Reserve Bank of India Prohibits Airtel, Vodafone & Idea From Using Existing Channels for Payments Banks Business

Monday, December 1, 2014

The Reserve Bank of India’s final rules on payments banks prohibit telecom operators from leveraging their nationwide retailer networks and channels if they enter the new business, but analysts say this is a good opportunity for mobile phone companies to add another revenue stream given their existing consumer connect.

“It is a good opportunity for all the players who want to get into payments banking,” said Hemant Joshi, partner, Deloitte Haskins & Sells. However, he added that the “ring-fencing rider would delay financial inclusion and make telco-backed payment bank roll-outs more expensive”, especially if mobile operators are unable to leverage their existing retail penetration.

The ring-fencing clause, which was part of the guidelines issued late Thursday, means telecom service providers such as Bharti Airtel, Vodafone India, Idea Cellular and Reliance Communications will not be able to use their existing channels for the payments bank business.

An analyst at a foreign brokerage said that the rule would compel operators planning to set up payments banks to invest afresh in retailer and distribution networks purely to support banking operations. “But this could defeat the business case of telcos diversifying into mobile banking,” said the analyst, who did not wish to be identified.

Source: The Economic Times (link opens in a new window)

financial inclusion