Payments banks fall by the way on tight regulatory requirements

Mumbai: Despite digital transactions in India growing rapidly, the number of payments banks is coming down. Last week, Aditya Birla Idea Payments Bank (ABIPB), a venture between Idea Cellular and Aditya Birla Nuvo, announced closing of its operations from October 18, 2019. The payments bank that was only 18-month old said the closure was prompted by “unanticipated developments in the business landscape that have made the economic model unviable” and has asked its customers to transfer their balances before July 26.

Out of the 11 organisations that were given licences in August 2015 by the Reserve Bank of India for setting up payments banks, with the objective to promote digital payments and boost financial inclusion, four surrendered their licences early. Of the remaining seven players, a licence each was given to Vodafone and the Aditya Birla Group, which leveraged its Idea Cellular network to float a payments bank. At the time of the merger between Vodafone and Idea, the management had said it did not make sense to keep two licences, and they would eventually return one.

The number of active payments banks is now down to five—Airtel Payments Bank, Fino Payments Bank, Paytm Pay-ments Bank, India Post Payments Bank and Jio Payments Bank.

Says an analyst, “Banks themselves are offering mobile banking products and are aggressively promoting them besides there are technology companies too in this space. So why will a bank customer want to open another account with a payments bank unless the PB is offering a big value proposition?”

According to Soumya Kanti Ghosh, Group Chief Economic Advisor, State Bank of India, the future is "uncertain" for payments banks. There are many reasons for payment banks losing steam and players choosing to shut shops. “First, there is lack of proper awareness about it amongst people and whatever little awareness is there has not been able to translate people into customers. Second, tighter regulatory restrictions and third, no innovations in products and services.”

PBs are not allowed to lend, deposit acceptance is capped at Rs 1 lakh besides the capital requirement is quite steep at 15 per cent despite the business being free from credit risks. Thus, due to strict regulatory guidelines, payments banks’ business operations are restricted to only mobilise deposits and invest in government bonds, which has led to substantial losses in their operations.

The operational payments banks showed net losses of Rs 516.5 crore for FY18, while ‘Paytm’ PB has declared a profit of Rs 19 crore in FY19.