Letters: Payment banks can work

This refers to "Payment banks: Spot the difference" (October 21) by Madan Sabnavis in which he argued against the utility of payment banks in our ecosystem for banking inclusion. Post office deposits and Jan Dhan Yojana do provide access to institutionalised financial products but they may not address the issue of providing an innovative, convenient and safe method for banking transactions and, hence, the issue of these accounts lying dormant.

If we examine the services and products that the top seven banks (private and public sector) offer, we will find few differences. The government proposed new universal banks to stir up competition in banking services. Though we may agree that the framework of our regulation leaves little room for innovation in banking products, there is huge scope for improvements in services. Universal banks generate revenue through assets, so they have little incentive to innovate and invest capital in transforming payment services.

But India's huge floating population constitutes a large market for payment services, and the prospect of earning revenue through them. It is against this background that the Reserve Bank of India (RBI) recently issued guidelines that disincentivise withdrawal of money from ATMs. Since we can't charge for cash transactions, the only option is to disincentivise ATM cash withdrawal transactions and encourage customers to increase the use of cards at points of sale or to use other methods of cashless transactions.

This is the context in which payment banks fit perfectly into our banking framework. First, a new player will stir up competition by offering safe, secure, interoperable, accessible, inclusive and, therefore, more efficient transaction services in geographical areas by using technology. The new payment bank has to generate revenue by offering payment services (or money transfer services) using innovative methods in a hassle-free manner to make it popular for the masses. There is no dearth of customers waiting for better and reliable services.

RBI has allowed payment banks to operate through branches, banking correspondents and mobile banking. Payment banks can adopt direct banking (that is, it can exist only on the internet) in major cities and tier-I locations and establish physical infrastructure in smaller towns and villages. We can all agree that the costs of establishing physical infrastructure and maintenance are much lower in smaller towns and villages than in the larger cities.

Thus, the institute of payment banks intends to achieve dual purposes: (a) stirring up competition in the payment space where we have seen innovation only after a continuous push from regulators or government; and (b) by providing a reliable, interoperable, convenient payment services on mobile in local languages, a pragmatic and near rival of cash transactions

In short, the payment banks can revolutionise payment services and extend all the facilities of institutionalised banking products and services to make financial inclusion truly inclusive.

Santosh Singh Mumbai

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