{"id":21585,"date":"2024-02-14T17:25:58","date_gmt":"2024-02-14T11:55:58","guid":{"rendered":"https:\/\/www.nextias.com\/ca\/?p=21585"},"modified":"2024-02-14T17:59:25","modified_gmt":"2024-02-14T12:29:25","slug":"need-for-new-business-models-for-payments-banks","status":"publish","type":"post","link":"https:\/\/www.nextias.com\/ca\/editorial-analysis\/14-02-2024\/need-for-new-business-models-for-payments-banks","title":{"rendered":"Need for New Business Models for Payments Banks\u00a0"},"content":{"rendered":"\n<p><strong>Syllabus :GS 3\/Economy&nbsp;<\/strong><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>In Context<\/strong><\/h2>\n\n\n\n<p>The RBI\u2019s recent supervisory action on Paytm Payments Bank has sent ripples across fintechs<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>&nbsp;The latest move was after an audit report had revealed \u201cpersistent non-compliances&nbsp; with regulatory guidelines and continued material supervisory concerns in the bank\u201d.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>About Payments banks<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Payments banks as a category of banks were introduced in <strong>2015 <\/strong>by RBI, to bridge the gap between traditional banking services and the unbanked population, particularly in rural areas.&nbsp;&nbsp;<\/li>\n\n\n\n<li>These banks were envisioned to leverage technology to offer basic banking services, focusing on financial inclusion and digital transactions.&nbsp;&nbsp;<\/li>\n\n\n\n<li>According to the rules of the payment banks, these cannot lend any money and can accept deposits only up to Rs 2,00,000.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Scenario In India&nbsp;<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>India has been having a fantastic journey on mobile payments over the last decade.<\/li>\n\n\n\n<li>&nbsp;It started off with IMPS (Instant Mobile Payment System) by NPCI during 2010.<\/li>\n\n\n\n<li>Launch of UPI in 2015 took mobile payments to a global scale.&nbsp;<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Importance&nbsp;<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Payment Banks would play an important role in bringing the unbanked masses into the realm of general banking.\n<ul class=\"wp-block-list\">\n<li>Because it is not feasible or economical for banks to open branches in many areas.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>Payment banks can also play a<strong> crucial role in implementing the government\u2019s <\/strong>direct benefit transfer scheme, where subsidies on healthcare, education and gas are paid directly to beneficiaries\u2019 accounts.<\/li>\n\n\n\n<li>The payment banks through the mobile phones will be promising a low cost platform for providing basic banking transactions, particularly; payment for services and subsidies.<\/li>\n\n\n\n<li>It accelerates formalisation of the informal economy besides deepening financial inclusion for credit and insurance.&nbsp;<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Challenges faced by Payments Banks<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Operational : <\/strong>Payment banks are not allowed to lend and they may only distribute and collect loans online in partnership with other regulated lenders.\n<ul class=\"wp-block-list\">\n<li>They just<strong> cannot generate enough revenues<\/strong> and prosper merely on the revenues from payment services .<\/li>\n\n\n\n<li>Most of the payment banks are <strong>struggling to be profitable.<\/strong><\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Competition with existing players : <\/strong>&nbsp;As<strong> banks already have infrastructure <\/strong>for mobile banking in place with low cost remittance alternatives, payment banks on the other hand find it difficult as they would have to start establishing everything from scratch.\n<ul class=\"wp-block-list\">\n<li>The success of UPI and launch of AEPS (Aadhaar Enabled Payment systems) had disrupted the payment ecosystem .<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Awareness issues: Most of the population in India <\/strong>vastly resides in<strong> rural and semi- urban areas<\/strong> who are mostly less educated with limited knowledge of using technology and literacy constraints for availing services.<\/li>\n\n\n\n<li>The other issue relates to its <strong>governance structure<\/strong> and related party-transactions<\/li>\n\n\n\n<li>There is irregularity in digital infrastructure.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Conclusion and Way Forward&nbsp;<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>India is an emerging growing market where the usage of smartphones is rapidly increasing and here Payment Banks can play an important role in emphasizing the growth of<strong> financial inclusion<\/strong> and tapping all the corners of the country progressively.&nbsp;<\/li>\n\n\n\n<li>It is also expected to accelerate India\u2019s journey into a cashless economy.<\/li>\n\n\n\n<li>&nbsp;People should be encouraged to join the <strong>digital economy<\/strong> by migrating cash-based customers into digital networks .<\/li>\n\n\n\n<li>The Reserve Bank expects payment banks to target India\u2019s migrant labourers, low-income households and small businesses, offering savings accounts and remittance services with a low transaction cost.\n<ul class=\"wp-block-list\">\n<li>It hopes payments banks will enable poorer citizens who transact only in cash to take their first step into formal banking.&nbsp;&nbsp;<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>The RBI needs to design a new framework for payment banks and there is also a need to look at issues and challenges of payments banks in general and explore the way forward.<\/li>\n<\/ul>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-background\" style=\"background-color:#ebecf0\"><tbody><tr><td><strong>Mains Practice Question&nbsp;<\/strong><br><strong>[Q] <\/strong>Payments banks are a step in the right direction to bring India\u2019s unbanked and underserved segments into the formal finance structure. Comment on&nbsp;this statement.<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<div class=\"wp-block-buttons is-layout-flex wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button\"><a class=\"wp-block-button__link wp-element-button\" href=\"https:\/\/www.nextias.com\/ca\/wp-content\/uploads\/2024\/02\/Daily-Editorial-Analysis-14-02-2024.pdf\">Download PDF<\/a><\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Syllabus :GS 3\/Economy&nbsp; In Context The RBI\u2019s recent supervisory action on Paytm Payments Bank has sent ripples across fintechs About Payments banks Scenario In India&nbsp; Importance&nbsp; Challenges faced by Payments Banks Conclusion and Way Forward&nbsp; Mains Practice Question&nbsp;[Q] Payments banks are a step in the right direction to bring India\u2019s unbanked and underserved segments into [&hellip;]<\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[22],"tags":[],"class_list":["post-21585","post","type-post","status-publish","format-standard","hentry","category-editorial-analysis"],"acf":[],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/21585","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/comments?post=21585"}],"version-history":[{"count":5,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/21585\/revisions"}],"predecessor-version":[{"id":21595,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/21585\/revisions\/21595"}],"wp:attachment":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media?parent=21585"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/categories?post=21585"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/tags?post=21585"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}