By Gaurav Gupta

The payments bank space is going to see some hectic activity in 2016, with the 18 month set-up clock already ticking. This new Payments Bank concept is unprecedented, and it will be an interesting time for both the players and the consumers.

In this series of two articles, I have stacked up the Payments Banks’ players against each another, analysing where they stand in the beginning of this race.

India has over 80 commercial banks, around 60 Regional Rural Banks, more than 90,000 Urban Cooperative Banks and at least 12,000 Non-Banking Financial Companies (NBFCs). Yet 41% [A] of India’s population has no access to banking services, of which 61% [A] live in rural India.

The new vision of financial inclusion in India is based on the JAM trinity, an abbreviation for Jan Dhan Yojna, Aadhar and Mobile. The opening of a bank account is just a step towards financial inclusion, people need to use these accounts actively to really be included.

Banks will now have to come up with simple, non-intrusive solutions for daily customer needs, such as bill payments and remittances, to be competitive.

The RBI clearly believed that the existing banking infrastructure was not sufficient to fulfil this prophecy, and hence chose to create eleven banks called ‘payments banks’. These banks have advantageous, minimalistic regulatory requirements but are restricted in conducting a few activities, such as lending money like a normal bank. These restrictions put a cap on the margins that these banks can earn, and their viability now depends on their ability to generate a large number of transactions. Banks will now have to come up with simple, non-intrusive solutions for daily customer needs, such as bill payments and remittances, to be competitive.

In principle, the RBI’s move seems to be a step in the right direction. Airtel (one of the payments bank licensee) has over 200 million subscribers, which is equivalent to the number of customers with SBI (India’s largest bank). The only difference is that Airtel reaches its customers through its recharge shops to places where SBI cannot even imagine opening a branch.


All the payments bank players can be broadly split into 5 recognisable categories.gaurav g

A. TELECOM PLAYERS – Best Placed With a Huge Subscriber Base and Unparalleled Distribution

Airtel, Vodafone and Idea together have a captive user base of over 500 [B] million subscribers. If each Telco subscriber conducts one transaction a month, it translates to over a billion transactions annually.

Payments banks bring an additional advantage for Telecom players. Existing customers with accounts in Telco payment banks would need a very compelling reason to migrate. Stickiness of customers is likely to increase, which will lead to lower churn rate and increased Average Revenue per Customer (ARPU).

CRISIL’s [C] five year estimates suggest that telcos could capture 15% of domestic remittance market by 2019. Domestic remittance market is estimated to be 800-900 billion rupees with a Compound Annual Growth Rate (CAGR) of 11-13%. Payments banks can earn 1-2% commission on remitted amount.

Airtel via Airtel Money, Vodafone via Mpesa and Idea via Idea Money already run fairly successful money transfer businesses, so a Payments Bank license seem to be a natural progression for them.

A lesser known player, Sun-Telenor, should not be underestimated. It has a fully-owned financial institution in Serbia, and it provides mobile banking services in Pakistan, Bangladesh, Malaysia and Thailand. The company also offers mobile payment services in Hungary. [B]

The upcoming RIL & SBI partnership will also form a formidable challenge. The payments banks could leverage Reliance Jio’s pan-India telecom network and Reliance Retail’s online and offline business model. Tie-ups with SBI will help create the most extensive distribution network in India.

One of the challenges that telcos would need to counter is the lack of customer trust; customers very often complain about incorrect balance deductions by telcos.

B. FINANCIAL SERVICES – Experienced Legacy Players

Both FINO & Chola are experienced legacy players with a primary focus in rural markets.

FINO has over 50 million customers, with a presence in over 500 districts across 26 states. It has opened over 45 million bank accounts, albeit for other banks. FINO Money Mart Outlets (approximately 450) can be converted to bank branches very quickly. [D]

Chola has access to about 4 million customers who are a part of its larger group. It also has 534 branches, with 71% of them in rural areas [E]. Past experience in financial services –  including vehicle finance, home loans, SME loans, investment advisory services, stock broking etc. – helps place this group to launch payments bank operations.

For both the players, the large existing customer base gives them immediate conversion opportunities. The existing network can be converted easily into branch operations. However, both these players face a few challenges:

  • Legacy Mind Set – bound by processes that have plagued the financial services industry.
  • Chola has majority focus on the MSME sector, with no significant experience in financial technology.
  • FINO could jeopardize its existing (banking correspondent) revenues in its attempt to own customer franchise directly under its brand. For example – new bank accounts under its brand would eat away revenues it gets by selling other banks’ products.

C. GOVERNMENT: INDIA POST – Behemoth Unleashed; NSDL to Make up Numbers

India Post is the behemoth unleashed by government of India. The resolve of India Post can be gauged from the very keen statements made by its leadership, especially in the wake of the missed opportunity last year, when it lost, competing against IDFC and Bandhan, to become a full service bank.

A large number of institutions (above 23, including World Bank) have lined up to partner with India Post. This courting is because it has an intimidating network of over 150 thousand branches across the country, of which about 90% are in rural areas with a work force of over 2.6 lakh dak sewaks.[F] Post is present in many far-flung areas of the country, where even nationalized banks do not have branches, and where more people can learn to save money.

People trust Post with their money; they currently have over 6 lakh crores in savings schemes. Technology is emerging as a hindrance to India Post’s success, however by March, 2016, they plan to cover all 25,000 of their full service branches under its Core Banking Solution [F].

A foreseeable challenge for Post could be if the government were to restrain its banking dream, since Post Bank can eat into a significant share of deposits of state-run banks, especially SBI and other PSUs.

One big question is why NSDL was chosen to open a payments bank. NSDL could leverage some of its existing services; it provides permanent account numbers (PAN), enrols individuals for the implementation of the Aadhaar project, and maintains a database (National Skills Registry) of IT/ITeS/BPO professionals. NSDL does have experience in digital investments, and it could find some synergy with digital payments, but they have to start from scratch in a lot of areas to set up the payments banks.

Overall, it is evident that the RBI has focused on a specific group of players to conduct the Payments Bank experiment.

D. CORPORATE: MAHINDRA – Slow Starter With a Lot To Do

Tech Mahindra has an interesting track record of running a technology services business. With inputs from Mahindra Financial Services, it might come up with some interesting offerings. As per published statements, Mahindra is planning to reach out to a million vendors, and target as many as 150-200 million customers over the next five years. [G]

However, challenges inlcude –

  • Limited distribution network of about 1108 branches [G] of M&M Financial services – unless Mahindra decides to rope in the networks of other businesses.
  • Literally starting from scratch in everything including technology, partnerships, merchant enrolment, distribution, servicing and education; “Mobo Money” was launched in Q4, 2015.

E. VENTURE CAPITAL: Paytm – Fearless on Capital Steroids with Technology Support of Alibaba

Paytm, with over $700 million in fresh capital, a wallet user base of 100 million, with a ‘not bothered about profits strategy’ could be one to beat in the urban market. It has so far lead a fairy tale life since it tied up with Uber (December, 2014), which lead to a surge in its wallet usage.

Paytm is backed by Alibaba, the company which brought the Credit Sesame model to China. It could bring in similar technology analytics to the Indian market, which could dramatically change the credit issuance process. Paytm could also go the Alibaba way by launching a Money Market fund, similar to BAO in China.

The challenge for Paytm is that it is essentially a technology company operating in the virtual transaction space, one which does not have physical retail networks, particularly in rural areas, where a large section of the currently unbanked population resides.

Overall, it is evident that the RBI has focused on a specific group of players to conduct the Payments Bank experiment. The 11 players are not at the same starting point. Some of them have assets and competencies available from their other lives, which could make a huge difference in the break-even time frame. In my next article, I disintegrate the groups and evaluate each of the players individually.

Gaurav Gupta is an alumni of IIM Ahmedabad. He has extensive experience helping companies transform businesses using digital. He can be reached at









Posted by The Indian Economist