India’s Payment Banks: A Reality Check
In late 2015, when the Reserve Bank of India gave ‘in principle’ approval to 11 companies to form what we call a payments bank, the model was hailed as a game-changer as it was meant to deepen access to formal financial services in unbanked and under-banked areas and further the agenda of financial inclusion for all.
Two years down the line, the story has died down and the model is attracting severe criticism from all corners, questioning the very feasibility of the model.
The idea of financial inclusion, particularly in developing markets, has always met with challenges pertaining to accessibility and affordability. The RBI and the Government have tackled these challenges in numerous ways and have made substantial progress, but problems remain in reaching out to those who are most vulnerable, namely, the illiterate, low-income and rural population.
As of 2017, 37 per cent of the Indian adult population remain excluded from the formal financial system; 21 per cent of those included do not actively use their bank accounts.
The idea of payments banks came about in this context, the goal being to broaden the reach of payments and other financial services to small businesses, low-income households and vulnerable populations.
The USP was the fact that people could open a bank account almost at their doorsteps with the help of an agent, could make transactions using their phones and had the facility to make deposits of up to ₹1 lakh. On the face of it, the model was a win-win for both consumers and financial service providers, thereby tackling the problems of accessibility and affordability.
Photo courtesy of Ronit Bhattacharje.