Opinion: The Achilles’ Heel For Payments Banks And Financial Inclusion
The RBI’s latest operating guidelines for payments banks permit payments banks to “use KYC done by the promoter / promoter group entity”, if it “is of the same quality as prescribed for a banking company”. This will allow payments banks to leverage their existing telco customer base, and (where KYC has been done to prescribed standard) send out SMSs offering to open an account at the click of a button.
Telco payments banks have hundreds of millions of customers that they can thus approach and activate almost instantaneously. For example, Airtel has 255 million customers – though what proportion of these have been subjected to banking quality KYC may be subject to discussion.
MicroSave’s analysis already highlighted that telco-promoted payment banks have a range of operational advantages arising from the scope and scale of their operations and existing agent networks. Our analysis of the business case, with conservative estimates, concluded that a mid-sized telco payment bank should break even in Year Five. Importantly, the Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA) margin grows rapidly from Year Five and is estimated to be 30-35 per cent by Year Eight.