How will payments banks help you?

Unbanked customers can expect easier access to banking, while those who have bank accounts can look forward to further innovations in payment space

To make a payment using a debit card, you have to hand over the card to the merchant who then swipes it. Only after you key in your Personal Identification Number (PIN) is the transaction complete. Once payments banks become operational, you might be able to transfer money directly from your account to that of the merchant using the mobile phone.

Shaswat Sharma, partner — management consulting, at KPMG says, the evolution of payment banks would be like those of credit cards. “These banks will appoint their merchants and users would be able to pay them electronically. This means, you could soon be using your mobile to transfer funds to a retail store or at a restaurant. You could also be making payments to the milk man and domestic help through your mobile rather than going to the bank, withdrawing cash and then handing it over to them,'' he says.

Services like paying utility bills, booking train tickets and fund transfers could see an improvement as banks will offer innovations. For instance, today if you have to transfer money to someone via net banking, you have to first add the person as a beneficiary, with details like bank account number, bank's IFSC code, among other details. With payments banks, you may be able to do this without going through the hassle of adding people, authenticating it through passwords and so on.

While some universal banks have introduced innovations such as fund transfer through social media like Facebook, Twitter and WhatsApp, these have so far not reached the mass audience. “With payments banks, the vast segment of customers who have no access to such products will be able to get the advantage of the digital channels and digital technology for regular banking services. The current generic payment applications may not be suitable for all customer segments,” says Vijay Mani, senior director, Deloitte in India.

A labourer working in a metro, today spends about half a day in a queue at the local bank branch to transfer money to his family in the village. With a payments bank account, he may be able to do it through his phone which need not even be a smart phone. The use of technology will be critical for payments banks to attract customers.

Payments banks may incentivise customers for using electronic transfers as they would not want to invest too much money in expanding branch or ATM networks. Another model could be to use agents who will go to the customers' houses. “The regulation does not require payments banks to have branches, but only customer touch points. These could even be the local retail stores. Once the customer gets the password, it can be keyed into the machine and the banks’ agent can carry out the transaction on behalf of the customer,” says Mani.

You can deposit and withdraw money, use cheque books, ATMs, transfer funds, buy mutual funds and insurance from payments banks. But unlike a regular bank, you can maintain only up to Rs 1 lakh in a payments banks account.  Besides, as payments banks are not allowed to give loans, customers will have to depend on regular banks for their credit requirements.

For customers who already have bank accounts, a payments bank account can be an additional one from which they can carry out all their remittance and transactions electronically. They can avoid handling cash.

For unbanked customers, a payments bank account will provide the much-needed access to banking services.