Payments banks: Interest rates shouldn't be a decisive factor

Why would someone who has a savings bank account with a regular commercial bank open an account with one of the new payments banks?

A commercial bank offers a lot more products and services than a payments bank can. However, the latter will offer seamless transactions. Customers will be able to do all types of payments, even buying vegetables or shopping in your local grocery shop, through a payments bank.

This is what Paytm, which launched a payments bank earlier this week, is banking on. “We offer a combination of zero minimum balance, zero charges on digital transactions, a competitive interest rate, seamless transaction to Paytm services like payments, e-commerce and wealth management (digital gold),” says Madhur Deora, its chief financial officer.

At present, there are three in this market – Paytm, Airtel and India Post. For someone not a regular user of Paytm’s payments’ facility, the interest rate for keeping idle cash in Paytm is the lowest, at four per cent. Airtel Payments Bank, launched earlier this year, offers 7.25 per cent on its savings bank account. India Post Payments Bank offers 5.5 per cent. Paytm’s interest rate is at par with State Bank of India, ICICI Bank, HDFC Bank and most other commercial ones.

Where it aims to score is on its ‘zero’ transaction fee and wider reach. Airtel charges 0.5 per cent of the amount for transfers to other bank accounts, though transfers within the bank are free. In the case of the Paytm NEFT/IMPS, all Unified Payment Interface transactions are free. “We believe all digital transactions should be free. There is a cost to us but in the long run, that is better for customers,’’ says Deora.

Paytm has five million merchants as part of its mobile wallet network. They will continue to accept payments via the account as well. While making payment, customers have to choose either the wallet or through the bank account. Some of these merchants will be converted into cash-in/cash-out points and then will function as banking touch points for Paytm. In comparison, Airtel has 1.5 million points where it does offline phone recharges, of which 60,000 would be used as banking points initially.

If you have a KYC wallet but not the payments bank account, you will be able to do remittances and payments, barring NEFT or IMPS, as these are currently available only to banks. A wallet user will also not earn interest on the money and not be able to do cash deposit or withdrawal.

According to Suresh Sadagopan, founder of Ladder7 Financial Advisories, it is unlikely that a payments bank account will have too much money, as it would be used mostly for transactions. Hence, other than the interest rate, one should look at other benefits like acceptance and offers. “Acceptance is very important. Mobile wallets are most convenient for online transactions, as they frequently have offers and customers can earn reward points. They are also useful while travelling, as you need not use your debit or credit card at all. You also don’t have to expose the entire money in your account. Hence, similarly, one might not require a huge balance in their payments bank accounts, too,’’ he says.