Hit by regulatory curbs and stress in the sector, Vodafone’s mobile phone-based banking service M-Pesa has shut down operations in India with effect from July 15.

M-Pesa is one of Vodafone’s success stories in countries such as Kenya, where it is hugely popular. It launched in India in 2013 and had received good response initially, but tough market conditions seem to have done it in.

Last Saturday, Aditya Birla Payments Bank had also announced plans to shut down. “On July 15, Vodafone M-Pesa had also shut shop,” a report by SBI’s Economic Research Department said.

While Vodafone did not respond to queries sent by BusinessLine , several sources in the industry said M-Pesa had not been taking new deposits for a while now. BusinessLine sought to speak to M-Pesa agents, but either the calls went unanswered or their phones were switched off.

M-Pesa had brought financial and digital inclusion to more than 8.4 million people in India, according to data on the Vodafone website dated January 5, 2017.

Payments bank model

In 2014, the RBI conceptualised the payments bank (PB) model on the recommendations of the Nachiket Mor committee for furthering financial inclusion by providing small savings accounts and payments and remittance services to unorganised sector entities.

Vodafone and Aditya Birla Group’s Idea Cellular were among those who took PB licences. After the merger between Vodafone and Idea Cellular, it was expected that one of the licences would be surrendered, but now both have exited the segment.

“It (the RBI) seems to have failed to achieve the stated objectives, as only four PBs are operational out of the 11 licensed players. In 1990s also, the RBI had made an attempt to create local area banks (LABs) that are currently facing a host of issues,” the SBI note said.

Double whammy

“We believe the PBs face stringent regulations on both the asset and liability side. On the asset side, they face a blanket ban on any type of lending. On the liability side, too, they cannot accept deposits higher than ₹1 lakh. Besides, the capital requirement is quite steep with a capital to risk weighted assets ratio of 15 per cent,” it said.

The PB model could be a success only with banks and telecom companies working together, it added.