MUMBAI: After a year of euphoria around differentiated banking, payments banks as a business concept seems to have lost the charm, with 3 out of 11 licensed players dropping plans to start such a bank.
When the idea payments banks was first mooted by RBI governor Raghuram Rajan in 2014, it was seen as a disruptor in the payment space. Forty-one firms showed interest by applying for it in February 2015, of which 11 received in-principle licences in August. With 18 months, three have given up their licences.
Payments banks can collect deposits, but cannot lend.
In March, Cholamandalam Investment and Finance dropped plan to set up a payments bank. Last week, a joint venture of Sun Pharma promoter Dilip Shanghvi, IDFC Bank and Telenor Financial Services followed suit, and on Tuesday, Tech Mahindra joined the list.
“We would certainly feel little aggrieved because a lot of efforts on part of the RBI goes in processing these applications,” RBI deputy Governor SS Mundra had said on Monday. Mundra also hinted at possible penalty for opting out.
“Upcoming small finance banks and huge digitisation drive by existing banks is taking the competitive advantage of payments banks away,” said Abizer Diwanji, partner and national leader, financial services, EY India. “It has become a crowded space and payments bank is just half a bank…Hence, those who did not have a good network have backed out. Mostly telecom companies will stay, and they, too, would be rethinking their business model.”
This leaves eight potential payments banks — Airtel M Commerce Services (a tie-up between Airtel and Kotak Bank), Department of Posts, Reliance Industries (in partnership with State Bank of India), Paytm founder Vijay Shekhar Sharma, Vodafone m-pesa, National Securities Depository Ltd, Aditya Birla Nuvo and Fino PayTech.
The concept of unified payment interface (UPI) may also limit payments banks’ business in terms of expanding to other businesses, capturing unbanked customers and viability of the business model, with high volume and low-value transactions payment solutions to be offered, said Kalpesh Mehta, partner at Deloitte Haskins & Sells.”
UPI is payment system, which allows virtual transfer of money between two parties across banks. But not everyone agrees. “Nothing has changed (since the guidelines),” said GV Nageswara Rao, MD and CEO of NSDL. “Don’t know why they have withdrawn.”