May-2015

pected to grow at 10-15% annually. This also offers PB
to earn commission to boost up their revenue.
• Last but not the least, the utility bill payment market
with annual growth rate around 20-22% and mobile
recharge market with annual growth rate of 8-10% offer
some opportunities for PB to generate revenue.
• Inspite of the massive opportunities that payment Bank
would have, there are some challenges also as they are
not full-fledged banks offering the whole gamut of
product and services. Some of the challenges before
the PB are underlined below:
Non-Lucrative for Non-Telecom Firms: Non-Telecom
entities will be at a disadvantageous position compared
to Telecom firms when it comes to setting up PB
because they will have to make significant investment towards
expanding their distribution network, technology
infrastructure and brand building. The earnings from remittance
services may not be sufficient for them to cover
up distribution, marketing and technology related cost
for at least few initial years.
Partial Fulfillment of Financial Inclusion: Financial
inclusion is a wider term than mere “payment/money
transfer”. Financial inclusion means access to complete
bouquet of financial services — banking, investment,
insurance, pension – everything. But that’s very difficult
to achieve through Payment bank system as because the
model does not allow PB aspirants to lend money for
productive purposes.
Small Players Affected by Price Wars: Schedule
commercial banks also permitted to run Payment banks
through their subsidiaries. That defeats the whole purpose
because big commercial banks with larger resource
base and manpower are allowed to start a payment bank
then other small player’s cannot compete, and they’ll
bleed in price wars.
Stiff Competition: The PBs will face stiff competition
both from the large players like commercial banks and
other players who operate through a huge network of
franchisees but not get the PB license. The competition
will become more intense as commercial banks are expanding
into semi-urban areas – a key market for payment
banks.
Conflict of Interest: PB model can generate conflict
of interest arising out of difference in mobile service
providers and PB service providers. If the mobile service
provider do not cooperate and charges higher for banking
services for the account maintained in other group
of service provider, then the whole PB model will fail
to generate the desired result. But the problem of conflict
of interest can be controlled if all mobile companies
are compelled to provide Unstructured Supplementary
Service Data (USSD) connectivity as per recent TRAI
regulations (Rs 1.5 per 5 interactive sessions) and `to categories
all SMSs related to banking and financial transactions
as Priority SMS services (with reasonable rates).
Concluding Observations
The RBI guidelines on PBs are aimed at setting up
institution that will help in achieving the broad objectives
of financial inclusion. They will provide the rural
and unbanked population access to wealth creation
and remittance services through technology driven
low cost transaction model. It will also offer an opportunity
for NBFCs which already have operations
in rural areas to convert into small bank to access low
cost deposit to meet their funding requirement. 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. Potential licensees would hope to
capitalize on the synergies the payments bank business
is likely to have with their existing businesses (exploiting
already existing distribution network, providing a
wider suite of services to customers, enhancing customer
stickiness and brand recall, etc.). But the business
is unlikely to be profitable on a standalone basis
in the medium-term; profitability would kick in once
business volumes gain traction. Given the challenges
before the PB, it will not be an easy roadmap for the
upcoming payment banks.
References
1. Crisil (2014), “Payment Bank Tailor Made for Telcos”,
Crisil Research, Mumbai
2. KPMG (2013), “Indian Banking – The Engine for
Sustaining India’s Growth Agenda”, 5th ICC Banking
Summit, Kolkata
3. Mor, N. (2014), “Report on Comprehensive Financial Services
for Small Businesses and Low Income Households”,
RBI, Mumbai.
4. Raman, A. (2014), “Payment Banks: Support Policy
Framework for Enhancing Viability and Inclusion”, Policy
Paper, UNDP, New Delhi
5. RBI (2014), “Final Guidelines on Licensing of Payment
Banks”, Mumbai
ramagoutambhowmik@gmail.com
www.icmai.in
MAY 2015 the MANAGEMENT ACCOUNTANT 93