The banking system of any country is one of the bases on which the entire economy of the nation stands. You can think of the banking system as a common thread that binds together people of varied economic backgrounds and from different walks of life. However, imparting similar banking facilities across such a diverse nation like India is extremely hard to be made practical. To that end, the initiatives like payment banks and small banks have come up to cater to the needs and requirements of the myriad Indian population.
A payment bank is similar to other banks, but the difference lies in the scales and activities of the bank. Payment banks operate on a small scale, and there is no involvement of credit risk. Although most banking operations are carried out by payment banks, they cannot issue credit cards or advance loans. Demand deposits up to one lakh can be accepted by the bank along with other services like ATM/debit cards, mobile payments, net banking, and third-party fund transfers. The major difference between a small bank and a payment bank lies in the fact that a small bank can accept all types of deposits, whereas a payment bank can only take deposits on savings and current account.
The Establishment and Objectives of Payment Banks
The Reserve Bank of India constituted a committee headed by Dr. Nachiket Mor in September 2013. The objective of the committee was to study the Comprehensive financial services for small businesses and low-income households. Introduction of the specialized Payment Banks was one of the key suggestions in the report submitted by the committee in January 2014. Some of the objectives of Payment Banks as underlined by the committee include:
- Ensuring that each Indian citizen can have a bank account by the time of January 1, 2016.
- Penetration of unified financial services to the remote parts of the country.
- Widen the reach of financial and payment services for the small businesses, migrant labor workforce, and low-income households
- To reduce dependence on traditional banking branches and move towards mobile banking.
Opening a Payments Bank Account
All the payment banks have their own apps that you can download for free. The first step is setting your password for the account, and then you need to fill in the details of yourself and your nominee. These are just general details like name, address for correspondence, date of birth, relation with the nominee, and so on. After you put in your aadhaar card, PAN details, and address of verification, the company will send a representative to the given address for verification. And that is it for the activation of your Payments bank account.
The Latest Situation of Payment Banks in India
Along with the existing Payment banks, the RBI has also given license to 11 entities to open payment banks in India. Some of the new Payment banks coming up, as a result, include Aditya Birla Nuvo Limited, Airtel M Commerce Services Limited, Reliance Industries Limited, Sun Pharmaceuticals, National Securities Depository, and so on.
RBI sees this move as a harbinger of a revolution in bringing the unbanked masses into the folds of formal banking chain. The established banks like SBI, ICICI, and the like can also use these banks to extend their reach as the Payment Banks can also function as business correspondents. For instance, the country’s largest lender SBI has a thirty percent stake in Reliance Industries Limited Payment Banks.
The Major Benefits of Payment Banks
Payment banks are not just another bank account and some more hassles to have. In fact, it is in a niche of its own due to all the lucrative benefits that it offers. The following are the top four benefits of Payment banks in India.
- Higher Interest Rate
The cost savings brought forward by operational efficiency translates into a high-interest rate for the customers. For instance, there will not be any branch of the Airtel Payments Bank, and the cost saved on the infrastructure leads to an interest rate of 7.25% on savings bank account. The payment banks are also inclined towards virtual debit cards to reduce the cost. Due to all these measures, you can expect the interest rate to remain high always.
- Zero Balance Account
A zero balance account is a huge benefit if you are not planning to use the account for savings or investment purposes. There needs to be no commitment from the account holder to maintain a minimum balance, which is great if you are just using the account for regular expenses. There is no penalty levied for having zero balance in your account. However, given the high-interest rate, it is advisable to not keep a zero balance account.
- Safety and Security
The concern of security looms large whenever you think of cashless transactions. In case of Payment Banks, the money is completely safe and secure if you use it to make all of your online payments. The banks take all the precautions like 2-factor authentication, password checks, and more. You, on your part, can make sure that there is no malicious software installed on your smartphone.
Convenience is guaranteed due to the extensive reach of the payment banks. For most of the Payment Banks, the retail outlets are their branches, and as such, you will find many branches operational near you. These retail outlets are open at all hours and every day. And if that is not enough for you, the smartphone in your hand is always there to help you out.
In a nutshell, payment banks have surely brought in a new revolution in the banking industry that satisfactorily meets all the aspects that you expect from a bank i.e. security, convenience, high-interest rate, and flexibility. Payment banks have a long way to go and are expected to bloom further with time.