Reserve Bank of India by February, ahead of the March 2017 deadline, after it has the required management and technology in place, SK Sinha, secretary, Department of Posts, told ET.


The RBI gave in-principle approval to 11 applicants in August last year, including the Department of Posts, Aditya Birla Nuvo, Airtel M Commerce Services, Fino PayTech, National Securities Depository, Reliance Industries, Tech Mahindra and Vodafone m-pesa, for setting up payments banks. Three of the 11 entities have decided to back out, citing unviability.

India Post, with a network of about 155,000 post offices, will hire almost 2,000 people for the payments bank operations.

"There will be nine board members, five from outside and four internal people from the department, including the CEO," said Sinha.

The department is contemplating whether it can form its own search and selection committee to appoint a CEO or rely on the standard procedure followed by public sector banks for top-level appointments.

The department has written to state-owned banks seeking nominations. Sinha said the State Bank of India has responded with some names.

"For the next rung of leadership such as the chief financial officer, chief operating officer and chief technology officer, we are forming an internal committee," he said. The government has approved Rs 400 crore equity and Rs 400 crore grant for IPPB.

Alibaba-backed Paytm is the other or payments frontrunner for payments banks in India and has drawn up a largely branchless model.

Sinha said that India Post is looking at catering to the unbanked population of the country with the idea of opening one branch in almost every district of the country.

"Most of the other players may not be even thin king of the areas that we want to service," said Sinha. The plan is to have most of the banking features such as money transfer and internet banking, apart from offering credit (in partnership with other banks or institutions), along with financial products such as mutual funds.


Sinha is betting big on the government's direct benefits transfer scheme to drive transactions, with welfare payments being deposited in the bank accounts of consumers.

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Wipro, Infosys and IBM Responded for IPPB Back End Operations

Monday, July 18, 2016 0 Comments

At least 15 companies, including Wipro Ltd, Infosys Ltd and International Business Machines Corp. have shown an interest in handling the back end operations of India Post Payments Bank (IPPB).


All of these companies have responded to a request for proposal (RFP) released by the department of posts on 1 July on its website, a person with direct knowledge of the matter said. The RFP aims to select a systems integrator for delivery of business applications and IT systems for IPPB for a period of five years, and each of these companies has paid Rs.50,000 for the tender document.

The department of post is expected to brief the applicants in the next few days, and the final bids are expected to come in by the beginning of August.

“Both in terms of size and value, the contract is huge. Unlike any other large commercial banks, this will have to have a lot more levels of simplicity since it caters to a different category of customers,” said Ravi Trivedi, an independent consultant who was formerly with audit firm KPMG.


The contract size could be roughly for at least Rs.500-700 crore, Trivedi said.

The postal department will then take a couple of months for evaluation before announcing the winner, said the person aware of the issue quoted above.

“Payment banks’ business models are based on technology; so, there will be high focus and spending on technology,” said Abizer Diwanji, partner and national leader, financial services, EY India.

The department of posts has already awarded a contract to Infosys as its financial services integrator for implementing core banking solutions and installing automated teller machines. Tata Consultancy Services Ltd also won a six-year contract in 2013 for India Post’s IT modernization programme.

Prime Minister Narendra Modi’s government, as part of its Digital India programme, is banking on IPPB to take its schemes such as direct benefits transfers to the remotest corners of the country on the strength of India Post’s strong network of about 150,000 post offices.

Like other payments banks, IPPB will target financially excluded customers such as migrant workers, low-income households and tiny businesses. It will not lend and, as a result, will be shielded from the risks that conventional banks are exposed to.

“Payments banks are a very strong component of Digital India and can have a high impact and will bring down the cost of bank transactions in rural areas,” said Ashis Sanyal, a former senior director at the department of electronics and information technology.

The department of posts was among the 11 entities that got an in-principle approval from the Reserve Bank of India (RBI) in August 2015 to start a payments bank. Of these, Tech Mahindra Ltd; Sun Pharmaceutical Industries Ltd promoter Dilip Shanghvi and his partners; IDFC Bank Ltd; Telenor Financial Services, and Cholamandalam Investment and Finance Co.— have surrendered their licences after they discovered the business is characterized by high volume and low profit.

For India Post, though, the business will be a natural extension of its work.

Considering the size of India Post’s operations and its reach in the hinterland, this vertical is a lucrative proposition both for the government-owned entity and the private companies who seek to work with it.

Infosys did not respond to queries sent on Thursday.

“We do not comment on ongoing business pursuits,” a Wipro spokesperson said.

On 8 July, the cabinet approved a proposal to set up IPPB with a corpus of Rs.800 crore. The then minister for communications and information technology, Ravi Shankar Prasad, had said IPPB had plans to open 650 branches and will be operational by September 2017.

The payments bank will begin with Rs.400 crore equity capital and a Rs.400-crore government grant. IPPB plans to set up 5,000 automated teller machines as well, Prasad had said

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What is India Post Payment Bank (IPPB) and What are Its Scopes

Sunday, July 17, 2016 0 Comments

So many rumors are spreading about Payment Bank especially about India Post Payment Bank (IPPB) a proposed subsidiary company of India Post.  Both general public and employees of India Post have several doubts about IPPB.  After reading this post you will be having sufficient knowledge about India Post Payment Bank (IPPB).

1.  What is a Payments Bank?

A Payments Bank is a “differentiated bank” set-up under the guidelines of the Reserve Bank of India (RBI) to further financial inclusion for the underserved population by providing (i) current and savings accounts and (ii) payments or remittance services to migrant labour workforce, low income households, small businesses, unorganised sector entities and other users. This is to be done by enabling high volume-low value transactions in deposits and payments or remittance services in a secured technology- driven environment.

2.  Why is a Payments Bank required?

A vast majority of the rural population (approximately 61%, as per RBI), is still not covered by formal banking and are underbanked. An easily accessible payments network and universal access to savings is fundamental to financial inclusion.  The country has had the experience of pre-paid Payment Instruments with reasonable success in facilitating payments in urban areas. Their customers, however, face several limitations and difficulties arising out of their non-banking status. On the other hand, entities like  the  Department  of  Posts (DoP)  have  a  wide  network  and  experience  of handling  financial transactions, but do not have a banking license. Therefore, to bridge this gap, new, low cost, lean, modern  technology  based  delivery  models  were  needed  to  further  financial  inclusion  with  the differentiated scope of activities as laid out for payments bank.

3.  What is the GOI’s outlook on the Payments Bank and DoP’s foray into banking?

In  the  Union  Budget  of  2014-15   speech,  the  Hon’ble  Finance  Minister  made  the  following announcement:

“After making suitable changes to current framework, a structure will be put in place for continuous authorization of universal banks in the private sector in the current financial year. RBI will create a framework for licensing small banks and other differentiated banks. Differentiated banks serving niche interests, local area banks, payment banks etc. are contemplated to meet credit and remittance needs of small businesses, unorganized sector, low income households, farmers and migrant work force”.

Carrying forward the same outlook, in the Union Budget of 2015-16, the Honourable Finance Minister made the following announcement:

“The Government is committed to increasing access of the people to the formal financial system.  In this context, Government proposes to utilize the vast Postal network with nearly 1,54,000 points of presence spread across the villages of the country.  I hope that the Postal Department will make its proposed Payments Bank venture successful so that it contributes further to the Pradhan Mantri Jan Dhan Yojana.”

4.  What is the scope and activities of the Payments Bank?

As per the RBI Guidelines, the payments bank will be set up as a differentiated  bank and shall be permitted to set up its own outlets such as branches, Automated Teller Machines (ATMs), Business Correspondents (BCs), etc. to undertake only certain restricted activities permitted to banks under the Banking Regulation Act, 1949, as given below:

•    Acceptance  of  demand  deposits,  i.e.,  current  deposits,  and  savings  bank  deposits  from individuals, small businesses and other entities, as permitted. The payments bank will be restricted to holding a maximum balance of Rs. 1,00,000 per individual customer.
 •    Issuance of ATM / Debit Cards. Payments banks, however, cannot issue credit cards.
•    Payments and remittance services through various channels including branches, Automated
 Teller Machines (ATMs), Business Correspondents (BCs) and mobile banking.
•    Issuance of PPIs as per instructions issued from time to time under the PSS Act.
•    Internet and mobile banking - The payments bank is expected to leverage technology to offer low cost banking solutions.
•    Functioning as Business Correspondent (BC) of another bank - a payments bank may choose to become a BC of another bank, subject to the RBI guidelines on BCs.
•    As a channel, the payments bank can accept remittances to be sent to or receive remittances from multiple banks under a payment mechanism approved by RBI, such as RTGS / NEFT / IMPS.
•    Payments banks will be permitted to handle cross border remittance transactions in the nature of personal payments or remittances on the current account.
•    Payments banks can undertake other non-risk sharing simple financial services activities, not requiring any commitment of their own funds, such as distribution of mutual fund units, insuranceproducts, pension products, etc. with the prior approval of the RBI and after complying with the requirements of the sectoral regulator for such products.
•    The payments bank may undertake utility bill payments etc. on behalf of its customers and General public.

Please click on this link for further details: https://rbi.org.in/scripts/bs_viewcontent.aspx?Id=2900 (RBI
Guidelines)

5.  Are there any restrictions on payments banks as compared to other commercial banks?

Given that their primary role is to provide payments and remittance services and demand deposit products to small businesses and low-income households, payments bank will initially be restricted to holding a maximum balance of Rs.. 1,00,000 per individual customer.

Payments banks cannot issue credit cards and cannot grant loan/ credit out of their own books.

The payments bank cannot set up subsidiaries to undertake non-banking financial services activities.
The other financial and non-financial services activities of the promoters, if any, should be kept distinctly ring-fenced and not comingled with the banking and financial services business of the payments bank.
The payments bank will be required to use the words “Payments Bank” in its name in order to differentiate it from other banks.


6.  Has this model of Post office setting up a bank worked anywhere else  in the world?

Postal operators are the leading financial services providers in over 75% of the countries around the world. Some of the Post Banks in the world have been hugely successful in the countries of their operations e.g.  Japan, New Zealand, Switzerland, France, China, South Korea, South Africa, Moroccoto name a few.

7.  Why is DoP setting-up a payments bank?

DoP has been successfully running the Post Office Savings Bank for the Ministry of Finance. Setting up its independently owned bank is the next logical progression. Based on feasibility studies and a subsequent Detailed Project Report, the Department, in 2013, made an application to the RBI and a proposal to the Public Investment Board (PIB) to set up a universal bank. However, the Department was advised by the PIB to set up a “differentiated bank” under the relevant guidelines. Accordingly when the RBI came up with the guidelines for licensing of Payments Banks in November 2014, the Department of Posts made an application for the same and got the in-principle approval in September 2015 for setting up its payments bank.

The setting up of the payments bank is therefore necessary in view of current market realities and to ensure continued relevance of DoP’s products and services. Among other things, the decision to set up the payments banks comes in the wake of changes in the payments and remittances market space in the country and the declining share of the Department in the market with the popularity of traditional money orders and other such products going down with the customers.

The payments bank will ensure that the payments and remittance services offered through the postal network are well aligned with the rest of the ecosystem where the requisite money flows from one entity to the other through new age technology.

The payments bank will leverage DoPs wide reach, deep penetration, extensive network of branches across the country, the deep connect with customers in rural areas and build upon it with modern day technology and processes to provide quality services and work to increase the market share for the DoP/IPPB combines. Through partnerships with third parties it will offer a gamut of financial services to further financial inclusion which is the basic objective of setting up the payments bank. It will also aim to channel all types of government to citizen payments and DBT through the payments bank and the DoP network. Payments bank will also work to improve access to financial services through technology based channels- PoS, mPoS, mobile phones, ATMs, and internet etc. in addition to the physical access points through the Post offices, delivery personnel, agents and others. The payments bank will thus ensure that the postal network continues to offer relevant financial services in sync with the market requirements.

8.  How will setting up the payments bank benefit DoP?

The payments bank will not only drive revenues for DoP but also help in maintaining DOP’s brand image and relevance in the current financial landscape that is evolving rapidly. The payments bank will open new opportunities and increase DoPs market share. For example, today, DoPs market share is only 0.3% of the Rs 6.2 Lakh crore utility bill payments transactions. The utility bill payments services of the payments bank as a Bharat Bill Payment Operating Unit (BBPOU) will help DoP in increasing our market share in the utility bill payments space and provide technology driven services to customers. The new age technology will enhance customer experience, provide more options and help in serving to the larger cause and vision of the GOI i.e. to bring about financial inclusion for the vast unbanked and underserved population.


9.  What will be the role and relationship of DoP with the proposed payments bank?

The payments bank will be a 100% subsidiary of the DoP and will have an independent board of directors with representation from the Department and other stakeholders from within the Government to ensure strategic alignment with the overall objectives of the DoP and the Government of India.

The post offices at different levels will be the main customer touch points for the bank’s  services. A close liaison between the bank and DoP staff at the access points will be maintained on a regular basis at the branch level for success of the delivery model

Role of the payments bank would be to:
•    Design Products and Services
•    Define Technology and Service delivery platforms •    Train and handhold village Postal staff
•    Marketing and third party tie-ups
•    Define and monitor quality standards and customer grievances •    Manage risk and compliance
•    Undertake financial literacy of the target customer

Role of the DoP would be to:
•    Act as customer interface for the bank
•    Provide access points for the counter operations
•    Door- step banking through delivery staff, franchisees, etcetera
•    Operational supervision and inspections

10. When will the India Post Payments Bank start operations?

As per the RBI mandate, IPPB has to start operations by 6th March 2017, i.e. within 18 months of having received the in-principle approval on 7th September 2015. To meet this deadline, the build out of the bank, pre-licence approvals and technology audit has to be completed within the stipulated date and the nationwide rollout can start thereafter. A pilot launch is planned in the last quarter of FY 2016-17.

11. How many branches are likely to be opened?

Corresponding to the Divisional,  Regional and Circle Headquarters of the Department of Posts, about 450 branches are proposed to be opened by December 2018 linking the post offices as access points. The tentative roll out plan is as follows:

Network Component         2017-18                 2018-19
Payment Bank Branches         200                    250

Linked Post Offices             60000                   95000

12. Will all Post Offices provide services of IPPB?

Yes, after complete roll out all post offices will be access points for the services of IPPB.

13. What will be the USP for IPPB?

The latest payments and banking technology, easy to use interface, the trusted network of the post office and its dedicated staff with a local connect will be the USP of the IPPB. IPPB will bring in innovative services and interface for its target customer segments in all areas. The accessibility and ease of use of services through a combination of modern technology and the widespread DoP physical network, capable of providing door step services will make it a unique payments bank. Through a combination of physical and digital channels, the payments bank will build the most accessible bank in the country especially in rural and underserved areas of the country.

IPPB will play to its own strengths  of traditional post office values. It will be driven by  the core objective of financial inclusion for the underserved population to make formal banking services accessible to them at the least cost possible.

DoP’s role in IPPB:

14. How will IPPB function?

IPPB will be set up as a Public Limited Company under the Department of Posts with an independent Board of Directors. It will be headed by a Managing Director and CEO, and will set up a corporate head quarter and up to 650 branches to manage its functions on a day to day basis. IPPB will leverage the physical and IT infrastructure of the Post office and be set up on a lean operating model. It will focus on low-cost, low-risk, technology based solutions to extend access to formal banking.
Products and Services:

15. How will the products and services of IPPB be different from DoP’s payment and remittance products?

DoP payments and remittances products are based on the basic money order services adapted for the digital age. While IPPB will provide the same benefits of payments and remittances to the customers, by adopting newer, efficient processes and technologies such as mobile based payments, digital wallets and innovative payment and remittance products that are continuously emerging in the market today.
Combined with doorstep cash payment options like traditional money orders, IPPB will differentiate itself from the other players while comparing well with all other benefits offered by competitors.

IPPB will drive the benefits of financial inclusion by bringing a host of financial products to suit the needs of different strata of society with special focus on the marginalized sections and citizens in rural areas. In so doing it will also provide the following proposed services:

•    Direct Benefits transfer (DBT) of social security payments of various Ministries, •    Utility bill payments for electricity, water, telephone, gas etc.,
•    Facilitate payments of various Central and State Govt& Municipal dues, taxes and fees/taxes of various Universities/ educational institution
•    Person to person remittances both domestic and cross-border. Special focus will be on providing, economical, safe and convenient money transfer facilities to migrant labourers, NRIs remitting money to relatives, institutions etc.
•    Demand Deposits (Current account and Savings Account)- with special focus  on MSMEs,  small entrepreneurs, village panchayats & SHGs
•    Distribution of third party financial products such as Insurance (health & general), mutual funds  and pension products
•    Access to formal credit products by acting as BCs of banks & MFIs

Product innovation will be a continuous exercise to expand the bouquet of services adapting to the evolving  needs  of  its  customers and  the  rapid  advancements  in  communication  and  payments technologies.

16. Will there be an impact on POSB?

Apart from savings account with up to INR 1,00,000 in deposit, the products offered by IPPB are different from POSB products. POSB savings accounts do not have any limit unlike payments bank savings account. On the other hand payments banks can offer current accounts for  use by businesses and institutions whereas POSB does not offer these accounts. Other kinds of deposits under POSB are unique to it and will not be on offer by the payments bank. The purpose of the savings accounts and current accounts of IPPB is to facilitate flow of money and payments of different kinds from Government to Citizen, Citizen to Government, Citizen to Citizen, Citizen to Businesses and Businesses to Citizens whereas the POSB accounts are mainly savings instruments.

17. Can the savings accounts be shifted from POSB to IPPB?

The POSB accounts are operated by the Department on behalf of the Ministry of Finance. The decision on the future of POSB savings accounts lies with the Ministry of Finance. The IPPB account will give various transactional advantages to DoP customers apart from an additional option of earning interest depending on their requirements.

Customers:

18. Who will be the target customer of IPPB?

Apart from the existing customers of the DoP, IPPB will focus on the underbanked and unbanked population in different parts of the country. It will also try to target services for MSMEs, senior citizens, students, migrant population, low income households, unorganized sector and other groups with special service requirements. In addition to its own products, the payments bank will partner with third parties to offer a wide range of financial and banking services to cater to the needs of its target segments.

19. How will the customer choose between the savings account of POSB  and IPPB?

Given the difference in purpose of  the two accounts, the POSB customers can be encouraged to open a IPPB account for managing their fund flow including bill payments, remittances to other family members, businesses etc. depending on their needs.
Customers focusing on savings may prefer to leave their deposits with POSB and transfer some of the money from these accounts to their IPPB account as per requirements.

However, the customers will have the choice of the amount they want to leave in their IPPB account at any point of time and they will earn interest on their money in these accounts also. They would be able to channel money from their IPPB accounts to any of the POSB schemes. For example, an IPPB customer will be able to use money in his account to open and service a RD/ TD/ SSY or any other POSB account. Thus both IPPB and POSB can synergistically serve the customers.

Both POSB and IPPB will have different branding and the product features will be quite different. At time of signing, customers will be clearly told what the product features are. POSB and IPPB will actively declare to customers, which product they are buying.

Overall:

20. I would like to know more and contribute to the IPPB journey. How can I do that?

You could volunteer to be a trainer for IPPB and get specialized training for the same. You can als suggest other ways in which you would like to contribute. You can send your questions and suggestions to pbi-project@gov.in

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