(A cut & paste repost from my blog post on LinkedIn 4/13/2015)
Familiar with the breakthrough innovation poised to be unleashed in India? A newly created model for providing basic financial services has been authorized. Referred to as "Payments Banks", this pioneering solution is sure to help the unbanked, as well as rapidly emerging mobile money paradigms. Here is a quick overview on the basics about Payments Banks:
Who? RBI (Reserve Bank of India) created a new license for non-bank entities (business correspondent/agent) to be involved in offering basic financial service in India
What? A first-in-the-world new category, licensed/sanctioned to provide basic financial service in India for those who do not have access to traditional banking services.
Where? Nationwide in India (plus accessible for depositing by family and friends internationally)
When? RBI received at least 40 applications for Payment Bank licenses by the February 2015 deadline. Expectations are that RBI will approve 5-6 applicants initially in 3Q2015.
Why? To improve financial inclusion across India’s population – especially the poor and rural – allowing for innovative solution models that can economically serve India’s unbanked and/or without access to Alternative Financial Services (AFS).
The RBI (Reserve Bank of India) made a strategic decision in 2014 to proceed with a first-in-the-world pioneering financial service model to help improve financial inclusion by permitting innovative models that can bring basic financial services to India’s vast unbanked population which is beyond the economical reach of traditional banking. According to research commissioned by the Bill & Melinda Gates Foundation, only 47 percent of Indian adults had a bank account as of 2013-14, of which 25 percent were active (although since this study, Prime Minister Modi has led an effort that has financially included another 100M+). Others expected to benefit from Payment Banks are small businesses and students attending school away from home.
Payment Banks will be permitted to operate a model that provides basic deposit, saving and withdrawal functionality, leveraging non-bank distribution partners residing in rural areas where traditional banks cannot afford to have a presence (i.e.: a grocery store, a Mom & Pop shop, etc.) – a significant last-mile breakthrough. Further, expectations are that Payment Banks will be permitted to support facilitating mobile money transactions – another major last-mile breakthrough that will allow domestic migrant workers, as well as India’s vast global diaspora, to utilize mobile phones to transmit money to families back home, who will then be able to withdraw cash via sanctioned distribution partners of licensed Payment Bank.
RBI is currently reviewing 41 applications for a license to become permitted to operate a Payment Bank in India. Mobile phone carriers, retailers, prepaid payment card issuers were among those allowed to apply for payment bank permits. Expectations are that the RBI will grant the first 5-6 licenses in 3Q2015. If and when additional applicants get approved is not clear at this time. Entities that have applied for a Payment Bank license include:
RBI is currently reviewing 41 applications for a license to become permitted to operate a Payment Bank in India. Mobile phone carriers, retailers, prepaid payment card issuers were among those allowed to apply for payment bank permits. Expectations are that the RBI will grant the first 5-6 licenses in 3Q2015. If and when additional applicants get approved is not clear at this time. Entities that have applied for a Payment Bank license include:
- A Little World Private Limited, Belapur
- Aditya Birla Nuvo Limited, Mumbai
- Airtel M Commerce Services Limited, New Delhi
- Calibre Financial Services Limited, Chennai
- Cholamandalam Distribution Services Limited, Chennai
- Citrus Payment Solutions Private Limited, Mumbai
- Concept Technosoft Ventures Limited, New Delhi
- Department of Posts, New Delhi
- Eko India Financial Service Private Limited, New Delhi
- FINO PayTech Limited, Navi Mumbai
- Fx Mart Private Limited, Zirakpur, Mohali
- GI Technology Private Limited, Chennai
- Instant Global Money Transfer Private Limited, Hoshiarpur
- Itz Cash Card Limited, Mumbai
- Kalpataru Corporation, Mumbai
- KKM Management Centre Private Limited, New Delhi
- My Mobile Payments Limited, Mumbai
- National Securities Depository Limited, Mumbai
- Novopay Solutions Private Limited, Bengaluru
- NSE Strategic Investment Corporation Limited, Mumbai
- One MobiKwik Systems Private Limited, Gurgaon
- Oxigen Services (India) Private Limited, New Delhi
- Pay Point India Network Private Limited, Mumbai
- Reliance Industries Limited, Mumbai
- Resource Square Solutions Private Limited, Chennai
- Shri Dilip Shantilal Shanghvi, Mumbai
- Shri Kishore Laxminarayan Biyani, Mumbai
- Shri M.G. George Muthoot & others, Kochi
- Shri Nijay Kumar Gupta, Mumbai
- Shri Rajib Saha, Gurgaon
- Shri Renuka Mata MultiState Co-operative Urban Credit Society Ltd., Ahmednagar
- Shri Vijay Shekhar Sharma, Noida
- Smart Payment Solutions Pvt. Ltd., New Delhi
- Suvidhaa Infoserve Private Limited, Mumbai
- Tech Mahindra Limited, Mumbai
- V. K. Fiscal Services Pvt. Ltd., New Delhi
- Vakrangee Limited, Mumbai
- Videocon d2h Limited, Mumbai
- Vodafone m-pesa Limited, Mumbai
- Weizmann Forex Limited, Mumbai
- YouFirst Money Express Private Limited, Mumbai
The maximum amount a depositor can have in a Payment Bank is 1 Lakh [₹ Indian Rupees] (1.0 Lakh = ₹100,000 Indian Rupees: expressed as INR 1,00,000). As of the currency exchange rate on 4/13/15, $1.00 US = ₹62.4 INR so ₹100,000 [INR 1,00,000] would be worth $1,603.00 US … the dollar equivalent of the maximum amount of money a account holder could have in a Payment Bank account at any one time.
Payment Banks’ RBI license will not permit them to offer advanced financial services such as issuing credit cards nor providing loans, but will be permitted to offer debit cards as well as utility bill remittance. Money deposited at Payment Banks will be safeguarded by stringent RBI controls with requirements on Payment Banks including:
- Maintaining Cash Reserve Ratio (CRR) with the RBI
- Investing 75% of its demand deposit balances in Statutory Liquidity Ratio (SLR) eligible gov’t securities & t-bills
- A maximum of 25% will have to be held in current and fixed deposits with other scheduled commercial banks
Again, a key aim of the new Payment Bank idea is to help bring about improved financial inclusion for the vast unbanked in India. Those served will include low income households, farmers, the domestic migrant work force and others. Improving financial inclusion is a top priority for RBI, as well as now India’s new Prime Minister Modi.
The innovative Payment Bank idea is expected to be a game changer in India and a flagship for addressing financial inclusion globally as details are worked through during pre & post launch planning and execution.
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