Payment banks are a new model of banks conceptualized by the Reserve Bank of India (RBI). The aim of payment banks is to promote digital, paperless and cashless banking in India. Payment banks in much the same way as traditional banks, offer interest on deposits in savings accounts made with them.
Payments banks are rising in India and will soon give strict competition to traditional banks. So...Traditional banks better pull up their socks. Airtel Payments Bank Ltd. was the first payment bank in India and offers you an interest of 7.25% on deposits in savings accounts made with them. India Post Payments Bank offers an interest of 5.5%, while Paytm Payments Bank and Fino Payments Bank offer interest rate on deposits in savings accounts at 4%.
Now, to the big question. Why are payment banks important for India? Let's find out. Want to know more on fixed deposits? We at IndianMoney.com will make it easy for you. Just give us a missed call on 022 6181 6111 to explore our unique Free Advisory Service. IndianMoney.com is not a seller of any financial products. We only provide FREE financial advice / education to ensure that you are not mis-guided while buying any kind of financial products.
Payment banks have one and only one purpose.... looking after the banking needs of the underbanked in India. Payments banks go where traditional banks don't. Many traditional banks do not open branches in extreme rural areas in India.
Many of the poor citizens of our country have been left out of the ambit of banking services in India. Payment banks can bridge this gap and make sure banking services reach the doorsteps of each citizen of India and promote financial inclusion in the country.
1. Payment banks help the poor in India
Payment banks help you, poor migrant workers and citizens of low income households avail banking services in the country. Soon payment banks will pull all these citizens into the formal banking system in India.
You and other poor citizens migrate to big cities in search of jobs and a better lifestyle. How will you and other poor migrants send hard earned money to your parents back home?
Perhaps...ask friends and relatives to carry money when they go there on a visit. This money could be stolen or friends might not give the entire amount to your parents. This is where payment banks come in.
You can deposit money up to a maximum of INR 1 Lakh in payment banks. Payment banks have a tie-up with commercial banks to offer ATM transactions to you and other customers. Some payment banks offer 5 free transactions in non-metro cities. After this you will be charged INR 20 for a cash withdrawal and INR 8 for non-financial transactions.
See also: Types Of Cheques
Some payment banks offer you the RuPay debit cards so that you can easily withdraw money when you need it. You can also withdraw money, using cheque books offered by payment banks. Isn't this really convenient?
2. Payment banks reach citizens where traditional banks can't
Many traditional banks may not have branches in very poor villages. It just doesn't make business sense...Then it's very difficult to open branches in all villages in India. Unfortunately, this also means that poor citizens do not get access to banking services.
Payment banks can easily reach these citizens through mobile phones. They don't need to open branches in these villages. Payment banks use your Aadhaar number for e-KYC and your mobile number as an account number.
You can remit and transfer money to friends and relatives in seconds using your mobile phone. Mobile penetration is around 75% in India. It could rise to around 90% by 2020.
So, payment banks can easily reach citizens in all parts of India using mobiles. Yes, payment banks cannot lend or issue credit cards. But...these payment banks have tie-ups with traditional banks to offer you loans, insurance and mutual funds.
Payment banks encourage micro-savings. You can deposit an amount as low as INR 100 and inculcate the savings habit. How many banks encourage micro-savings?
How payment banks make money?
You deposit money with a payment bank. Out of every INR 100 you deposit, the payment bank deposits around INR 75 in approved Government securities and INR 25 in current and fixed deposits of commercial banks. Government banks and fixed deposits give payment banks an interest of around 7%, but this limits the ability of payment banks to offer good returns.
Some Payment banks have tie-ups with traditional banks and earn money through transaction fees on banking activity. They also cross-sell loans insurance products and mutual funds by having tie-ups with banks, mutual fund houses and NBFC's. They earn money through fees and commission. This helps them offer higher returns.
Payment banks have a role to play in the growth and development of India. If the goal of financial inclusion or banking and insurance services reaching the doorstep of every citizen has to come true, then payment banks have to play their part. Be Wise, Get Rich.
The research team at IndianMoney.com comprises of certified and experienced professionals who share the company's vision to make every Indian financially literate by equipping every Indian with right and unbiased advice. IndianMoney.com research team provides newsletters, articles, videos and FAQs on various financial products and concepts only to help you make wise financial decisions.
Subscribe to our Youtube Channel
Hello friend! I am your personal financial advisor. By the end of this interactive session, I will help you to plan yours and your family's finances to ensure a better future.