How Payments Banks are Different From The Standard Banks

The Reserve Bank of India has given license to 11 companies to launch payments bank including Airtel, Indian Post, and Paytm. Out of which Airtel and Indian Post have already launched their payments Banks. The customers can perform all kinds of financial transactions through their accounts with payments bank including utility bill payments and recharging mobile numbers.

Payments banks vs Standard banks

Though payments banks also provide savings bank accounts, there is a huge difference between these and the traditional banks. Read on to know how different these two types of banks are:

1. Services

The significant difference between payments banks and the standard banks is that the former caters to the low-income household, small vendors, unorganized sectors, and the remote areas, the latter provides services to middle scale businessmen, large enterprises, corporate houses, and individuals.

2. Bank accounts

Unlike the commercial banks which offer different types of deposits like savings deposits, current deposits, fixed deposits, and recurring deposits, the payments banks only provide savings and current deposits.

3. No minimum balance

In commercial bank accounts, it is mandatory to maintain a minimum balance in the account monthly or quarterly. However, with payments banks, it is not compulsory for the customer to maintain a minimum amount in the bank account.

4. No service of lending

Unlike the standard banks, payments banks neither provide loans nor issue credit cards. However, payments banks do provide debit cards, which can be used at all the ATMs.

5. Investment

The commercial banks can further invest the money collected in the open market in equities, shares, and various debt instruments. However, the payments banks can only invest the collected money in government bonds, or can further give the money to the commercial banks as an investment.

6. Deposits

In the commercial banks, there is no limit of depositing amount in ones bank account, whether one wants to deposit 1 rupee or crores of rupees. However, in payments banks, the customers can only deposit a maximum of INR 1 lakh in their savings bank account.

7. Technology

The commercial banks have recently started adopting the technology, like mobile banking and e-wallets. However, payments banks are technology driver from the very beginning, as they need technology primarily for the unbanked sectors. In fact, payments banks will rely majorly on mobile phones to expand their banking services to areas where the mainstream banks cannot branch out.

8. Forex exchange

Though the service of Forex is provided by both commercial and payments banks, the latter has to charge less for Forex service as compared to the commercial banks, as directed by the RBI.

9. Capital

As compared to the commercial banks which require an enormous amount of capital investment for set up, the payments banks need only INR 100 crores for setting up.

10. Financial products

Unlike commercial banks which can create products like insurances and mutual funds and hence sell them, the payments banks cannot create such products, but only distribute them ahead.

11. Connectivity

Payments banks are working on the last-mile-connectivity feature, where they will provide services even to the most remote areas, unlike the commercial banks which are limited to the bank branches.

Payments banks hence can be termed as a game changer in the banking industry owing to their two features, i.e. savings account and remittance services. Considering that payments banks operate through e-wallets, the problems of payment is eliminated. Now people who do not have smartphones can also use deposit and withdrawal services of payments banks through mobile services, unlike the standard banks which are limited to bank branches, online banking, and mobile banking.