Payments banks: How do they operate?

Payments banks are also banks, but with certain restrictions. They cannot undertake lending activities. However, they can accept basic deposits and not term deposits of up to a maximum of Rs 1 lakh per customer. They can issue ATM and debit cards, but not credit cards. (Illustrations: Shyam)

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Payments banks: Their primary role is to provide payments and remittance services and demand deposit products to small businesses and low-income households. Payments and remittances are going to be faster for millions of low-income households which normally in cash transactions. A customer who spends hours to pay up the energy bill or phone bill every month can just open an account in a payments bank and pay the monthly bill through this account. (AP Photo)

Read full story: What are payments banks, here's all you need to know

Payments banks: For customers, payments and remittance services will become faster and cheaper. The payments and remittance services would include acceptance of funds at one end through various channels including branches and business correspondents (BCs) and payments of cash at the other end, through branches, BCs, and automated teller machines (ATMs). Cash-out can also be permitted at Point-of-Sale terminal locations as per the RBI guidelines. The biggest beneficiaries will be utility firms like phone and energy companies. (Reuters)

Read full story: What are payments banks, here's all you need to know

Dipak Gupta, joint managing director, Kotak Mahindra Bank, said payment banks will play a crucial role in fulfilling India’s financial inclusion agenda, and have the potential to change the paradigms of retail banking especially in the payments space. “They will also promote the habit of savings by driving cashless transactions. We are truly excited to participate in this opportunity,” Gupta said. (Reuters)

Read full story: What are payments banks, here's all you need to know

Will payments banks providers be a threat to scheduled commercial banks? RBI Governor Raghuram Rajan says no. “Payments banks won’t be a threat to universal banks. They are an add on to the banks rather than competitors. Payments banks will be feeders to the universal banks,” Rajan said. (Express photo)

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As Raghuram Rajan said, the introduction of payments banks will revolutionise banking, make it very exciting for customers and existing lenders will have to improve the services to retain depositors. But over the medium and long term, they can pose challenges to state run banks especially given the lead they have on technology. That could be a differentiator. (Reuters)

Read full story: What are payments banks, here's all you need to know