Payment Banks on way to disrupt Banking Industry !

RBI’s decision to allow payments banks to function would definitely improve the financial inclusion with increased channels and platforms for people across income groups. However, It will pose certain challenges for the incumbent Universal banks and this might try to disrupt the banking Industry.

Source: Business-Standard.com

There are certain factors that stand to prove that the path for the Universal banks is not easy post payment banks:

1)      Cost will be quite low for the payment banks compared to the Universal banks. Payments banks will make use of technology to reach to wide range of customers, while just going for minimal number of branches. Also, payments bank will not have the large number of employees as the Universal banks would.

2)      Payments bank doesn’t have to :

a.       Block money in SLR

b.      Lend to priority sector

Payments bank can’t:

a.       Lend to customers

b.      Do fixed deposit.

c.       Deposit more than 1 lakh

Payments banks have to:

a.       Invest all deposit in government bonds ( less than one year maturity)

As a result, Payments bank safe from bad loans. Also, payments banks can offer higher rates on saving deposit (Deposit rates of as high as 6-7%, compared with the average 4% savings deposit rates). They can concentrate more on service.

Payments banks would try to target large share of the low-cost deposits in urban areas. This is a huge market at the bottom of pyramid. This will allow these payments banks to make their operations in rural areas feasible.

With India post given the payment bank license, the Casa share in rural market is certainly going to be impacted. Also, Big corporate like Airtel, Reliance and Aditya Birla, trust factor is easy to establish even in Urban markets.