NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

I have been in many conferences about financial inclusion that identified the lack of a geographically deep and wide, efficient, low-cost and safe payments system as the starting point of financial exclusion. And every round table, every conference would end up bashing the banking regulator after, of course, a quick look round the room to ensure that nobody from the Reserve Bank of India (RBI) was there. What do mobile operators who offer e-wallets and other prepaid payment instruments (PPIs) want? Freedom from banks has been one of the core demands. A non-bank payment entity, such as a mobile wallet or a PPI company, is forced to tie up with a bank to provide the cash-out facility. This has its own set of issues in terms of cost and lack of protocols for this part of the market.

When I read the Nachiket Mor Committee report on financial inclusion, which recommended the conversion of willing payment entities into payment banks and the mandate to set up white label business correspondents, or BCs (like white label ATMs, these BCs can cash in and out for multiple entities), I thought we were closer to the goal. So, I was frankly surprised at the lack of a reaction from PPIs and mobile wallet companies. Let me explain the payment bank concept first. And then move on to the surprise.