All you need to know about Payments Bank

Digitalization has been one clear agenda of our government and ever since the new administration came in the ruling, we are witnessing a remarkable growth. Payments Banks are just a step ahead on the way to becoming cashless. However, the real idea is a brainchild of Indias former governor Raghuram Rajan who emphasized on the need of different bank license. When Prime Minister Narendra Modi came to power with his main agenda as digitalization, Payments banks got a chance to move ahead.

What is a Payments Bank?

A Payments bank is almost similar to other banks in service; one major difference, however, is it operates on a smaller basis. The Reserve Bank of India introduced this concept in 2014 to increase the financial inclusion of small businesses, migrant labor force, and unorganized sectors. RBI has given the nod to 11 entities including, Sun Pharma, Airtel, PayTM, Tech Mahindra, Vodafone, and reliance industry. Payments banks shall confine their activities to remittance services, acceptance of demand deposits, and internet banking.

The in-principle approval granted will be valid for the period of 18 months. Rather than traditional banking, the Payments banks operate their functioning through mobile phones.

What can they do?

• Payments banks can transfer and remittance through mobile phones.
• These banks can offer services like issuing debit cards and ATM cards that can be used on several ATM networks
• They can also enable automatic payment of bills, chequeless transactions, and purchase in cashless.
• They can transfer the money to bank accounts without any cost at all.
• Forex cards can be offered by these banks to travelers that can then be used all over India as a debit and ATM card.
• Forex services are offered at a lower price than that of normal banks.
• Third parties such as Apple Pay can get integrated with these apps.

What they cant do

Payments banks cant offer loans, but they can have deposits of up to Rs 1 lakh. Even interest is given on these balances.

Eligibility to start a Payments Bank

Business correspondents, supermarket chains, companies, real sector cooperative, business correspondents can apply to set up the Payments banks. The minimum capital requirement to set up these banks is Rs 100 crores. The RBI has issued a major rule benefiting the rural area, under which 25% of payments must be in the unbanked rural area. Foreign shareholding will be allowed in these banks.

Why the Payment banks are so important

Payments banks will mainly focus on the organized sectors and empower those who have not transacted in cash. Traditional banks are less likely to open banks in small villages due to less economical value, and that is where Payments banks can be proved beneficial. With the government's drive to shift towards a cashless economy, people can look forward to banking services and Payments banks will be their saviour.

Altogether, Payments banks can play a crucial role in implanting the governments cashless policies.