The competition in payments bank (PB) space has just heated up further with the entry of Jio Payments Bank Limited. A 70:30 joint venture between Reliance Industries and the State Bank of India, Jio Payments Bank will be competing against more established players like the two-year-old Airtel Payments Bank, Paytm founder Vijay Shekhar Sharma-promoted Paytm Payments Bank, which kicked off last May, and Fino Payments Bank, which followed a month later.
According to The Times of India, H. Srikrishnan, who was earlier with HDFC Bank and Yes Bank, has been appointed MD and CEO of Jio Payments Bank. Reliance Industries reportedly plans to move customers of JioMoney to Jio Payments Bank.
So what are Payments Banks? This is a new bank model visualised by the apex bank in 2013-14 to further financial inclusion. The main difference between this model and traditional banks is that the former can only receive deposits and remittances. PBs cannot offer any financial products, say loans, of their own. Opening an account in a scheduled bank takes time because it requires a lot of documentation and verification. But PBs, being primarily driven by mobile technology, can simplify the process and make it quick and paperless. Furthermore, they can only accept deposits of up to Rs 1 lakh per customer in a savings/current account. Their raison d’etre is to reach out to the unbanked masses, which according to a recent Assocham-EY report is over 19 per cent of our population.
But all this does not mean that PBs are good only for low-income households, migrant workers and those living in the boondocks. Even if you already have multiple banking relationships with the likes of HDFC Bank, SBI and HSBC, you might consider opening a PB account, too, for the following reasons:
A major USP of PBs is their wide distribution network since the model allows retail outlets, fuel stations, post offices, dairy milk collection centres and everything in between to double as a mini bank branch. So there is a good chance that your PB branch will be located a lot closer to you than your regular bank’s nearest branch. Moreover, most of these banking points will operate well beyond normal banking hours.
Avail higher interest rates on a zero balance account
Most traditional banks limit the zero account balance option to the basic savings bank deposit accounts that they are mandated to offer to the underprivileged. Premium customers, who get access to benefits like preferentially-priced product and specialised investment solutions, have to maintain a minimum monthly balance of anywhere between Rs 3,000 to Rs 1 lakh, depending on the bank. The interest that this locked money earns is typically 3.5 per cent for bank balances under Rs 50 lakh.
Airtel Payments Bank and India Post Payments Bank, in contrast, are offering an interest rate of 5.5 per cent, which is more in line with fixed deposit rates, while Paytm Payments bank and Fino Payments Bank offer 4 per cent. And perhaps Mukesh Ambani’s Jio Payments Bank will come in with even more attractive interest rates – Jio’s cut-throat pricing strategy, after all, worked out well in the telecom business.
The icing on the cake: You never have to worry about paying a fine for not maintaining a minimum balance in the account.
Best for cashless transactions
According to Nitin Bhatia, a real estate and personal finance blogger, a PB account provides best of both the worlds, mobile wallets and direct bank debit. After all, the focus of these banks is high-volume, seamless transactions in a secure technology-driven environment.
“Based on my personal experience, I can conclude that a PB account can come handy for monthly online payments. For example, if I earn Rs 1 lakh then I would spend approximately Rs 30,000 online towards grocery, electricity bill, other utility bills, shopping, mobile recharge, DTH recharge, etc. So I transfer this amount from my current account to my PB account for all my online spends,” says Bhatia on his blog nitinbhatia.in. “The best part is that I am earning higher interest on this amount till I actually spend it,” he adds.
All the above certainly does not mean that you should forgo your long-standing banking relationships and park your money in a PB. Apart from the obvious constraints like low deposit limits and the blanket ban on any type of direct lending, PBs can’t help you build credit worthiness. So it’s best as a second-or third – account, with smart juggling.
But, one thing is for sure: The business case for PBs has shrunk considerably in the interim years with the boom in digital payments. Of the 11 entities that had got the ‘in-principle’ approval from RBI to set up payments banks back in August 2015, three players dropped out at the starting line itself, including Cholamandalam and Tech Mahindra. The latter’s MD and CEO, CP Gurnani had explained the decision saying that the intense competition in the space would erode already-thin margins at a press conference in 2016.
It will be interesting to see what the PBs do to remain relevant at such time. In any case, we have two more potential payments banks coming up in the future – to be floated by National Securities Depository and Vodafone M-Pesa.