May-2015

BANKING
INTRODUCTION OF
PAYMENT BANK IN
INDIA: PROSPECTS AND
CHALLENGES
It is needless to say that there is a strong business case for payment
banks in India because a sizeable portion of the country’s population
remains outside the ambit of formal banking
Dr. Goutam Bhowmik
Asst. Professor,
University of Gour
Banga, Malda
THE last one and half decades witnessed
a rapid development and
proliferation of internet and mobile
technologies which has profound impact on
the payment system. The ability to connect
different system participants securely, switch
transactions online and settle funds accurately,
combined with delivering a more convenient,
cashless and superior customer experience
have resulted in several innovations in
retail payments. Traditionally, retail payments
were the domain of banking services. In recent
years, the role of non-banking institutions
in retail payments has increased significantly
owing to the increasing penetration
of technology. Now, non-banking institutions
are allowed to compete in what were previously
near oligopolistic areas for banks. On
the other hand, there have been a series of
policy responses to the changing landscape
of Financial Inclusion and Payments globally.
The proliferation of non-bank participants in
facilitating payment services, such as business
correspondents (BC), Prepaid Payment Issuers
(PPI) and Mobile Network Operators
(MNOs) has generated different approaches
to delivering financial services access to hitherto
un-served and under-served populations.
Inspite of all these, a vast majority of the
people living in the urban and semi-urban
areas are still outside the reach of banking
facilities. Differentiated banking structure is
needed to respond to the difficulties faced
by certain underserved segments of the population.
It is because of these reasons, the
RBI constituted Nachiket Mor Committee
(2014) on “Comprehensive Financial Services
for Small Businesses and Low Income
Households” which proposed introduction
of new class of bank called ‘Payment Bank’
(PB). The concept of PB is not a novel idea.
It has been inspired by Kenya’s M-Pesa, a
company of Vodafone, which created a stir in
the African country by transferring cash via
mobile phone on a mass scale. A mini version
of M-Pesa is already up and running in India
through RBI licensed PPIs. In this backdrop,
the present paper aims at capturing the con-
88 the MANAGEMENT ACCOUNTANT MAY 2015
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