Rishi Gupta, MD and chief executive officer of Fino Payments Bank, said the payments environment has changed significantly over the years since the licences were issued
By SShritama Bose
Payments banks have requested the Reserve Bank of India (RBI) to allow them to lend money to their customers, people aware of the development told FE. This comes at a time when Aditya Birla Payments Bank has decided to shut shop and India Post Payments Bank is moving to turn itself into a small finance bank.
One of the people FE spoke to said industry-level requests are being made to the regulator and the government for tweaks to the business model. “Lending will be an important element of relaxations to the payments bank model as it exists today. Industry forums have taken this up with the authorities, but we are still waiting to see the outcome of those discussions,” he said.
The industry has taken heart from the RBI’s statement after its last monetary policy meeting that “it has also been decided that more time is needed to review the performance of payments banks before considering the licensing of this category of banks to be put ‘on tap’.” They are seeing this as a hint at easier regulations for the category.
Industry executives say going for payments banks has become especially tough in the last few years as the payments space came to be dominated by fintech players. Payments banks can only accept savings deposits of up to `1 lakh and invest the money in government securities and bank fixed deposits. As a result, their revenues were a sum of the margins they earned on their investments and fees from remittance services. That this was a difficult business proposition became evident to some licensees soon enough – Tech Mahindra, Cholamandalam Investment and Finance and Dilip Shanghvi – who surrendered their licences within months of receiving them in 2015. Lending could offer a way to make the model sustainable.
Rishi Gupta, MD and chief executive officer of Fino Payments Bank, said the payments environment has changed significantly over the years since the licences were issued. “We all came into this business knowing what the model is. Having said that, in the last four years, the ecosystem has drastically changed. Earlier, the ecosystem was largely within the banking system. A lot of fintech and payment companies have entered the mix and to that extent, it has become a little challenging,” Gupta explained.
He said a lot of Fino’s customers, most of them in suburban and rural areas, often ask for small and micro loans as well as merchant loans at their outlets. Some of this is fulfilled with its tie-up with ICICI Bank for gold loans and referral-based loans for some non-banking financial companies (NBFCs) and banks.
The payments banks that continue to function have been able to leverage their existing network to build a customer base and as such continue to see potential in the model. Anubrata Biswas, MD and CEO, Airtel Payments Bank, told FE that the bank continues to see a massive opportunity for payment banks to contribute to digital and financial inclusion through innovative business models. “Airtel Payments Bank is leveraging its technology and distribution strength to serve customers in new and scalable ways. The bank will continue to invest in its operations to acquire a meaningful share of this opportunity.”
Yet, the inability to lend or raise large deposits may continue to plague the payments bank model, with scale being the only mitigating factor. In a recent report, State Bank of India had a few ideas for improving the model. “Some of the suggestions to revive the banks could be: (i) Arrangement with universal bank to automatically transfer funds in accounts exceeding `1 lakh, (ii) Access to Aadhaar-based KYC, as manual KYC is at least three times in terms of cost to e-KYC and (iii) RBI should allow PBs to tie up with third-party services to cross-sell products.
As margins are small, the scale is very important.”