Will payments banks be a game changer?

Shandar, a migrant labourer residing in Dharavi, Mumbai, sends around ₹5,000 every month to his family in Jaunpur, eastern Uttar Pradesh. He just walks to the local mobile recharge store and says, “ Paise lagwane hain ” (need to send money).

The proprietor, Abdul Khan, brings out his register and notes down the details such as account number of the receiver, amount, and mobile number of the sender. He says that the money will be transferred within 24-48 hours. Most of the time, this timeline is stuck to.

Khan is the business correspondent for companies such as Oxigen, Fino Paytech and Airtel Money — all of whom might apply for the payments bank licences, come January. Shandar doesn’t know whose network Khan uses to transfer his money, he is only concerned about transferring his money quickly and safely to his family.

The RBI intends to open up a new set of banks called payments banks, whose primary task will be to provide small savings accounts and payment/remittance services to, among others, migrant labour, low-income households, small businesses and other unorganised sector entities.

So, what happens if these companies indeed become payments banks?

For starters, these companies would be able to undertake a range of activities they hitherto cannot.

According to Sunil Kulkarni, Deputy Managing Director of Gurgaon-based Oxigen Services, “Right now we are a prepaid instrument provider and we can only do a money transfer to a bank account. If we become a bank, it opens up the entire market for us. 

“As a payments bank, we will be able to do cash-out, international transfers, government subsidy transfer and also issue Visa, MasterCard and RuPay cards.”

This, according to him, will give companies like Oxigen access to 80 per cent of the market to which they now do not have access. By becoming a payments bank, entities will be allowed to open bank accounts for customers instead of merely being a facilitator as they are now.

Also, payments bank will be able to take banking services to customers’ doorsteps.

So, will the charges come down for the end user if the prepaid instrument providers become a bank?

“Unlikely,” says Kulkarni, “the transaction cost will only become cheaper progressively, as more and more transactions become cashless.”

Payments bank will also make money when customers withdraw from their accounts.

In effect, the migrant will be charged twice — once while depositing the money and once when the receiver withdraws the money. In the current avatar, the customer is charged only once, while depositing the money.

These transfer charges are quite high. They vary between ₹30 and ₹100 for a ₹10,000 transfer because of the multiple entities — the shopkeeper, the bank and the prepaid instrument providers — involved in the transfer.

But, according to Kulkarni and other players, this is not the appropriate way to look at a transaction cost.

In the current system, according to industry players, there are several invisibles to the transaction cost, such as the rural customer having to spend an entire day to go to a bank branch or an ATM, thereby foregoing an entire day’s wage.

Despite the high charges, the most important ingredient for success of a payments bank will be for it to retain the current model of delivering banking services through the more approachable mobile phone recharge store or the kirana wala . Such stores are also open beyond regular banking hours, providing the migrant workers better choice of timings.

Besides, migrant workers feel the prospect of going to a bank a daunting task because of the more elite set-up of banks.

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