The payment banks are new age banks which give limited services but these are easy to access. These banks have rarely a physical branch. Instead, a payment bank works through the existing vendors, shopkeepers. It has more focus on the online platform. You may get a higher interest rate from the payment bank saving account. Also, It opens only saving and current account.
Payments banks, launched to make the country more financially inclusive, seems to be giving the regulators and investors a cause for concern as they continue with their second straight year of losses with little signs of turning the corner.
Payment banks are the latest initiative from the Reserve Bank of India (RBI) with the primary motive to promote digital, paperless and cashless banking in our nation. It is an approach in which other non-banking financial organisations are granted the authority to offer basic bank services to every Indian citizen. A payments bank is a differentiated bank with the specific objective of catering to the unbanked and underbanked. Although the Pradhan Mantri Jan Dhan Yojana has brought down the number of unbanked individuals in the country, there are still millions who do not have bank accounts.
According to a World Bank report, India is home to 21% of the world’s unbanked adults. Payments banks aim to service these customers, especially migrant workers and those from lower income households, as well as bring them into the formal financial system. It also has the added benefit of secured, technology-driven transactions which can easily be tracked without any loop hole for black money.
Traditional banks can do everything payments banks can, but due to their structures and business priorities they may be unable to cater to certain segments and geographies. For instance, while it’s impossible for a bank to open branches in every village across the country, payments banks can fill this gap through the use of mobile phones. There are two main ways in which payments banks are different from traditional banks: they can accept deposits of only up toRs 1 lakh, and they cannot lend.
Since payment banks aren’t allowed to lend, they make their profits by selling third party products. While payments banks themselves cannot offer certain services to customers, they can always partner with traditional banks for providing loans and selling investment products.
This is the first time in Indian history the RBI has granted banking authority to other non-banking financial sectors and has provided a second set of differentiated licenses to small-scale banks already. This initiative is aimed at redefining the Indian economy by providing a secure payment gateway for all transactions. It also reaches out to the migrant labourers and lower income groups by providing all services on mobile phones and issuing a very low transaction fee for every service.
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