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Banking Sector Report

Banking Sector Report Payments Banks (contd ) May 21, 2016 | 0
Banking Sector Report Payments Banks ‐ Changing Indian Payments Landscape An in ‐depth analysis Sector
Banking Sector Report
Payments Banks ‐ Changing Indian Payments Landscape
An in ‐depth analysis
Sector Report
May 21, 2016

Daljeet S. Kohli Head of Research

Tel: +91 22 66188826 daljeet.kohli@indianivesh.in

Kaushal Patel

Research Associate

Tel: +91 22 66188834 kaushal.patel@indianivesh.in

Banking turf is set to change…

As has been evident for the past decade, the Indian consumers have been increasingly moving online across all age segments with the increasing penetration of mobile, internet and smartphones across markets. As a result, channel preferences in banking have also shifted significantly among consumers (especially younger one) towards non branch channels. The banks have also been responding to this change with the introduction of ebanking, enhanced ATM capabilities and mobile banking. The good news is that Reserve Bank of India (RBI) is also focused to bring structural changes in the Indian Banking industry architecture. RBI is likely to publish vision 2018 document for the "payment and settlement systems in the country" which will focus on migrating to a “lesscash” and more digital society.

In addition, RBI had set the ball rolling when they opened the stage with the intention to hand licenses to new entrants. With the entry of small finance banks and payments banks that are expected to build new business models based on the advantage of being new, small, nimble, focused and innovative, the competitive landscape is set to change. Overall, we are at a turning point for the financial sector and more specifically banking sector. We are sure, the banking will never be the same again in the future.

We believe that payments landscape in India is at a point of inflexion and we will see several important trends shaping India’s payment industry. This report highlights major trends (especially on payments technology front) that will shape Indian banking sector over the next four to five years.

Payments Banks (Banking the Unbanked or Signs of a Tsunami?) • Global Models and Relevance
Payments Banks (Banking the Unbanked or Signs of a Tsunami?)
• Global Models and Relevance for India
• Viability of Proposed Payments Banks
• Background of Holding Company of Payments Banks
• Future of Mobile Wallet
Future of Universal Banks (Time to Rethink Banking) • Do brick‐ and ‐ mortar branches
Future of Universal Banks (Time to Rethink Banking)
• Do brick‐ and ‐ mortar branches have a role to play in the future
of banking?
• Impact of Emergence of Payments Banks on Universal Banks
• Digital strategy of some of the Universal Banks
Banking in India (On the Cusp of Digital Transformation) • Progress of Indian Banking Industry
Banking in India (On the Cusp of Digital Transformation)
• Progress of Indian Banking Industry since independence
• Changing Mode of Banking (From Branch to Online to Digital)
National Payments Corporation of India (NPCI) –Backbone of India’s Retail Banking
National Payments Corporation of India (NPCI) –Backbone of
India’s Retail Banking

IndiaNivesh Research

IndiaNivesh Securities Limited|Research Analyst SEBI Registration No. INH000000511 601 & 602, Sukh Sagar, N. S. Patkar Marg, Girgaum Chowpatty, Mumbai 400 007. Tel: (022) 66188800

IndiaNivesh Research is also available on Bloomberg INNS, Thomson First Call, Reuters and Factiva INDNIV .

Banking Sector Report

Contents

1

Payments Banks: (Banking the Unbanked or Signs of a Tsunami?)

3

1.1 Global Models and Relevance for India: (Other Developing Economies as Case Studies)

4

 

1.1.1 Case Study 1

4

1.1.2 Case Study 2

5

1.1.3 Case Study 3

6

1.1.4 Relevance for India and Future of Payments Banks in India

7

1.2 Viability of Proposed Payments Banks (Survival of the fittest or the strongest)

8

1.3 SWOT Analysis of Payments Banks

9

1.4 Background of Holding Company of Payments Banks

10

 

1.4.1 Aditya Birla Nuvo Limited (ABNL)

10

1.4.2 Airtel M Commerce Services Limited

11

1.4.3 Cholamandalam Distribution Services Limited

12

1.4.4 Department of Posts

12

1.4.5 FINO Pay Tech Limited (FINO)

13

1.4.6 National Securities Depository Limited (NSDL)

13

1.4.7 Reliance Industries Limited (RIL)

14

1.4.8 Shri Dilip Shantilal Shanghvi, Sun Pharmaceuticals

14

1.4.9 Shri Vijay Shekhar Sharma, Paytm

15

1.4.10 Tech Mahindra Limited

16

1.4.11 Vodafone mpesa Limited

17

1.5 Future of Mobile Wallet

18

 

1.5.1 Categories of Mobile Wallet

18

1.5.2 Unified Payments Interface (UPI) Terminator or Saviour for Mobile Wallets

20

2 Future of Universal Banks (Time to Rethink Banking)

21

2.1 Do brick and mortar branches have a role to play in the future of banking?

21

2.2 Impact of Emergence of Payments Banks on Universal Banks

24

2.3 Digital strategy of some of the Universal Banks

27

2.3.1

Axis Bank

27

2.3.2

HDFC Bank

28

2.3.2

ICICI Bank

29

2.3.2

DCB Bank

30

2.3.2

State Bank of India (SBI)

31

3 Progression of Banking in India (On the Cusp of Digital Transformation)

32

3.1 Structure of the Indian Banking Industry

32

3.2 Current Status of Scheduled Commercial Banks (SCBs)

33

3.3 Changing Mode of Banking (From Branch to Online to Digital)

34

3.3.1 Branch Banking

34

3.3.2 Online Banking

35

3.3.3 Digital Banking

36

3.3.4 Mobile Banking

36

3.3.5 Social Media Banking

37

4 National Payments Corporation of India (NPCI) –Backbone of India’s Retail Banking

39

4.1 Immediate Payment Service (IMPS): (fulfilling demands of having immediate access to funds)

39

4.2 *99#: (An idea which can change rural banking in India)

41

4.3 Unified Payment Interface (UPI): (next big hurricane in the payment system)

42

4.4 National Automated Clearing House (NACH): (Super Highway for Financial Institutions)

43

Banking Sector Report

Payments Banks: (Banking the Unbanked or Signs of a Tsunami?)

While credit is a critical need of all sectors, payments and savings are also central to an efficient system. One of the big concerns over the last few years has been the fall in financial savings. There is a need to increase it and bring more people to save in the formal banking and financial system. For that, a robust financial system is required which fosters enough competition and also allows variety of participants to fulfil increasing complex needs of the Indian economy. RBI’s recent announcement of allowing payments banks was a welcome move as it may allow access of financial services to the unbanked population with last mile connectivity in rural areas where physical access is difficult. Importantly, increasing banking access will increase the productivity in the economy, which will start reflecting in the GDP growth of the country. Overall, payments banks have potential to bring about another revolution in the banking sector and economy as a whole.

in the banking sector and economy as a whole. Source: RBI, IndiaNivesh Research Payments Banks (contd

Source: RBI, IndiaNivesh Research

Banking Sector Report

A study on other developing economies may give a better insight on future of payments banks in India

Global Models and Relevance for India: (Other Developing Economies as Case Studies)

As almost all the telecom players in India have received the payments banks license, a study of telecom companies which already provide similar (payments or mobile money) kind of

services in other developing economies will give us a better insight to understand the future

of payments banks in India.

While most consumers in developing countries still prefer to transact in cash, increasing ubiquity of smartphones in these regions has led more consumers to conduct financial transactions and shopping related activities on their mobile devices. Surprisingly, mobile payment penetration rates remain much higher in developing countries than in developed countries. So, why developing countries are catching the mobile banking concept much faster than developed nations? The widespread adoption of mobile phones has enabled some of the poorest economies on earth to leapfrog ahead of developed nations when it comes to techdriven financial solutions. As mobile phones are often the only technology available, especially in rural places or isolated areas where it is hard to find power lines, fixed line telecom infrastructure, personal computers or bank branches, mobile banking is the only option available to them to access banking services . It is quite visible from the fact that there were more mobile money accounts than bank accounts in Kenya, Madagascar, Tanzania and Uganda.

Mobile money is now available in 93 countries.

Overview of

Mobile

Money

Industry

51 of 93 countries have an enabling regulatory framework in 2015.

At least 19 markets have more mobile money accounts than bank accounts.

37 markets have 10x more registered agents than bank branches.

Mobile money providers are processing an average of 33 mn transactions a day.

M Pesa in Kenya A mobile phone based payment system which born out of necessity

Source: GSMA, IndiaNivesh Research

Case Study 1:

M Pesa in Kenya: (Mobile Banking Revolution)

1: M ‐ Pesa in Kenya: (Mobile Banking Revolution) The future of money is already happening

The future of money is already happening in Kenya where a mobile phone based payment system was born out of necessity. A majority of Kenyans didn’t have a bank account, and bank branches were scarce, especially in rural areas. City workers used to find it difficult to send money home to their rural families. Safaricom, the country's largest provider of cellphone service, found a way to solve this problem. Eight out of Ten Kenyans had access to

a cell phone, so Safaricom launched M PESA in 2007, a system of transferring money

between people on cell phones, even the most rudimentary ones. According to a Kenyan government report published in 2012, just five years after launch, there were 19.5 mn mobile money users in Kenya (representing 83% of Kenya’s adult population), transferring USD ~8.0 bn per year (~24% of Kenyan GDP).

So, how exactly does it work?

It allows Kenyans to store and transfer their money using only a cell phone. Funds can be

exchanged over the network using SMS messages, meaning it works on almost any mobile phone. M PESA agents spread throughout the country allow users to convert their credit to cash and deposit or withdraw from their accounts. These agents are not employed by Safaricom, but are simply retailers / regular businessmen and women that are ‘authorized’ to trade ecash for real cash and in return they receive little commission. The actual cash is securely held in a trust owned by Vodafone and distributed to several commercial banks.

Banking Sector Report

Financials:

In FY15, revenue from M Pesa increased 15% y oy and hit a high of Sh (Kenyan shilling) 32.6 bn which was 20% of the company's total revenue which helped Safaricom to report a record Sh 31.9 bn profit after tax (at consolidated level) in FY15 and became the most profitable company in East and Central Africa.

Easypaisa in Pakistan A great example of success with unique corporate structure

Case Study 2:

Easypaisa in Pakistan: (Mobile Money Sprinter)

2: Easypaisa in Pakistan: (Mobile Money Sprinter) With a population of 180 mn and only 15%

With a population of 180 mn and only 15% bank penetration in 2008, Pakistan presented an attractive market opportunity for mobile money. Easypaisa seized this opportunity by creating an innovative partnership, a new delivery approach, and an effective distribution model. Easypaisa, a mobile money service was launched in Pakistan in 2009. Within five years, Easypaisa had processed more than 100 mn transactions with a total value of over USD 1.4 bn. Six million customers can do almost all their banking on the mobile devices. In addition, If they need assistance, they can go to one of 25,000 Easypaisa shops in 750 cities and towns across the country.

Important innovations:

Three important mobile money innovations emerge from the Easypaisa story. (1) Easypaisa was launched from a unique corporate structure. Telenor Pakistan, a mobile network operator (MNO) acquired 51% ownership stake in Tameer Bank, a microfinance bank, and then established Easypaisa as a common organization across the two companies. (2) Telenor Pakistan and Tameer Bank introduced overthecounter (OTC) mobile money services – an entirely new model that did not require registration for an electronic wallet as many of the users are not familiar with technology. (3) Easypaisa achieved rapid national expansion by relying exclusively on its existing GSM distribution structure. The responsibilities were also clearly divided between the two. Telenor Pakistan decided to take the lead on branding, marketing, and distribution while Tameer Bank led direct operations, risk management, compliance, and liquidity management.

Financials:

Tameeer Micro Finance Bank achieved monthly breakeven for the operations under the brand "Easypaisa" during Q1FY13 and the bank had already identified branchless banking as an important way to grow their services.

MPesa (Kenya)

• Success Metrics •19.5 mn mobile money users (83% of Kenya’s adult population) in Kenya
• Success Metrics
•19.5 mn mobile money users
(83% of Kenya’s adult
population) in Kenya in 2012
•USD 8.0 bn cumulative
throughput
• Innovations
•Store and transfer their money
using SMS messages
•Simply retailers / regular
businessmen and women as M ‐
Pesa agents

Source: GSMA, IndiaNivesh Research

Easypaisa (Pakistan)

• Success Metrics •Over 5 mn monthly users and 25,000 agents •USD 1.4 bn cumulative
• Success Metrics
•Over 5 mn monthly users and
25,000 agents
•USD 1.4 bn cumulative
throughput
• Innovations
•Unique corporate structure
•OTC transactions allow non
Telenor customers to access
service

Banking Sector Report

M Pesa and Mobile Money in South Africa A similar product and strategy across different markets don't bring success

Case Study 3:

South Africa: (A Failure Story So Far)

Case Study 3: South Africa: (A Failure Story So Far) As per GSMA Mobile Economy Africa
Case Study 3: South Africa: (A Failure Story So Far) As per GSMA Mobile Economy Africa

As per GSMA Mobile Economy Africa 2015 report, Mobile money penetration in South Africa is still lagging behind most prominent African markets. Only 7.6% of adults in the country reportedly had a registered mobile money account by the end of 2014, putting it at the bottom four among 18 top countries in Africa. There are only 76 registered accounts for every 1,000 adults in the country. A number of attempts to launch mobile payments solutions have failed which includes Vodacom’s M Pesa and MTN Banking's MTN Mobile Money. MTN Banking is a joint venture between mobile operator MTN and Standard Bank. Under MTN MobileMoney, only 1.6 mn people were registered users whereas under MPesa, only 1.0 mn people were registered users as of FY15 in a country with a total population of 55 mn.

Reasons behind the flop show:

During the course of its relaunch attempts, Vodacom has marketed the platform differently:

First as a mobile money solution. Then as a mobile money wallet, which allows customers to store their money safely and finally at last year’s relaunch, as a platform that allows user to swipe and buy with a Visa card linked to user’s mobile phone. It is a clear example highlighting the fact that you cannot replicate the same strategy in different market to enjoy similar success.

In addition, South Africa has a more developed banking market as compared to other African nations like Kenya and Tanzania. Local banks have already increased their share of lowincome customers by opening up level bank branches and banking kiosks in remote areas, bringing banking services closer to where people live. South Africa's financial system also provides a number of options other than MPesa for its unbanked population.

Banking Sector Report

Mobile or technology will be only enabler

Products or services and prices will be the actual drivers

Of payments banks

Payments Banks High Volume Low Value Business Model

…Relevance for India and Future of Payments Banks in India

So, will the Indian telecom operators who received payments banks licenses are in a position to enjoy success similar to M Pesa in Kenya? We believe that it will depend on two fundamental challenges that must be resolved in order to sustain and later become successful in mobile payments. (1) It has to make sense to the poor to use the service and (2) It has to make sense to service providers to offer the service.

It sounds difficult when it comes to execution but the first two success stories we discussed above have demonstrated that both challenges can be addressed simultaneously. So, rather than competing with crowded financial services space in urban areas of India, it would be prudent for payments banks to focus more on vast sections of unbanked population. In addition, analyzing the most successful mobile payment system in the world reveals that the use of the mobile platform was clearly an important enabler of its rapid success. So, it is important to remember that technology will only play a roll of enabler and putting together the right package of features and prices will be the actual drivers of success. Overall, M Pesa was an African innovation to solve an African problem. In a similar way, considering India's demographic and cultural diversity, our institutions will have to create a product which meets specific need and purpose of our underserved population. Remember, M Pesa has been labelled a failure in South Africa and India so far.

To conclude, the old banking model with expensive branches and extensive infrastructure is no longer viable within lowincome communities but for payments banks on mobile it can still be a profitable market segment. However, the profitability will be highly sensitive to transaction volumes and gaining critical mass of customers as they will have to live with very thin margins (<1.0%). A number of elements need to be in place for a payments bank to become a sprinter, including (1) designing the right products (innovation is important element to change the Indian customer’s mentality of “Cash is King”), (2) Patient capital and adequate levels of investment, (3) strong marketing, and (4) wellmanaged distribution networks.

Payments Banks have great potential to become profitable but only in the long term as profitability will be directly linked to economy of scale. Considering all the above factors, we expect some consolidation in this space as many of the entities will go out of the business and only selective players with enough financial muscle, latest technology and large customer base will survive in the long term. Notably, one of the eleven players has already decided to abandon its plans to set up a payments bank considering competition and long gestation period to become profitable. Hence strong corporate commitment and faith in payments bank’s future profitability will be essential factors required from the promoters.

Banking Sector Report

Viability of Proposed Payments Banks (Survival of the fittest or the strongest):

In addition to all the above concerns, the payments banks will also have to face tough competition from existing players like PSBs, private sector banks, RRBs and other NBFCs. If we assume the success of payments banks concept then the next most important question comes to our mind is that who will survive as payments banks out of these 11 players . One

of the companies, Cholamandalam has already exited from the race.

We believe that players like Airtel and Idea (telecom operators with large customer base), FINO (the largest business correspondents company) and PayTm (with base of the largest digital wallet users) will have an added advantage and higher probability to succeed over the other payments banks players considering their large existing customer base strength into their respective field.

Airtel

Idea

FINO

PayTm

Vodafone

Reliance

Vodafone (the second largest telecom operator in terms of user base) has experience of m ‐ (the second largest telecom operator in terms of user base) has experience of mpesa but it has not tasted success of it in India yet. However, it can use its previous experience and learning to ride the journey of success under the new venture of payments bank.

A payments bank from Reliance will be a wait and watch event as it has not yet launched its

digital services (Reliance Jio) in India. Notably, the payments bank from Reliance will leverage

mainly on its telecom business’s (Reliance Jio) pan ‐ India network. Reliance has invested Rs 1.5 on its telecom business’s (Reliance Jio) pan India network. Reliance has invested Rs 1.5 tn in Reliance Jio which is the biggestever for any digital startup globally. Therefore, Reliance can be the biggest disruptor in the future in this space considering the past experience of the group.

What about players like NSDL, Shree Dilip (Sun Pharma) and Tech Mahindra? We believe that it will be very difficult for these players to survive in the long term until and unless they come out with some real innovative products and different strategy.

NSDL

Dilip Shangvi

Tech Mahindra

India Post

At last, the most important player of payments bank will be the Departments of Post (India last, the most important player of payments bank will be the Departments of Post (India Post) which has all the required ingredients to transform the payments and financial inclusion space in India. However, considering the previous experience of PSBs, we don’t expect it to be the game changer at least in near to medium term.

Overall, companies which already have an access to the last mile customer like top telecom companies will definitely have an advantage over other players as building such a large network will be a challenging task. However, right technology and financial strength of the

group will also be equally important considering thin margins and long gestation period. So,

it will not be the case of survival of the fittest only but also survival of the strongest.

In the following pages, we have discussed in detail about the above entities and their existing offerings of products and services on payments side (if any).

Banking Sector Report

SWOT Analysis of Payments Banks:

Strengths • Innovative business models • Nationwide and last mile coverage • Large existing customer
Strengths
• Innovative business models
• Nationwide and last mile
coverage
• Large existing customer
base
• Anywhere anytime banking
• Lower servicing and
customer acquisition cost
• Financial inclusion

Source: IndiaNivesh Research

Oppertunities • Immense potential for market expansion in rural areas • Greater innovation will help
Oppertunities
• Immense potential for
market expansion in rural
areas
• Greater innovation will
help to produce and offer
unique products and
services
• Technology to help to offer
right product to right
customer at a right time

Source: IndiaNivesh Research

Weaknesses • Loss of business due to poor network / internet • Lack of awarensess
Weaknesses
• Loss of business due to
poor network / internet
• Lack of awarensess among
people on latest
technology and products /
services
• Low margin business
• Limited products offering
• Security concerns
Challenges • Intense competition to lower profits • Cash dominated economy • Technology inexperience and
Challenges
• Intense competition to
lower profits
• Cash dominated economy
• Technology inexperience
and literacy constraints will
lead to lower acceptance
of technology
• Lack of awarness
• Low customer loyalty
• Regulatory restrictions

Banking Sector Report

Background of Holding Company of Payments Banks

1. Aditya Birla Nuvo Limited (ABNL)

Structure: RBI has given an in principle approval to Aditya Birla Nuvo Ltd (ABNL) for setting up a Payments Bank as promoter. The proposed Payments Bank incorporated as Aditya Birla Idea Payments Bank Ltd will be 51:49 Joint Venture (JV) between ABNL and Idea Cellular.

Background: There are ~175 mn Idea Cellular subscribers in the country as of February 2016. The Aditya Birla Group has about Rs 2.0 tn in assets across its mutual fund and insurance businesses. In addition, Birla Sun Life Mutual Fund is India’s fourth biggest money manager. The Aditya Birla Group also runs a brokerage and a private equity business.

Future Strategy: The payments bank will be launched by H2CY16. The payments bank will promote range of services including opening of savings bank account, domestic remittances, merchant payments etc. and tying up with third parties for offering range of credit, investment & insurance products.

Existing Payment Product: Idea Money Wallet

products. Existing Payment Product: Idea Money Wallet Idea Money is an RBI authorized payment wallet service

Idea Money is an RBI authorized payment wallet service and offers a semiclosed wallet.

Product Features:

Recharge any Mobile, datacard & DTH number (all operators)

Pay electricity, water, gas, postpaid, landline bills

Transfer money to any idea wallet instantly

Transfer money to any bank account number instantly

Shop for the merchants listed online

24*7 customer care facility on mail & phone

 24*7 customer care facility on mail & phone Source: Company, IndiaNivesh Research Payments Banks

Source: Company, IndiaNivesh Research

Banking Sector Report

2. Airtel M Commerce Services Limited

Structure: Airtel’s mobile commerce subsidiary Airtel M Commerce Service Ltd (AMSL) has received a payments bank license from RBI. Kotak Mahindra Bank (KMB) has already bought 19.9% stake in Airtel’s mobile commerce subsidiary AMSL for Rs 984 mn.

Background: Bharti Airtel Ltd is the largest mobile network operator in India and the third largest in the world in terms of subscribers. There are ~249 mn Airtel Cellular subscribers in the country as of February 2016. KMB is the fourth largest private sector bank in India by market capitalization. Airtel money posted a net profit of Rs 45 mn in FY15 as compared to a loss of Rs 1.1 bn in FY14.

Future Strategy: Bharti Airtel plans to roll out its payments bank network in H2FY17 under the name of Airtel Payments Bank Ltd (earlier known as Airtel M Commerce Services Ltd). Airtel aims to leverage its existing subscriber network and vast distribution network for its payments bank operations. Airtel already offers financial services including money transfers and semiclosed wallet service in about 800 towns in the country under its subsidiary of Airtel M Commerce Services.

Existing Payment Product: Airtel Money

Commerce Services. Existing Payment Product: Airtel Money Airtel Money is an RBI authorized payment service and

Airtel Money is an RBI authorized payment service and offers a semiclosed wallet.

Product Features:

Recharge ANY mobile, DTH or Datacard (all operators are supported)

Pay Electricity, Water, Gas, Postpaid, Landline and Data Card bills

Instantly transfer money to any bank account in India (using IMPS technology) or to any Airtel Money user

Pay at shops, restaurants or any other merchants that accept Airtel Money

Request money from your contacts

Find Airtel Money points near you

your contacts  Find Airtel Money points near you Source: Company, IndiaNivesh Research Payments Banks

Source: Company, IndiaNivesh Research

Banking Sector Report

3. Cholamandalam Distribution Services Limited

*Cholamandalam Investment and Finance Company has decided to abandon its plans to set up a payments bank considering competition and other factors including long gestation period to become profitable.

4. Department of Posts

Structure: India Post has received approval from RBI for payments banks. About 40 international financial conglomerates including World Bank, Barclays and ICICI have shown interest to partner with the Postal Department for the payments bank.

Background: The Department of Posts, trading as India Post, is a governmentoperated postal system in India. The department has 1,55,015 post offices across the country, of which 1,39,144 are in rural areas. India Post has already been active in the deposit taking activity through its various savings schemes. As of FY14, the outstanding balances under the post office savings scheme stood at Rs 6.05 tn, which is nearly equivalent to half the deposits of SBI.

Future Strategy: The Payments Bank from India Post is expected to start operations by March 2017. The bank will also set up white labelled ATMs. We believe that India Post may bring the biggest revolution to the banking sector given the fact that it is present in many farflung areas where even PSBs do not have branches.

Existing Products: Post Office Savings Schemes, Postal Life Insurance, Forex Services, Distribution of Mutual Funds and Securities, Jansuraksha Scheme

of Mutual Funds and Securities, Jansuraksha Scheme Source: Company, IndiaNivesh Research Payments Banks

Source: Company, IndiaNivesh Research

Banking Sector Report

5. FINO Pay Tech Limited (FINO)

Structure: Fino Pay Tech Ltd (FINO) has received “in principle” license from RBI to start a payments bank. ICICI Bank will partner FINO to foray into the payments bank space. The ICICI Group has about 16% stake in FINO and is the largest domestic shareholder.

Background: FINO PayTech (India’s largest business correspondent) is a business and banking technology platform combined with extensive services delivery channel which plays a key role in developing branchless banking infrastructure in India. It is promoted and owned by various public and private financial institutions. FINO generated an annual turnover of Rs 3 bn in FY15 and 33% of the revenues came from remittance and micro lending businesses and the rest by selling banking products to its customers. At present, FINO has about 45,000 transaction points (agents) spread across 26+ states in close to 500 districts across India. The firm has a customer base of 80+ mn, which are mostly migrants, smallbusiness owners, daily wagers, low and middle income households and in some cases, old age pensioners. FINO has opened more than 50 mn new bank accounts (as a banks’ business correspondent) for other banks. FINO has developed an in house, lowcost technology solution for customer acquisition, servicing and monitoring.

Future Strategy: The payments bank is expected to be operational before the end of CY16. Fino has appointed KPMG as consultant to advice it on converting to a payments bank and IFC CGAP for ‘strategic inputs in niche areas. In addition, Fino PayTech Ltd has tied up with Reliance Commercial Finance Ltd (NBFC subsidiary of Anil Ambaniled Reliance Capital Ltd) to provide credit to rural poor in the states of Maharashtra and Madhya Pradesh.

Existing Payment Product: Fino Money

Product Features:

Money transfer, Insurance

Prepaid recharges, Utility bill payments

Ticketing (Air / Bus / Train), Hotel booking and holiday packages

Cash Management Services (CMS)

6. National Securities Depository Limited (NSDL)

Structure: RBI has granted inprinciple nod to National Securities Depository Ltd (NSDL) for payments bank. IDBI Bank has approached the NSDL to buy a stake in the payments bank. IDBI Bank is one of the promoters of NSDL and holds 30% in the largest depository.

Background: NSDL is India’s first and largest depository, which handles most of the securities held and settled electronically in the country’s capital market. It is promoted by IDBI Bank, the Unit Trust of India and the National Stock Exchange. At least eleven public and private bankers own stakes in NSDL. NSDL held 15 mn demat accounts as of FY16.

Future Strategy: NSDL is planning to launch a payments bank by the end of CY16. NSDL may tap its 26,765 DP service centres spread across 1,632 cities / towns to open Saving Bank Accounts. NSDL provides permanent account numbers (PAN) and enrolls individuals for the implementation of the Aadhaar project and maintains a repository of IT professionals. NSDL plans to leverage on these database to offer banking services when its starts the bank.

Banking Sector Report

7. Reliance Industries Limited (RIL)

Structure: Reliance Industries Ltd (RIL) has received an in principle approval of RBI to set up a payments bank. RIL has entered into a partnership with State Bank of India (SBI) for payments banks. While RIL is the promoter, SBI will be the joint venture partner with equity investment of 30%. It will help to create the most extensive distribution network in India.

Future Strategy: The Payments Bank from RIL is expected to start operations by the end of CY16. The payments bank will leverage its telecom business Reliance Jio’s pan India network and Reliance retail’s online and offline business model. Reliance Jio has laid more than 0.25mn kilometres of fiberoptic cables, covering 18,000 cities and over 0.10mn villages, with the aim of covering 100% of the nation’s population by 2018. RIL is planning to launch JioMoney which will be a prepaid payment instrument to facilitate cashless payments across multiple use cases and build India’s largest digital merchant network.

8. Shri Dilip Shantilal Shanghvi, Sun Pharmaceuticals

Structure: Shri Dilip Shantilal Shanghvi of Sun Pharmaceuticals has received RBI’s approval to set up the payments bank. Sun Telenor Payment Bank is a new partnership between Shri Dilip Shanghvi of Sun Pharmaceuticals; Telenor and IDFC Bank. Dilip Shanghvi holds 41% stake in the partnership with Telenor holding 39% and IDFC the rest 20%.

Background: There are ~52 mn Telenor Cellular subscribers in the country as of February 2016. (Notably, Telenor and Tameer Microfinance Bank have together set up the largest branchless banking service in Pakistan.) IDFC Bank started its banking operations as on October 01, 2015 with a balance sheet of Rs 734.5 bn and a networth of Rs 133.2 bn. Shri Dilip Shanghvi is an Indian businessman and one of the richest persons in India and the founder and managing director of Sun Pharmaceuticals.

Future Strategy: Telenor plans to start payments bank in CY16. It will start with some basic services like bill payments.

Banking Sector Report

9. Shri Vijay Shekhar Sharma, Paytm

Structure: Vijay Shekhar Sharma, founder and chief executive of One97 Communication that runs Paytm, is one of the two individuals who got permission to start payments bank from RBI.

Background: Paytm was founded by Vijay Shekhar Sharma in 2010 and is owned and operated by One 97 Communications Ltd. It offers a mobile commerce platform that enables the users to do mobile recharge, pay bills and shop at the mobile marketplace. Most importantly, Paytm Wallet has crossed 100 mn digital wallet users in India. The company claimed to have 50,000 merchants on the platform and processing over 75 mn orders a month as of October 2015. The company reported revenue of Rs 3.4 bn (+60% y o y) in FY15 with a loss of Rs 3.4 bn. The company reported a profit of Rs 60 mn in FY14.

Future Strategy: PayTm is likely to launch its payments bank in Q2FY17. The payments business will be separated from the ecommerce wing, and will be called Paytm Payment Bank Ltd. Considering the company’s aggressive footprint in the digital wallet with the highest number of users in India, we believe that Paytm can emerge as a disruptor in Payments banks space.

Existing Payment Product: Paytm Wallet

banks space. Existing Payment Product: Paytm Wallet Paytm wallet is an RBI authorized payment wallet

Paytm wallet is an RBI authorized payment wallet service and offers a semiclosed wallet.

Product Features:

Transfer money to your friend’s wallets

Transfer money from your Paytm Wallet to a Bank Account

Request money from anyone

Get discounts from over 5000 deals across 100+ cities

Every time you transfer or receive money, the transaction becomes a part of a chat conversation

See all your transactions at one place

Save credit or debit cards that you use to make a purchase or payment

cards that you use to make a purchase or payment Source: Company, IndiaNivesh Research Payments Banks

Source: Company, IndiaNivesh Research

Banking Sector Report

10. Tech Mahindra Limited

Structure: Tech Mahindra has received RBI’s nod to set up payments bank. The bank will be an independent unit under the Mahindra Group led by Tech Mahindra (IT firm) and Mahindra Finance (rural NBFC) as equal contributors.

Background: Mahindra Finance has over 3.7 mn customers spread over 260,000 villages and has an AUM of over USD 5 bn. Most of the Company’s customers are outside the ambit of the formal financial system and are served by pan India network of over 1100 branches. Tech Mahindra has over two decades of experience in offering innovative solutions for Retail Banking, Lending and Leasing, Cards, Asset and Wealth Management, Investment Banks, Stock Exchanges and Life / Non life Insurance.

Future Strategy: The payments bank would possibly start from September 2016. It will leverage Mahindra Finance’s large rural distribution network. The company is planning to reach out to a million vendors and target as many as 150 200 mn customers over the next five years.

Existing Payment Product: mobomoney

the next five years. Existing Payment Product: mobomoney Mobomoney is a prepaid wallet issued in the

Mobomoney is a prepaid wallet issued in the form of an App and/or a tag and offers a semiclosed wallet. It can be used to tap and pay on a network of NFC enabled merchant PoS (Point of Sale).

Product Features:

Over the counter payments

Mobile and DTH recharges

Utilities bill payments

Online payment for a host of products and services

Online payment for a host of products and services Source: Company, IndiaNivesh Research Payments Banks

Source: Company, IndiaNivesh Research

Banking Sector Report

11. Vodafone m pesa Limited

Structure: Vodafone has received payments bank license from RBI. Vodafone has issued an open mandate to bankers to find the best partner for its payments bank as the foreign holding in payments bank cannot be more than 74%.

Background: There are ~197 mn Vodafone Cellular subscribers in the country as of February 2016. The company has a presence in 1.8 mn multibrand outlets across India apart from its 98,000 Vodafone stores and 90,000 M Pesa outlet. M