PAYMENT BANK EFFECTS

Effects on banks:1. The payments banks can deprive regular banks of the fee income they earn from
customers, Example- cash transfers, remittances, cash withdrawal through cheques
and ATM transaction fees
2. In long term, regular banks having large customer base can adopt many practices
and technologies adopted by payment banks.
3. Competition would increase and regular banks have to ensure fast and smooth
functioning of banking facilities to customers.
Effects on consumers:1. The medium of payment banks provide easy access of banking facilities to
consumers. Costs for payments banks could be lower and through mobile banking , it
can reach unbanked rural areas.
2. Payment banks can also play a crucial role in implementing the governments
direct benefit transfer scheme, where subsidies on healthcare, education and gas are
paid directly to beneficiaries accounts.
3. The customer can efficiently utilize various facilities and has various choices.
Customer can easily transfer the amount to their relatives and family members.
Thus, the initiative of payments banks would ensure that financial inclusion agenda
must be increased with new technology and better cost structures . It can enhance
and expand banking facilities to backward rural areas and encourage customers to
utilize the platform.
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Effects on universal banks:

1. The customer base of banks might reduce since
they might shift part of their savings money into payment bank account. 40% of
deposits of banks are casa deposits. These low cost deposits of banks might get
drastically reduced.
2. Due to such a shift of cash, the fee income of banks might reduce such as fee on
demand draft, cash transfer, cheques etc.
3. On a positive note though, the increased competition might enable the commercial
banks to develop their technology on par with the payment banks to hold their
customer base
Effects on consumers:
1. Consumers will find transactions through payment banks more convenient and
easier. it brings the banks to the doorstep and hence achieves the last mile
connectivity. Also, these banks might initially give multiple discounts to attract

consumers.
2.Debit card frauds might decrease since the money present in the payment bank
account is less
3. Cost of establishing and maintaining payment banks is less. Hence this cost
benefit can be transferred to the consumers.
This is indeed a welcome step in achieving a cashless economy. A proper regulation
on these banks by the RBI can increase confidence and trust among customers.
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The concept of payment bank (PB) has been adopted from Kenya Vodafone M-Pesa,
where 70% of people don't have bank account but the financial inclusion has been
taking place in more than 75% population.
PB provide the customers the service of bill payment, shopping and debit card
without need of owing a bank account. They mainly provide service through a mobile
phone. The penetration of mobile phone in India is around 70% while 93% villages in
India don't have any bank branch. Thus payment banks have the potential to become
the single largest source of financial inclusion.
PB can be seen as the competitor to the already existing banks as the ease of doing
payment using PB are far more easier than using the bank account. Hence, there is a
fear that customers will start accommodating large part of their saving in the PB
instead of their regular banks as both will be proving interest.
However, regular banks have more advantage than PB in attracting the customers in
the following ways:
a. Regular banks are not debarred to open their PB so they can compete with the new
PB
b. Regular bank can lend to anyone while the PB can only invest in government
securities, hence, regular banks can provide more interest rates to the customers
than the PB
Thus both would become competitor to each other and the final gainer would be the
customer. Customer would be having more flexibility to stay with the one who
provide more interest and more accessibility in the banking sector.

---After PMJDY, Payment banks are another step toward financial inclusion of each
and every earning citizen of this country. Soon you would be able to make all kinds of
daily payments via banks in your nearest grocery shop or post office. Payment banks
are banks for the unbanked.
1) Payment banks can prove to be a boon for all low-income earning income
individuals, owners of small businesses which can transfer salaries of their
employees in these banks, remittances from low wage- labourers etc.
2) They have the capacity to reach out to that last mile where access of major banks is
not possible.
3) It is another step toward cashless economy where day to day transactions will be
done via banks.
4) These banks will provide services for DD, cheques, ATM without any fee.
5) By putting a cap on maximum balance Rs. 1 lakh, govt is directly aiming for the
poor sections which are yet to take their first step in banking system.

6) It can help in reduction of corruption by making every transaction under the

scanner of banks and will help in curbing the menace of fake currencies.
7) It will help in the reduction of loss via debit/credit card or check fraud as the
maximum permissible amount is Rs. 1lakh.
8) Payment banks are different from other banks in a way that they do not provide
loans and credit facility. For any surplus amount they provide govt security deposit
which helps the development of debt market for the govt.
9) In case of competition with other banks, for now they indeed have certain edge
over other banks and can prove to be the only choice of customer in future for dayto-day transaction purposes, but other banks have their own importance and with
technological development these banks can also provide facilities similar to payment
banks. But for now payment banks are better choice because they will have wider
reach among the masses as compared to other banks.
10) PMJDY is reaching a level of saturation in terms of penetration for no-frills
account.

---Affect on other commercial Banks, it will be hard for payment banks to compete and
survive because
1) Payment banks can only deposit in government securities thus their earning on
investment will be lower as compare to other banks and to attract or retains
customer they have to provide higher rate of interest which will be a biggest obstacle
2) Payment bank will not be allowed to lend,while lending is the main sources of
income for banks.
3) Due to Scheme like Jan dhan Yojna Bank has already reached saturation
penetration of bank accounts
4) Payment of migration workers,small buisness students are mostly done in cash. to
make profits on these transactions the volume of such transaction should be very
huge.
5) RBI notification only allowed Point-of-sale- coulde be used for payment but other
financial and non financial activites of promoters has to be ring fenced .
Affect will be advantageous on consumers cause
1) Payment bank could use for payment of bill and service through debit card ,limit of
payment is only 1lakh so it will guard from debit card fraud.
2) Payment banks can do business without and physical branch expansion, so will
save cost of operation and they can pass this saving to customers
3) Payment banks would bring banking to doors of public
4) Poor and depressed class will be the main the target for payment banks so it will
not only bring them into banking channels but also they will get priority service and
fair treatment which was missing from commercial banks
--

1.

MORE COMPETITION FOR UNIVERSAL

BANKS: Payments banks will be a new category of banks which
will focus on deposit mobilisation and payments or transaction

services like payment of utility bills, mobile recharge, remittances,

ticketing etc. The current lot of universal banks can do these
transactions too, but their focus on corporate and retail loans keeps
them away. But now with payments banks, they are likely to feel
threatened. They are now protecting their territory by launching
innovative new products.
2.

ACHIEVE FINANCIAL INCLUSION OBJECTIVES: Despite

making it mandatory for universal banks to open rural branches and
priority sector lending, along with other forms of banks like cooperative banks, regional rural banks, almost half of the population is
still unbanked. The payments bank, a stripped down version, can help
address the problem as regulatory requirement for capital is also
relaxed and they can use technology to offer low-cost solutions.

3.

ENCOURAGE DIGITAL PAYMENTS: Most of the payments

bank candidates came with a background of mobile wallets. They have
been offering a closed or a semi-closed wallet with a tie-up with
licensed bank to offer small payments like paying utility bills, mobile
recharge, taxi payments, remittances etc. With RBI now licensing
them to start a bank, they will be able to offer the same or more such
services at lower costs.

4.

REDUCE STATUTORY LIQUIDITY RATIO (SLR)

BURDEN ON COMMERCIAL BANKS: Unlike in the west, there
is a heavy burden on Indian banks to park 21.50 per cent of their
funds or deposits in SLR. The limit is too high and restricts banks'
ability to lend to the productive sectors of the economy. While this
gives the government a ready market for borrowing, this encourages
lazy banking. With payments banks, this scenario would change if
they become successful. By definition, payments banks are allowed to
accept deposits, but not lend. They have to compulsorily invest in
government securities. If payments bank becomes successful and
large, the government's G-sec requirement will be absorbed by them,
removing the burden on commercial banks.

5.

CHECK ON BLACK MONEY: India is predominantly a cash

economy. This creates a major hurdle for government or regulators to
catch the offenders. The digital cash will create electronic footprints,
which will help the tax authorities go after the evaders.

Dos of payments banks

* Has to use the word Payments Bank in its name to differentiate from other banks
* Accept demand deposits, i.e., current deposits, and savings bank deposits from
individuals, small businesses and other entities
* To hold a maximum balance of Rs one lakh per individual customer.
* Will be allowed to set up branches, ATMs, BCs
* Allowed to issue debit cards also offer internet banking
* Can accept a large pool of money to be remitted but at the end of the day the
balance should not exceed Rs one lakh
* Can accept remittances to be sent to or receive remittances from multiple banks
* Permitted to handle cross border remittance transactions in the nature of personal
payments / remittances on the current account
* Allowed to distribute mutual fund products, insurance products and pension
products
* Bank can also undertake utility bill payments
Donts of payments banks
* No NRI deposits should be accepted
* Cannot issue credit card
* Not allowed to set up subsidiaries to undertake non-banking financial services
activities
* Other financial and non-financial services activities of the promoters should not be
mingled with the working of payment banks