'Telecom firms ideal candidates to set up payment banks'

Telecom companies are best suited to start payment banks due to their high user base and strong distribution network, ratings agency Crisil today said while raising doubt about revenue contribution of such ventures.
Other potential players, including India Post, business correspondents, prepaid payment instrument providers and retail chains, would be at a "disadvantage" as compared to telecom companies, Crisil's research unit said in a note.
"We believe that telecom operators are ideal candidates to set up payment banks, given their significant customer base in rural areas and well-entrenched distribution networks," Crisil said in a note released a day after the RBI issued its final guidelines on setting up payments banks and small finance banks.

Citing an example, it said that the country's largest telecom operator Bharti Airtel sells its products through 1.5 million retail outlets.
Many telecom companies already offer m-wallet services for remittances and bill payments, which has seen transactions triple to Rs 27 billion in the last two years, it said.
Telecom companies running payment banks makes "strategic sense" as it improves their "connect" with customers, the note said.

However, this business is unlikely to be a revenue driver for telecom companies, it said, adding that even after five years, revenues from payment banks would be less than one per cent of overall revenues of telecom firms.

It would also be very difficult for telecom players to attract deposits as one needs to invest in the brand and earn the confidence of people, it said.
Crisil Research said that in five years, payment banks would account for a minuscule 0.5 per cent of the low-cost CASA deposit base of the industry.
Other contenders like India Post, business correspondents, prepaid payment instrument providers and retail chains, would have to invest a lot to launch such services.
"All of them would have to incur a much higher cost compared to telecom operators to set up competitive distribution networks and gain customers," the note said.

The note also sounded concerned about profitability, saying that the business is unlikely to be profitable on its own in the medium-term, though profitability may kick-in once volumes rise.