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About 40 per cent of India’s 1.2 billion people are unbanked but 80 per cent use a mobile phone. So, telecom operators would have a natural advantage in getting these people to its payment bank entities.
Some telcos already offer mobile wallet (m-wallet) services. Bharti Airtel, Vodafone India, Idea Cellular, Tata Teleservices and Aircel, for instance, with a pan-India presence. Regional entities such as Uninor and Sistema Shyam Teleservices are also studying the possibilities, to tap the potentially lucrative business segment.
A Mumbai-based equity analyst says it would also create a good opportunity for Reliance Jio Infocomm, which is yet to start commercial operations, as this might be an avenue for the Reliance Group to explore the finance sector.
There are different views on the financial gains. Rajan Mathews, director-general, Cellular Operators Association of India (COAI), pegs it at around five per cent when the payment banks business for telcos get a scale. For, it would primarily be restricted to cash-out transactions and bill payments in the initial years.
Equity research firm Credit Suisse had, after the initial guidelines, pegged mobile payments to be only 1-1.2 per cent of telecom sector revenue. On a more liberal view, it said in its note, it could also be a “seven-eight per cent revenue upside”.
CRISIL Research, on Friday, said telecom operators were ideal candidates to set up payment banks, considering their customer base and distribution networks in rural areas. Bharti Airtel, Vodafone India, Idea Cellular and Aircel have been offering mobile wallet services for remittances. Value transactions through m-wallet, CRISIL said, had more than tripled in two years to Rs 2,700 crore in 2013-14, indicating the huge business potential.
However, CRISIL further said, payment banks as a segment are “unlikely to add significantly to the top line of telecom operators”. The research firm believes even five years after launch, the contribution of payment banks to their overall revenues would be less than one per cent.
“While telecom operators are likely to capture around 15 per cent of the domestic remittances market by then, luring deposits is another ball game altogether because they will have to invest in brand building and gain the trust of depositors. As a result, we forecast payments banks will have a minuscule share of less than 0.5 per cent of the current and savings account deposits of the Indian banking system five years after launch,” it said.
According to Jaideep Ghosh, partner, KPMG in India, telecom companies can start the service as soon they get a licence, as they already have the infrastructure and network in place. “They also are used to running a low-margin and high-volume business. It certainly opens an avenue for revenue generation for the companies. On the other hand, there would be a lot of new entrants,” he added.
However, Ghosh also noted, a payment bank as a vehicle for financial inclusion could clash with the other schemes the government floated recently, such as the Jan Dhan Yojana.
As a payment bank, telcos will be able to accept deposits and remittances but cannot lend.
Bharti Airtel and Vodafone India, the country’s top two cellular operators by subscriber base, already offer payment instruments — Airtel Money and Vodafone M-Pesa. However, these companies can’t offer transactions that involve cash transfer, owing to regulatory restrictions.
“We are evaluating the detailed document and a decision will be taken after due assessment of the new norms. Telenor Group offers successful mobile banking solutions extending the benefits of banking to the unbanked in other Asian and European countries,” said a spokesperson at Uninor.
Spokespersons at Bharti Airtel, Vodafone, and Idea Cellular declined to comment on the issue, saying the detailed guidelines were being examined.
Pramod Saxena, founder of m-wallet service provider Oxigen Services India, said: “There are a lot of positives for the sector and, overall, the final policy is in line with considering m-wallet as serious business, developed over a period of time.”
An independent m-wallet service provider would have an edge over telcos and other new entrants, he added, as the operational dynamics were different.
“The move will boost mobile banking services and financial inclusion. Mobile payments could not be expanded as telcos were unable to offer cash-out transactions. Though RBI’s proposals don’t allow telecom operators to set up banks to lend, we believe they will allow cash-out transactions, which enable a consumer to withdraw at any location. This can be a game-changer to boost mobile payments and financial inclusion in India as in Africa,” said Mathews of COAI.
He said the rules that restrict 100 per cent ownership of foreign entities were a dampener for telecom operators, as they need to get a partner for this business.
“The licence to operate as a payment bank solves this problem,” said a senior executive of a telecom operator. “M-wallet did not take off properly so far as there was no real cash transaction. The retail network and infrastructure is in place for these companies. They just need to get the licence to operate as payment banks.”
As payment banks would be able to invest in government bonds, this would enable telcos to offer higher interest rates on deposits and this might attract inactive money parked in savings bank accounts.
