Payments Bank - An eCommerce Enabler

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Payments Bank - An eCommerce Enabler
One97 Communications Ltd and its founder Vijay Shekhar Sharma, one of the 11 recipients of
RBI’s payments bank licence, have together invested Rs220 crore in Paytm Payments Bank Ltd
to date, ahead of a planned launch in early 2017.
The deferred launch has been largely attributed to pending approvals from the Reserve Bank of
India. “There is a long process of getting all approvals and certification in place,” said Sharma,
adding that the process is in its last lap now.
The e-wallet major already has close to 150 million electronic wallets. It has set a target of 200
million accounts, across current and savings accounts, and mobile wallets, within the first year of
the launch. It aims to touch half a billion accounts by 2020.
Adding fuel to the its cashless journey, yesterday, Paytm launched a new feature in its mobile
app that will allow a merchant’s smartphone to act as a point of sale (PoS) machine, accepting
payments through debit and credit cards.

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Meanwhile, the first payments bank in the country has gone live by Airtel Payments Bank. Airtel
is offering 7.25% interest on savings bank accounts, highest return offered by a bank in India,
with most lenders giving only 4%.
Objectives of Paytm Payments Bank
 One97 is banking on selling products such as loans, insurance and wealth management to
drive revenues. As per the government norms, payments banks are not allowed to lend
themselves, but many are banking on such cross-selling banking products through
partnerships.
 Apart from paying interest on the money parked in payments bank accounts, Paytm plans
to charge merchants nothing when they transfer money from their current accounts to
Paytm payments bank accounts.
The recent demonetization move has made several merchants and people adopt digital payments.
This has created more opportunities for payment banks to prosper.
What does the RBI norm says about Payments Bank?
According to RBI guidelines issued in November 2014, a payments bank will maintain cash
reserve ratio with the central bank. Apart from it, they will be required to invest minimum 75%
of their deposits in statutory liquidity ratio eligible government securities with maturity up to one
year and hold maximum 25% in current and time deposits with other scheduled commercial
banks for operational purposes and liquidity management.

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(Photo: Business Standard)
Here are 10 things to know about payments banks
1) Payments banks will cater to migrant labour workforce, low income households, small
businesses, other unorganized sector entities and other users.
2) Payments banks can take deposits. Deposits up to only Rs 1 lac per person are allowed
currently. They can issue ATM or debit cards.
3) Payments banks cannot give loans or issue credit cards.
4) Customers who do not have the means to maintain minimum balance will be welcomed into
payments banks as revenue will be earned through transaction charges and not on the spread of
interest between deposits and loans.

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5) Payments banks can sell financial products like mutual fund units and insurance policies.
6) Money collected from depositors can be invested either in government bonds or can be
deposited with other commercial banks.
7) Payments banks will allow last mile connectivity; they will make banking available in remote
areas that are not serviced by bank branches currently. For this, payments banks are expected to
piggy-back on their existing retail or other networks.
8) The operations of the payments banks will be fully networked and technology driven from the
beginning.
9) The payments banks will also have a high-powered customer care cell to handle customer
complaints.
10) The minimum paid-up equity capital for payments banks is Rs 100 crore. This means owners
of payments banks have to put in a minimum of Rs 100 crore in return for equity in the company.
Its Scope and Paint Points in eCommerce
Payment banks could be considered as enablers for eCommerce. Where COD has been
drastically reduced due to the demonetization move, Payments Bank can chip in with its
integration of payment services for eCommerce deliveries. However, larger issues like complex
customer behavior, connectivity and nascent stage of digital currency will give rise to questions
on adaptability. The government policies will drive the PSU banks along with their impact on
online marketplace. Cash Management, charges and Channel management will need to be
addressed properly.
Payments Bank has the potential to drive Financial Inclusion where unorganized and
informal channels for payments are in abundance. This gives a great opportunity for
Payments Bank to flourish in India.